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The Next Global Financial Crisis Is Imminent?

2011/3/29 9:41:00 43

The Canadian banking regulator warned in March 27th that the next global

financial crisis

It may not be far away.

This statement is not alarmist. At present, the financial tensions caused by the crisis in Japan and Europe show an increasingly serious problem: the rich countries are approaching another scene.

disaster

The critical point is that they can not afford to take this disaster.

Developed countries to the limit

although

Japan

Unlike Europe's crisis, Japan is a natural factor, while Europe is human. But from a financial point of view, these two crises look very similar.

Under the two crises, the increasing cost of disaster reduction makes the government's financial burden heavier.

For Japan, the world's most heavily indebted developed country, what kind of result will remain uncertain?

In Europe, Portugal may soon become a country seeking help.

The financial pressure faced by Japan and Europe reflects a broader problem: developed countries are pushing their financial resources further to the limit of supply.

Some economists say this will make developed country governments do not have enough capital to cope with the next major crisis.

Pedersen, an economist at the Institute of international economics and Professor Rogoff of Harvard University, said that as of 2010, the average debt burden of the central government in developed countries was equivalent to 74% of the annual economic output of each country, the highest level since the end of World War II.

At the same time, the solvency of the rich countries is weakening.

Compared with the emerging market countries, their economic growth is relatively slow. The aging population of the rich countries has led to a decline in the potential of these countries to earn medical expenses and pension expenses, and the tax imposed by the government to meet these expenditures is facing strong political opposition.

Rogoff said, "people's ideas are contradictory. They hope that the government can always rescue and hope that the tax rate will remain at a low level."

Debt control still needs to be worked hard

It is hard to know exactly how much debt the governments will be able to bear before they get into trouble, but economists from the International Monetary Fund (IMF) have estimated this.

In a recent report, they pointed out that the 5 countries in Japan, Greece, Italy, Portugal and Iceland have reached the limit, which means they need to implement more stringent measures than before to control their debts.

Other countries are at a very close level. For example, the United States can increase the debt equivalent to 51% of gross domestic product (GDP) before reaching the limit. Unless the United States takes corrective measures, it will reach its limit in about 15 years.

According to current estimates, the cost of reconstruction may increase the proportion of Japanese general debt to GDP by a few percentage points, while the European relief fund may increase the proportion of GDP in the euro area to about 6 percentage points.

Such a result is disturbing. In the worst case, investors' fear of debt level may trigger a financial crisis, and the government will lack resources to control the crisis.

Alternatively, the government can sacrifice its institutional interests to reduce its debt burden.

For example, the United States and the United Kingdom can devalue their debt by making big bills to make inflation. The government can also ask or persuade banks, retirement funds and other institutions to purchase relatively low interest debt. This phenomenon has already appeared in Ireland. Ireland has announced a plan to sell special long-term treasury bonds to the retirement fund.

However, tough measures will not work in the long term, and the government needs to reconsider the measures they should take and the way to repay their debts in the longer term.

Developed countries may eventually have to adapt to higher taxes or more severe relief, or both.

(reporter Guo Jin)