The Global Debt Bubble Hurls Towards Complete Collapse
Less than 10 years ago, the global economy descended into the Great Recession making it the most extensive slump since the notorious Great Depression. After the market fell during 2008, recovery has occurred, but it’s been a long, slow process with plenty of jolts along the way. Despite the bruises, the global economy is looking healthier even though rising debt is behind most of the economic improvements. However, the world’s rising financial commitments are quickly turning into a debt bubble, and experts believe that its collapse is imminent.
In many cases, the growth experienced by the U.S. and other countries has been supported by government bailouts, lax monetary policies and infusions of capital. While these techniques have been effective, economies will be unable to continue to expand if they’re only fueled with cheap funding and central bank support. Albert Edwards, financial strategist for the bank of Société Générale, said, “Developments in the global economy will push the U.S. back into recession.” Investopedia1 reports that an economy’s core fundamentals must overtake stimulus strategies to form real growth.
In Europe, the sovereign debt crisis hit after the Great Recession, and it has been an enduring issue. Europe is a major part of the world’s economy, so if the situation escalates, then it could bring about a collapse. To incite growth, the European Central Bank took the step of implementing quantitative easing. The International Monetary Fund and the European Union have bailed out Portugal, Italy, Ireland, Spain and Greece several times. This aid has come with austerity measures that have brought misery to residents. It also restricts economic growth.
A major area of concern involves the euro. Greece is making rumblings that it might leave the Eurozone. If the country leaves, then other nations may follow. This could terminate the euro experiment, which will dissolve this form of currency bringing extensive negative consequences to the global economy.
During the last few decades, the Chinese economy has expanded enormously. Today, the country’s Gross Domestic Product, or GDP, is the second largest in the world with the United States in the lead. Some economists believe that China will eventually outgrow the U.S. Because the government enacts capital controls, the country’s citizens have limited investment options. Recently, two of the Chinese people’s investment options became progressively more expensive. This situation may mean that a bubble is developing.
According to The Guardian2, the demand for credit in China has collapsed, which is a signal that a financial crisis is imminent. Albert Edwards said, “That happens when people lose confidence that policymakers know what they are doing. This is what is going to happen in Europe and the U.S.”
Problems at Home
The United States has its own set of problems. When the Great Recession hit the country, a debt crisis came with it. America’s Great Recession was caused by the mortgage industry when it issued too many loans to people who were unable to repay them. These loans were then given a deceptive “A” credit rating and sold to investors. Today, a similar situation appears to be happening with student loans.
Because the United States backs almost all of the country’s student loans, rating agencies give them a high credit rating. The government is currently backing more than $1.2 trillion in unpaid student loans. If massive defaults occur, then the United States Treasury Department will be unable to operate properly. Alternatively, student loan debt encumbers young adults, and it prevents them from taking part in other financial activities like purchasing cars and homes. This situation has depressed other kinds of economic growth.
When the 2008 recession hit, central banks reduced interest rates. They also stretched out their balance sheets. Today, central banks are unable to complete loose fiscal policies to avert the next recession since they’ve already enacted quantitative easing and purchased government assets. The world’s economies experience recessions as a part of the natural economic cycles. Since the last one occurred about seven years ago, the world may be due for another.
Preparing for the Collapse
If industry experts are right, then the global debt bubble is heading toward imminent collapse. With debt crises happening in the U.S., China and Europe, the situation certainly looks dire. Those who have built up wealth should take steps to protect it by diversifying. To read more articles about the global debt bubble and the possibility of it collapsing, visit the PersonalMoneyStore.com.