In 2011, interest rate markets for Greek government bonds bolted and interest rates skyrocketed raising the specter of a sovereign debt crisis for the whole of Europe. Overall, interest rates around the world have remained at record lows thanks to the maneuvering of central banks; 10-year US treasuries for example pay less than 2 percent.
Investors are increasingly impatient and there is a rapidly growing demand for equity capital that has to be pumped into the economy to salvage balance sheets. Governments and central banks are already fully leveraged and do not have sufficient resources to keep interest rates low indefinitely. Fixed income markets around the world will unravel; this will send shock waves across the global economy.
Today, there are globally 212 trillion USD of financial assets, which includes 158 trillion of debt, see the 2011 McKinsey Global Institute report. The debt is 3.5 times bigger than the world annual product of 45 trillion.
As soon as interest rates start to increase, then the prices of bonds drop. The economic impact of the price decline will be daunting due the sheer size of the 158 trillion of outstanding debt…
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By: Richard B. Olsen, Founder and CEO of Olsen Ltd
Kind of depressing, sir! Especially being American. But on the bright side, we can enjoy each day in spite of our mortality as governments can enjoy the spending party until the party stops. Neither death nor depression will be fun but both are part of the cycles of life; even a supernova of our beloved Sun star is inevitable. Thanks for the update on the state of our global economy. Chinese style state capitalism seems to be winning, but who really knows from outside of China?
We are very close to the time when the money will really make the game. Already big liquidities sometimes dictates absurd decisions. Currency market does not follow the rules of stock exchanges and not take into account the economic reality so what we have is only a Global Super Bowl with a pathetic show.