Don961: The debt crisis of Turkey and Argentina .. a global warning

20/6/2018 12:00 am

Kenneth Rogoff *    Translated by Khaled Kassem

Can the exchange rate and continuing debt crises in Turkey and Argentina be considered local events without broader results? Or are early warnings of deeper weaknesses in the bloated global debt markets revealed by the US Federal Reserve’s continued interest rate rebound?

High interest rates may test stability in some developed countries as well, especially Italy, where voters have chosen a populist government.

Any failure to repay debt in Italy, which is ten times more than its Greek counterpart, will trigger the eurozone. The ruling coalition in Rome has hinted that it wants to cancel some debt under the table (ie, unregistered in the official public debt of more than 130 percent of GDP). Total) of the euro system through the ECB.

The good news is a complete global debt crisis that is still relatively unexpected, even with the current softening of European performance. The overall global economic picture remains strong as most regions of the world grow rapidly. It is true that several companies in developing countries have accumulated dollar-denominated external debt of concern, but many foreign central banks have large dollar reserves, especially in Asia.

In addition, the IMF has enough resources to deal with the first wave of crises, even if it includes Brazil, for example. The main concern is not the Fund’s failure to hand over funds, but the same mistake it made with Greece by not imposing a realistic agreement with debtors and creditors.

There are chances that Europe will find a way through which Italy will temporarily give a deliberate budget reduction that Rome wants, but it is impossible for euro zone officials to allow heavily indebted Italy to destroy the common currency.

The most important reason for optimism is that long-term global interest rates are still very low. As long as the global interest rate is good, it is difficult to see large waves of debt default.

The growing number of IMF warnings, and years after developed countries no longer need to worry about their standard public debt levels above 100 percent for general government debt, have begun warning that several countries may find themselves financially depressed if faced with A new recession soon.

The challenges stem not only from debt but also from hidden liabilities, a city of old-age retirement and low-funded health care programs that are much more implicit than official figures in many cases.

It is well known that there are many who believe that this time is different for developed countries. With no realistic risk of war or major financial crisis coming soon, it is folly to impose many restrictions on public debt or retirement promises. This is a dangerous thinking even for the United States, despite the broad financial scope it enjoys as a global reserve currency.

Very bad shocks can happen to any economy, and their sources may not be the same as we usually look at. For example, the emerging risks of cyber attacks, epidemics and financial crises are probably much higher than recognized.
The Guardian      link