More and more evidence is mounting of a coming economic apocalypse, but the source is scary – this is coming from the biggest government central banks.
Growing government debt is threatening to toss the world into recession.
Will this be the “Mother of all Recessions?”
With so much U.S. debt owed to China, their coming financial problems are going to become American problems.
Bank for International Settlements (BIS) is an international financial organization owned by 60 member central banks, representing countries from around the world, that together make up about 95% of the world’s GDP.
The mission of the BIS is to serve central banks in their pursuit of monetary and financial stability, to foster international cooperation in those areas and to act as a bank for central banks.
So this news is particularly unsettling because of the source.
From the UK Independent:
A new financial crisis is brewing in the emerging economies and it could hit “with a vengeance,” an influential group of central bankers has warned.
Emerging markets such as China are showing the same signs that their economies are overheating as the U.S. and the UK demonstrated before the financial crisis of 2007-08, according to the annual report of the Bank for International Settlements (BIS).
Claudio Borio, the head of the BIS monetary and economic department, said a new recession could come “with a vengeance” and “the end may come to resemble more closely a financial boom gone wrong.”
It predicted that central banks would be forced to raise interest rates after years of record lows in order to combat inflation which will “smother” growth.
The group also warned about the threat posed by rising debt in countries like China and the rise in protectionism such as in the U.S. under Donald Trump, City AM reported.
This report comes out just when Moody’s just lowered China’s credit rating, further signaling a growing financial crisis.
From the British financial paper, City AM:
Moody’s has downgraded China’s credit ratings for the first time in more than 25 years, forecasting the financial strength of the economy to deplete as growth slows and debt rises.
The ratings agency brought China’s long-term local currency and foreign currency issuer ratings down a notch from A1 to Aa3. It also changed its outlook for China from stable to negative.
In a statement, Moody’s said the downgrade reflected expectations that China’s financial strength would “erode somewhat over the coming years, with the economy-wide debt continuing to rise as potential growth slows.”
The downgrade gave Asian stocks some cause for concern, with China’s Shanghai Composite index falling more than one percent before paring losses, while MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.3 percent. The downgrade could also raise the cost of borrowing for the Chinese government.
China’s finance ministry said Moody’s was exaggerating the mainland’s economic difficulties and underestimating reform efforts.
While ongoing progress on reforms is likely to transform the economy and financial system over time, it is not likely to prevent a further material rise in economy-wide debt, and the consequent increase in contingent liabilities for the government.
Many Americans remember the last recession that followed the “Bailout” after Obama’s election. Nearly 2.6 million people lost their jobs.
City AM reports:
While the last global financial crisis was triggered by sub-prime debt lent to American households, the Chinese debt load is spread through both corporates and households.
Chinese corporate debt has almost doubled since 2007 to reach 166 percent of GDP, while household debt jumped in the last year to 44 percent of GDP.
Meanwhile the BIS’s so-called credit-to-GDP gap indicator shows debt is building up far above long-term averages. The measure, an “early warning indicator” for a country’s banking system, shows China, Hong Kong and Thailand are extended far beyond other major economies.
The growing debt of individuals, corporations and the biggest debtor of them all, government, is creating a ticking time bomb that will likely affect all of us.