Originally published October 22 2014
Global economy headed for massive crisis, warns widely respected Geneva Report
by J. D. Heyes
(NaturalNews) A respected report that summarizes the world economic outlook has said that record global debt could trigger a massive economic crisis that would last for years, as the International Monetary Fund (IMF) cut its global economic growth projections.
According to The Guardian and other sources, global debt has skyrocketed even though many governments (the U.S. not included) have worked to reduce public and private borrowing. Now, the renowned Geneva Report is sounding alarm bells, saying that a "poisonous combination" of rising debts and lower growth could lead to yet another global economic crisis.
As reported by The Guardian, the European continent is experiencing some drop-off in household debt:
Modest falls in household debt in the UK and the rest of Europe have been offset by a credit binge in Asia that has pushed global private and public debt to a new high in the past year, according to the 16th annual Geneva report.
In May, the Federal Reserve reported that U.S. household debt had declined 1 percent, to 2006 levels -- down to $11.2 trillion from a peak of $12.7 trillion in 2008.
The Geneva Report, meanwhile, noted that the total burden of global debt, not counting the financial sector, rose from 180 percent of world output in 2008 to a mind-boggling 212 percent in 2013.
'Global growth could be weaker for longer'
The senior academic and financial industry panelists who authored the current report blamed policymakers and lawmakers in several countries for failing to find ways to boost growth by capitalizing on historic low interest rates, all the while stunting lending for growth-related projects. In the U.S., several lawmakers have blamed the Obama Administration's heavy regulation and stifling laws like Obamacare and the Dodd-Frank financial reform measures as primary causes of reduced economic growth.
Meanwhile, the IMF has lowered its global growth outlook for the year as expansion in the world's two largest economies -- the U.S. and China -- weaken, and as military conflicts in vital parts of the world threaten to boost oil prices. As noted by Bloomberg News:
The world economy will advance 3.4 percent in 2014, the IMF said,
less than its 3.6 percent prediction in April and stronger than last
year's 3.2 percent. Next year growth will be 4 percent, compared with an
April forecast for 3.9 percent, the fund said.
"Global growth could be weaker for longer, given the lack of robust momentum in advanced economies," even as interest rates maintain historic lows, said the IMF in updating its World Economic Outlook report. "Monetary policy should thus remain accommodative in all major advanced economies."
The IMF said that the world was being challenged by geopolitical risks that have only escalated since April. Risks include "sharply higher oil prices" due to recent unrest in the Middle East, which is widening.
The IMF predicted that growth in emerging markets would only be 4.6 percent this year, down from its earlier projection of 4.9 percent in April.
Print more money?
The Geneva Report's authors recommended that Brussels write off the debts of Europe's worst-struck countries and quickly launch a "sizeable" program of electronic money creation or quantitative easing -- the Fed trick of simply printing more money -- to reduce long-term interest rates.
"It said unless policymakers kept a lid on risks in the financial system, especially overvalued property and stock markets, a trend for investing in assets with borrowed money could run out of control," The Guardian reported.
Commissioned by the International Center for Monetary and Banking Studies, the most recent Geneva Report aligns with an earlier study this year by the Bank of International Settlements (BIS), which forecast the same problems. However, that report said risky borrowing might only be discouraged with the imposition of higher interest rates.
The Geneva Report's authors said, instead, that there should be a coordinated effort to address the aftermath of the recent global economic crisis to reduce a "poisonous combination of high and rising global debt and slowing nominal [gross domestic product], driven by both slowing real growth and falling inflation."
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