The headlines capture a bleak but improving image of the worldwide economy: the UK’s lowest unemployment on record, Trump’s aggressive expansion of the jobs market, and Greece beginning to climb its way out of the recessive debt hole. But the underbelly is the world economy in a far, far darker crisis than most could imagine. Over the last three years, economists have been predicting another Financial Crisis worse than ever seen before. Will our democratic institutions survive another recession?
‘There are extreme consequences from central bank market-meddling and we are about to learn this lesson once again,’ writes Jesse Colombo, Forbes contributor who predicted the 2008 Financial Crisis while a University student. Jesse claims that following the quantitative easing program of the Obama administration, and 2008 Financial Crisis, tightening monetary conditions such as increasing interest rates in the U.S will squeeze a Corporate Debt Bubble. A bubble that has been building for almost a decade, and would burst the global economy.
‘U.S. corporate debt is now at an all-time high of over 45% of GDP, which is even worse than the levels reached during the Dot-com bubble and U.S. housing and credit bubble’, emphasising that the ‘everything bubble’ presents a catastrophic scenario for the future of the globe’s prosperity. The Doomsday Economists share similar predictions about the future.
John Maudlin, economic and financial risk assessor with over 30 years of experience, predicts The Great Reset. This would be a recession of economically biblical proportions, where ‘as it hits, we will have to deal, one way or another, with the largest twin bubbles in the history of the world: global debt, especially government debt, and the even larger bubble of government promises… debt and unfunded promises to the tune of multiple hundreds of trillions of dollars – vastly larger than global GDP... All that debt cannot be repaid under current arrangements.’
Maudlin continues. ‘Facing them won’t be the end of the world, but it will mean we must forge a different social contract and make changes to taxes and the economy.’ Even the Fed itself has begun producing a yearly Financial Stability report, from which the Fed chairman Jerome Powell called risks ‘moderate’.
So where are we? Moderate or cataclysmic? Most opinions, as with all things, lies somewhere in the middle. With the Fed announcing no new plans to increase U.S interest rates the world may hold off the inevitable for some time longer, but that does not mean that other fundamental problems in world economics won’t persist.
China, the world’s second largest exporter, has reported a continuous drop in exports since 2017. Economist Zhao Hao with Commerzbank AG Singapore reports that one of the largest reasons for downward trend in trade data is due to ‘slowing global demand.’
As well as corporate debt, much of the western world is still drowning in personal debt. ONS statistics rate American and British households as having the highest level of debt among major western countries, with the British TUC general secretary Frances O'Grady stating: ‘Household debt is at crisis level. Years of austerity and wage stagnation has pushed millions of families deep into the red.'
The persistent squeeze of debt may well end up biting us all on the behind and, without positive economic indicators within the Western world, the future looks bleak. But the true bleakness may come not from the economy itself, but from ourselves. Humanity has a historic record of turning to demagoguery, ideological radicalism and populism during times of economic despair.
The Golden Dawn of Greece, an ethno-nationalist far-right movement which is currently the third largest in the country, is a chilling reminder of the fragility of democracy to the rest of the world. A country riddled by debt and instability, at the breaking point of a neo-Nazi coup.
But in the rest of the world, look no further than the 2008 Financial Crisis and the swathe of unrest, instability and anger that came from it. To say that the recent rise of populism is a consequence of the Financial Crisis would be an understatement. Worsening condition of life will only precipitate a far greater political turmoil than what has been seen in the past decade.
One of the greatest tools of argument is to not yet be wrong. These doomsday economists may yet be proven wrong in the short term, but recessions are an economic inevitability. They will happen again. If the world is too indebted to borrow or consume its way out of the next depression, what will we do? How many years will the next Great Recession stretch on for?
Time and time again, we see countries and governments collapse under the weight of economic depressions. All we can do is remain sensible in our moral values, resist the temptation of demagoguery, and pray for the best. And if God does not answer, let us hope the markets do.