Here’s a stark and unpalatable truth; the world is drowning in debt and until it deleverages, economic growth, price inflation and interest rates may stay low. The global debt mountain is impervious to whether Trump and Xi sign a trade deal or Johnson averts Brexit. The spectre of “secular stagnation” is what most worries central bank and treasury officials.
The credit boom
The build up of debt started with financial deregulation in the early 1980s, which made credit more accessible. By the 2000s, merchant banks persuaded credit rating agencies to give investment grade status to debt securities (e.g. mortgage backed bonds, credit default swaps) that proved to be junk. When market shorters moved in for the kill in 2008, the consequence was a financial meltdown that threatened bank closures and a great depression like the 1930s.