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More debt, less growth since 2008

The In the last 15 years, there has been a protracted global stagnation. Certain economies and individuals have done much worse.

The The 2008 Global Financial Crisis Great Recession Recently, the situation has gotten worse. CovidPandemic -19, US Federal Reserve BankInterest rate increases and geopolitical warfare are escalating.

Following ReaganBudget deficits have increased as a result of tax cuts, which were ostensibly intended to encourage more private investment. Instead In order to achieve a rapid recovery, fiscal austerity will be required, just as it was in the 1980s.

After fiscal expansion averted the worst in 2009, unconventional monetary policies, mainly ‘quantitative easing’ (QE), took over. The European Central Bank The European Central Bank (ECB) has followed the US Fed’s QE have been the leader for over a ten-year period.

The lower interest rates of QE encouraged more borrowing, as credit became more affordable and available. With Rich nations providing less concessional financing, developing countries have little choice but turn to the markets for loans.

Spending Counter-cyclically, in a recession requires government borrowing. QE has made this more affordable and accessible. The Since 2022-23 when interest rates spiked, the resulting borrowing boom has returned to haunt those economies.

Pushing debt

World Bank slogans, such as ‘from billions to trillions’, urged developing country governments to borrow more on market terms to meet their funding needs for the SDGs, climate and the pandemic.

With capital accounts open, many private investors have long sought ‘safety’ abroad. But When lucrative opportunities for direct investment beckoned e.g. India, some ‘capital flight’ returned as foreign investments, typically privileged and protected by host governments and international treaties.

Easier The QE has enabled financialization to be more innovative and creative by allowing credit at almost concessional rates. Blended finance and other such innovations promised to ‘de-risk’ private investments, especially from abroad.

Despite As a result, despite less borrowing from banks than in the 1970s and a greater market-based indebtedness, debt increased. HoweverSuch indebtedness has not led to much real economic growth despite the private technological innovations.

Borrowing sours

The US Fed Interest rates began to rise in early 2022. The inflation was blamed on a tight labor market. As The debt burden increased as interest rates rose.

ThusGovernment borrowing globally became more limited when more was needed. Raising Interest rates have dampened demand for private and public spending on investment and consumption.

But Recent economic contractions are mainly the result of disruptions on the supply side. The Second Cold WarSupply lines and logistics have been disrupted by the COVID-19 Pandemic and geopolitical economic aggression.

Raising interest rates dampens demand but does not address supply-side disruptions. Inappropriate These anti-inflationary policy measures have had a negative impact on jobs, incomes worldwide, and have also reduced spending, demand, and consumer spending.

Worse for some

Following The US Presidents who have succeeded in maintaining full employment during the 2008 global financial crises. All The US central bank is committed to financial stability but other central banks have not. Fed A second almost unique mandate, which is to ensure full employment, has been added.

Developing The countries are now faced with many more restrictions on what they can and cannot do. Most There is little room for policy manoeuvre when you are heavily indebted. With With more market financing, pro-cyclical tendencies are more pronounced.

Vulnerable The developing countries feel that they have no choice but to surrender their markets. Poverty In the poorest countries, poverty has not decreased for nearly a decade. Food security has also not improved.

WorseGeopolitics has exerted much pressure on the Global South Spend more money on the military But most recent food price increases were due to speculation and ‘artificial’ rather than real shortages.

Poor Worst off

The Debt burdens increase the likelihood of distress. Debt Stress has increased dramatically in the past two years, particularly for countries heavily borrowing from major creditors. Western currencies.

Although The apparent reasons that central banks raise interest rates are no longer cited, the interest rates haven’t fallen and funds haven’t flown back to developing nations.

For For at least 10 years, the US has warned developing countries to avoid borrowing money from China Its low interest rates are comparable to other sources of credit except Japan.

Consequently, China’s Lending to developing countries is particularly important in Sub-Saharan AfricaSince 2016,. By By 2022, the poorer countries were borrowing much more money from commercial sources. But Such private capital has now fled to the US Western Markets that offer high returns with greater security

Capital The poorest of developing countries are fleeing as less money is being sent to them via the markets. With The poorest countries are the most vulnerable because they have fewer options for funding.

Negotiating It has been much more difficult to deal with private creditors on the market, as opposed to intergovernmental agreements, than it has been dealing with a variety of private creditors. With Private market financiers will provide much more funding. They won’t take orders from the government unless forced to.

HenceLittle on the horizon promises any hope of debt relief or a recovery that is sustainable, let alone a positive outlook for the future. Global South.

IPS UN Bureau

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© Inter Press Service (2024) — All Rights ReservedOriginal source: Inter Press Service

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