The IMF posted its comments last week as the organization marked the 10th anniversary of the global financial meltdown. Whether the warnings are fair or not is another matter
The primary advice for the world was this:
“On the anniversary of the 2018 financial crisis, the IMF issued a series of warnings about the future of the global economy.”
“We still have not done enough to improve debt restructuring and enact measures for responsible lending and borrowing. Beyond preventing the next crisis, the IMF is warning that we could have a recipe for greater inequality that further divides the rich and the poor.
“The IMF is saying that now is the time for countries to get their houses in order to prevent and prepare for future financial crises. The IMF is warning that rising debt levels are a growing risk around the world.”
There are two overly simple ways to view whether the position on debt is correct or not. The first is what level of interest rate the debt carries. For example, the low-interest rates made available to some countries because of central bank monetary policy have allowed major economies to climb of out the hole created by the crisis. Presumably, central banks will raise rates and continue to do so if the economic recovery continues. Borrowing rates are still at historic lows, however
The other open issue is whether borrowing helps economic expansion and will continue to do so. If it is used to create jobs and stimulate corporate investment, and the rising consumer spending which spurs GDP, the fact is that debt, even at the sovereign debt level, may keep the global recovery advancing. That may offset the worry about debt as a percent of GDP
From the IMF, happy anniversary, take our advice or the financial world will come to an end again. Unless, of course, we are wrong.
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