The global economy is in worse shape than anyone is willing to admit, at least according to the Chief Economic commentator for the Financial Times.

Seven years after the worst financial crisis since the Great Depression, the US Federal Reserve thinks the economy is still not strong enough to withstand higher interest rates. In mid-June, the Fed once again decided to delay any increase in its near-zero interest rates.

Meanwhile, the stock market hits new highs—but so does poverty. And yet, while the global economy is stuck, pretty much the only economic debate being held is about global trade agreements that fundamentally change the balance of power between governments and business.

For some perspective on all of this, WhoWhatWhy’s Jeff Schechtman talks with Martin Wolf, the Chief Economics Commentator for the Financial Times.

Wolf explains that no country in the world has gotten even close to growth comparable to pre-crisis levels, and may never get back there. He has his own take on why, nearly a decade later, the world economy is still stuck in this malaise. He believes that the crisis was caused by a ‘Balance Sheet Problem.” Simply put, people and institutions had borrowed too much for too long and could no longer sustain their spending… with banks all too willing to help dig a deeper hole. Taking a surprisingly liberal approach, he says that  governments needed to perform shock therapy to restart the economic heartbeat of growth, but instead applied tourniquets.

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planckbrandt
planckbrandt
6 years ago

Maybe you guys can look into the cash holdings of banks as cash collateral for derivatives contracts. A shadow banking report by Fed Reserve Bank of NY in 2012 (Polzar, Ashcraft, Boesky, Adrian) suggests that some number like $4T of money supply is sitting in bank’s own cash accounts day in and day out and not circulating in the economy because the $600T+ in derivatives contracts requires cash collateral since balance sheets are so opaque and a mess.

That is a lot of easy money creation in a 0% interest rate environment that is not circulating in the real economy and not generating any new demand. Add to that the normal concentration of income share and wealth. This issue never gets talked about.

Anyway. Nobody knows how this Frankenstein works. We need to re-localize our economies with new local currencies to take back the power from these centralized, over-complex, and totally unsustainable money systems.

wwy
wwy
6 years ago

I would listen to some of these podcasts if it were possible to download them and listen offline rather than having to stream them directly from my browser…

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4 years ago

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