Three trends in the global economy, discussed more privately than publicly last week during the Assembly of the International Monetary Fund (IMF) and the World Bank, counteract the optimism and euphoria that is spreading through international financial markets.
One is the weak growth that is seen for the global economy in times of demographic aging, low productive investment, and at a historical moment in which China is no longer the engine of global GDP.
Another is the inexorable expansion of debt, both public and private, - the consequence of two decades of interest rates close to zero - to more than 300 trillion dollars, three times more than the added value of all the economies in the world.
Hence the concern about the third factor: the growing opacity in corporate financing as companies withdraw from public issues on the stock market to turn to less transparent sources of financing, and as conventional banks are replaced by the darkness of shadow banking.
The first two factors create the conditions for another crisis as the debt-to-GDP ratio rises to unprecedented levels, already above 300% on a global scale. The third makes it very difficult to detect where a spark can ignite the fire of a crisis.
The prestigious team of financial specialists who prepare the IMF's Global Financial Stability report (GFSR), presented on Wednesday in Washington, is working hard to avoid repeating the historic mistake of not anticipating the 2008 collapse.
Then, in April 2006 - just one year before the bankruptcy of the first hedge funds of the Wall Street bank Bear Stearns, a precursor to the looming mega banking crisis - the GFSR claimed: "The broad dispersion of credit risk has achieved a "de-risk" -elimination of all risk- in the banking sector.
It has now become clear that, far from eliminating risk, financial diversification - a heterogeneous range of credit institutions that inhabit an impenetrable speculative ecosystem lacking regulation - has made it almost impossible to detect the next crisis focus.
As John Plender, the author of the book Capitalism, summarizes in a recent article in the Financial Times, paraphrasing the great Italian philosopher Antonio Gramsci: "The financial certainties of the past are fading and the new certainties have not yet replaced them."
The only thing that can be done is to point out the conditions that create danger. In this sense, the coincidence of low growth, explosive debt and financialization that is increasingly difficult to regulate is fertile ground for new crises to occur. These, in addition, will force central banks - Plender warns - to resort, once again, to monetary expansion and interest rate cuts, perpetuating the vicious circle of debt, speculation and an abysmal gap between the real economy and the economy. of finances.
The background of the three shadows that cloud the horizon of the world economy is extreme inequality. As highlighted by economist Atif Mian of Princeton University, author of the book House of Debt, which explains the 2008 crisis as a consequence of the expansion of private debt, the constant increase in the percentage of income corresponding to the richest 1% is not compatible with medium-term financial stability.
Two out of every three million dollars generated in the last four years on a global scale in markets such as the stock market or the real estate sector have gone into the pockets of the richest 1%. This is coupled with global savings and spending imbalances that end up aggravating the chronic debt that characterizes the unhealthy global economy of the 21st century.
"The income in the hands of the richest 1% has been rising since the 1980s and it turns out that the rich save more of their disposable income," warns Mian in an analysis done for the IMF. This generates dangerous imbalances that Mian describes as the "super debt cycle."
It is a time bomb, he warns, because, like the Wall Street crash of 1929 and the crisis of 2008, the accumulation of private debt is a precondition for a crisis.
Despite the warnings in the IMF's analytical reports, this has been one of the most optimistic meetings in recent years, held at a time of euphoria in the stock and debt markets as victory in the battle of the banks is being discounted. central against inflation. "The risk of a hard landing has quickly dissipated," says the IMF's expectations report. "Despite previous concerns about a strong global slowdown due to rising interest rates, this has not occurred."
Fears that the bankruptcy of Silicon Valley Bank and Credit Suisse at the beginning of the upward rate cycle were the beginning of a more generalized crisis have disappeared as if by magic. The inflationary outbreak has turned out to be short-lived and rates have peaked, according to investors' calculations. "There is tremendous optimism in financial markets about a global soft landing," said Tobias Adrian, head of the GFS report. "This has lowered rate spreads between high- and low-risk instruments and boosted stock prices," he said. Adrian.
Only geopolitical risks - further blockades of shipping routes in the Red Sea or another escalation of the war in Ukraine that could unleash a new wave of inflation and damage business psychology - have been mentioned at large public events in Washington as systemic risks.
But in its technical analysis, the IMF suggests more concern.
Although the world economy has avoided the recession predicted a year ago, the fund warns that, without the Asian locomotive, and without the always desired productivity revolution, global growth will be only 2.8% at the end of this decade compared to the 4% registered in the first decade of the century and more than 6% in the "golden" decades after the Second World War.
"World growth accelerated from 2000 until the 2008 financial crisis and has fallen since then," the IMF highlights in its report on global economic expectations. The reasons are demographic - the aging of the population, even in economies like China - and the constant decline in productive investment.
What's more, the growth that occurs, driven mainly by consumption, has only been possible thanks to the unprecedented accumulation of debt. The fund has warned about the level of public debt approaching 100% of global GDP and showed particular concern about the upward trend in public debt in the US and China. But the real time bomb is private debt, almost 150% of global GDP or about 150 trillion dollars. Such levels of debt had only been recorded in times of war.
The percentage of global financial assets in the portfolios of non-banking institutions has risen from 25% in 2007 to 47% in 2023 and already exceeds that of banks by 10 percentage points. In other words, the great project of shielding the banking system after the 2008 crisis already protects only a third of the financing of the new debt.
The IMF's financial team emphasized last week the unknown terra of private credit, funds for companies too small to be financed on the stock market that has reached a value of more than two trillion dollars - 1.5 times the Spanish GDP - in in recent years, 60% in the U.S. "Before this would have been financed with banks; now it goes through different vehicles," said Fabio Natalucci, the author of this section of the GFSR. "We don't see an immediate risk but the opacity is a cause for concern."
Large companies are withdrawing from the stock markets to hide in the twilight zone of private finances. At the same time, they increase their internal savings, by buying back their shares, instead of investing.
In turn, the global class of the super-rich makes profitable their billion-dollar stakes in these mega corporations whose profit margins have barely stopped growing over three decades of crisis and wage stagnation.
This, argues Mian, like China-based American economist Michael Pettis, aggravates global imbalances – too much Asian saving and too much Western consumption – that have already been a headache for the IMF for thirty years.
"The coincidence of global financial imbalances and ultra-loose monetary policy since the 2008 financial crisis has created a debt surge with turbo force," explains Plender.
Despite the key role of wealth concentration in explaining private debt and the danger of another crisis, the IMF predictably opposes wealth taxes on the super-rich. "It is better to tax income and not assets," said Vitor Gaspar in the presentation of the Fiscal Monitor report.
