Debt Levels Cause for Concern – IMF

The International Monetary Fund (IMF) has reiterated that the levels of corporate debt are unsustainable which could exacerbate another global financial crisis. In a recent press conference on the Global Financial Stability Report, Tobias Adrian (Director of the IMF’s Monetary and Capital Markets Department) highlighted the IMF’s concern around easy lending practices and spiralling corporate debt:

“financial conditions have eased... [this has] encouraged investors to take more risks in a quest to achieve their return targets... A sharp tightening of financial conditions and higher borrowing costs would make it more difficult for them to service their debts.”

Mr Adrian has described such risks as “sobering”, which is perhaps a candidate for the understatement of the year.  The IMF has stated that in eight of the world’s largest economies, which include America, China, Japan and several European countries, corporate debt now stands close to a staggering 51 trillion US dollars. Of this, the IMF has estimated $19 trillion could be categorised at “corporate debt at risk”. This is debt owed by firms unable to cover interest expenses with earnings, so prime suspects for potential defaults. He elaborated that should there be a downturn in the global economy, this corporate debt at risk could amplify any crisis significantly.

In order to put this into perspective lets analyse what $51,000,000,000,000 is roughly equal to:

1. 30 million Bugatti Veyrons assuming a list price of $1.7 million
2. 10,200 Buckingham Palaces
3. 1.93 times the current US sovereign debt level
4. 23 times the annual nominal GDP of the African continent for 2017
5. Over 4500 years of UK annual contributions to the EU
6. 255 times the cost of the 1995 Kobe earthquake repairs
7. Gross world product in 1952

Those are simply staggering figures and comparisons.  

 As is becoming the norm for press releases like these, the IMF proposed a global solution to these issues:

 “Greater multilateral co-operation is needed in several areas. Policymakers should complete and implement the global regulatory reform agenda. They should ensure that there is no rollback of regulatory reforms.” 

Not surprisingly, this part of the press conference did not make the news on most media outlets. It is still the coded language and vagueness which we would expect from a multilateral organisation like the IMF. But the theme remains the same – global problems require solutions agreed at a global level. As we have mentioned before, who would have the biggest say in such matters - the nation state or the IMF? This is just another thinly veiled call for increased powers for an unaccountable elite.

The Sterling price of gold remains relatively volatile for its reputation as a safe haven asset, settling at around £1148.28 an ounce. The US dollar price is more slightly more stable at $1494.25 at the time of writing. A further twist in the UK's EU withdrawal process could see the price of gold fluctuate in any direction, so watch this space.

The full transcript of the IMF press conference can be found here.