Does the global financial system have an $80 trillion debt problem?

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Executive summary:

  • The Bank for International Settlements (BIS) has issued an urgent call for central banks to take coordinated action to prevent a potential global currency crisis.
  • According to BIS, the world economy is facing an unprecedented situation due to the Covid-19 pandemic and the rise of digital currencies.
  • BIS has warned that the current state of the global currency system is unsustainable and could lead to a currency crisis if left unchecked.
  • BIS has suggested a series of measures that central banks should take to address the issue, including increasing cooperation between them, introducing more flexible exchange rates, and creating an international digital currency system.
  • It is essential that central banks take action now to prevent a potential currency crisis in the future.

The Bank for International Settlements (BIS) recently released an urgent report warning of an $80 trillion “hidden” debt. This massive figure is estimated to be the total amount of debt created by the world’s governments and corporations that is not reflected in official debt figures. The report’s findings have raised serious questions about the global economy’s stability and ability to weather potential crises.

The BIS report highlights just how much of the global economy is being propped up by debt. In the United States alone, the national debt is set to exceed $27 trillion in 2021, while corporate debt stands at $10.3 trillion. With global debt levels at their highest point ever, the potential for an economic crisis is very real.

The BIS report comes at a time when central banks are already struggling to contain the effects of the Covid-19 pandemic. Low interest rates and quantitative easing measures have been used to try and support the global economy, but these measures have also led to an accumulation of debt. This debt could become a risk to economic stability if it is not properly managed.

The BIS report also highlights the potential for corporate debt to become a source of instability for the global economy. Corporate debt is often tied to asset prices, which can be volatile. If asset prices fall sharply, it could lead to a wave of corporate defaults and bankruptcies, which could cause significant disruption to the global economy.

The report also warns of the dangers posed by countries’ fiscal imbalances. Countries with large fiscal deficits are more vulnerable to economic shocks, as they are unable to generate enough revenue to cover their spending. This could lead to countries having to resort to emergency measures such as printing more money, which could cause inflation.

The BIS report is a stark reminder of the potential risks posed by high levels of global debt. It’s clear that governments and corporations need to be more mindful of their debt levels in order to ensure economic stability. Central banks and governments need to focus on measures that can reduce debt levels and promote economic growth, rather than just relying on low interest rates and quantitative easing. Ultimately, the goal should be to reduce global debt levels and promote a more stable and resilient economy.

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