EDITOR NOTE: An economic recovery based on artificial money. That’s essentially what the World Bank aims to accomplish--of course, refusing to acknowledge the adjectival link of the word “artificial.” If your debt was equivalent to 99% of your income, anyone would be right in saying you’re in dire straits, a perfectly justifiable candidate for a bankruptcy filing. But when nations reach such levels, or worse, their Treasury department just issues more debt, and their central banks often buy them up after printing more money. More money in the system means less purchasing power for each citizen--hence, it’s a claim on your future prosperity, if you held all of it in fiat currency, in our case dollars. If you truly cared about your wealth you’d hedge it, even if it meant only a fraction of your wealth. Non-CUSIP gold and silver are the only currencies that can withstand this monetary attack on your purchasing power. When dollars have proven to be artificial, simply put, nothing else counts as real money.
Global government debt is expected to reach 99% of GDP in 2020 – a new record – as governments scrambled to support their economies as they ground to a halt under lockdowns to prevent the spread of Covid-19, the World Bank has said.
The World Bank’s Global Economic Prospects 5 January report said that the Covid-19 pandemic has made the “massive increase” in global debt levels “more dangerous”.
“The pandemic has greatly exacerbated debt risks in emerging market and developing economies; weak growth prospects will likely further increase debt burdens and erode borrowers’ ability to service debt,” World Bank acting vice president for equitable growth and financial institutions Ayhan Kose said in a statement.
“The global community needs to act rapidly and forcefully to make sure the recent debt accumulation does not end with a string of debt crises.”
The latest government statistics in the UK, published on 20 November by the Office for National Statistics, show that the UK’s total debt pile stands at £2.09tn at the end of October, the highest since the early 1960s.
UK Chancellor Rishi Sunak has rolled out several programmes, including the Coronavirus Business Interruption Loan Scheme, which has issued £19.6bn in loans as of 13 December, and the job retention scheme, in which the government pays 80% of an employee’s wages.
The report also diagnosed a “subdued recovery” and said it expects the global economy to expand 4% in 2021 “assuming an initial Covid-19 vaccine rollout becomes widespread throughout the year”.
If, however, that is not the case and infections continue to rise, the expansion could be as low as 1.6%, the World Bank warned.
Advanced economies saw a third-quarter stall in the economic rebound as they grappled with a second wave of Covid-19. The World Bank forecasts that the US economy, for example, will expand 3.5% in 2021, after contracting around 3.6% in 2020. The eurozone, on the other hand, is expected to grow 3.6% following a 7.6% decline in 2020.
Carmen Reinhart, vice president and chief economist, added that financial fragilities in developing and emerging market economies will “need to be addressed”.
Originally posted on FN Financial News