Tags: Wagner | crisis | debt | recession

Risk Consultant Wagner: 'It's Only a Matter of Time Until Our Next Fiscal Crisis'

By    |   Tuesday, 10 February 2015 02:44 PM

Global debt is on the rise, and that could mean big trouble down the road, says Daniel Wagner, CEO of consultancy Country Risk Solutions.

From 2007 through the second quarter of 2014, global debt grew by $57 trillion, raising the global debt-to-GDP ratio by 17 percentage points to 286 percent, according to a new study from McKinsey.

"Regrettably, the same 'witches brew' that got us into the global recession — short memories, greed, lax risk management and a failure on the part of governments to turn the debt trap around — exist in abundance today," Wagner writes in an article for The Huffington Post.

"With government debt levels at these unsustainable levels, and with fewer policy options available to lawmakers, it is only a matter of time until our next fiscal crisis. With stock markets and asset prices once again at frothy levels, all that is needed now is the right trigger," he explains.

"Based on dampened global growth expectations, there is little reason to believe that the move away from deleveraging will be reversed in the near or medium term, as governments have even less incentive to attempt to implement the type of radical surgery that will be required to stem the tide of red ink when income and revenue levels are stagnant or falling."

Meanwhile, Mohamed El-Erian, chief economic adviser at Allianz, is concerned about the raging currency war.

"Not all currencies can depreciate against one another at the same time. But the current wave of efforts, despite being far from optimal, can persist for a while, so long as at least two conditions are met," he writes in an article for Project Syndicate.

"The first condition is America's continued willingness to tolerate a sharp appreciation of the dollar's exchange rate." The greenback has reached multi-year highs against many currencies in recent weeks.

Given the strong dollar's harm for U.S. companies and our trade balance, "this is not guaranteed," El-Erian says. "Still, as long as the U.S. maintains its pace of overall growth and job creation — a feasible outcome — these developments are unlikely to trigger a political response for quite a while."

The second condition is "financial markets' willingness to assume and maintain risk postures that are not yet validated by the economy's fundamentals," El-Erian writes. "With central banks pushing for increasingly large financial risk-taking, this is no easy feat," he adds.

"Central banks will have to back off eventually. The question is how hard the global economy's addiction to partial monetary-policy fixes will be to break — and whether a slide into a currency war could accelerate the timetable."

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Global debt is on the rise, and that could mean big trouble down the road, says Daniel Wagner, CEO of consultancy Country Risk Solutions.
Wagner, crisis, debt, recession
Tuesday, 10 February 2015 02:44 PM
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