The global economy reportedly is imperiled by “a multitrillion-dollar problem that could sap the strength of large economies for years to come.”
The problem is “the giant, stagnant pool of loans that companies and people around the world are struggling to pay back,” The New York Times warns. “Bad debts have been a drag on economic activity ever since the financial crisis of 2008, but in recent months, the threat posed by an overhang of bad loans appears to be rising,” the report said.
“China is the biggest source of worry. Some analysts estimate that China’s troubled credit could exceed $5 trillion, a staggering number that is equivalent to half the size of the country’s annual economic output,” the Times explained.
But there are other trouble spots around the globe:
- In Europe, analysts say bad loans total more than $1 trillion.
- Bad loans are on the rise at Brazil’s biggest banks, as the country grapples with the effects of an enormous credit binge.
“Wherever governments and central banks unleashed aggressive stimulus policies in recent years, a toxic debt hangover has followed. In the United States, it took many months for mortgage defaults to fall after the most recent housing bust — and energy companies are struggling to pay off the cheap money that they borrowed to pile into the shale boom.”
Meanwhile, a former central bank chief economist warns that a deluge of global debt defaults will endanger social and political stability.
"The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up," William White, chairman of the Organization for Economic Co-operation and Development's review committee, recently told the U.K. Telegraph’s Ambrose Evans-Pritchard.
"Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief," said White, the former chief economist of the Bank for International Settlements (BIS).
"It was always dangerous to rely on central banks to sort out a solvency problem ... It is a recipe for disorder, and now we are hitting the limit," he said.
"It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something," he told The Telegraph just before the recent World Economic Forum in Davos.
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