The financial crisis no one is fixing

The Financial Crisis No One is Fixing

The world has been hit by an unprecedented financial crisis, brought on by the COVID-19 pandemic. Governments have been busy implementing economic recovery packages and stimulus programs to help their respective economies recover. However, amidst all the talk about a "new normal" and economic recovery, one crisis remains largely unaddressed: the looming global debt crisis.

Despite the severity of the issue, there has been little talk about addressing the global debt crisis. Perhaps it is because it is difficult to measure the extent of the problem. The crisis cuts across different sectors and regions, making it difficult to pinpoint its exact cause and solution.

Still, the problem persists. According to the Institute of International Finance (IIF), debt levels have surged across the globe, reaching a record high of $281 trillion in 2020. This represents an increase of $24 trillion from 2019. Even before COVID-19 hit, debt levels were already quite high, but the pandemic has made things worse.

The IIF warns that, unless something is done, the global debt crisis could trigger another financial crisis, possibly worse than the 2008 financial crisis. Without addressing the debt crisis, the world's economies could be heading towards a catastrophic collapse.

The Current State of the Global Debt Crisis

So, what is the current state of the global debt crisis?

The IIF identifies three key factors driving the surge in global debt levels: low-interest rates, rising government borrowing, and increased corporate debt. Low-interest rates charged by central banks worldwide had led many governments and corporations to borrow aggressively. Meanwhile, rising government spending meant that many countries were already running huge deficits before the COVID-19 pandemic.

According to the IIF, global government debt now stands at $88 trillion, up from $67 trillion in 2014. Meanwhile, corporate debt has doubled to $74 trillion over the same period.

The implications are huge. Higher levels of debt mean higher interest payments, which can put a strain on countries and corporations' finances. Debt can also lead to a decrease in investment and economic growth, making it harder for countries and companies to recover from the current economic crisis.

The Role of Central Banks in the Debt Crisis

What is the role of central banks in the global debt crisis?

Central banks have played a crucial role in keeping interest rates low, which has led to a surge in borrowing. During the COVID-19 crisis, central banks lowered interest rates even further to help stimulate economic growth.

However, central banks have come under criticism for their role in the debt crisis. Some critics argue that low-interest rates have led to irresponsible borrowing, which will inevitably increase the risk of another financial crisis. Furthermore, they argue that central banks should be doing more to regulate the lending practices of the financial sector.

Others argue that central banks should be taking a more active role in reducing debt levels. They suggest that central banks should be using their influence to force governments and corporations to reduce their levels of borrowing, perhaps by implementing stricter lending controls.

The Need for a Coordinated Response

What is needed to address the global debt crisis?

First, there needs to be a coordinated response from governments, central banks, and financial institutions worldwide. The debt crisis is a global problem and requires a global solution.

Second, governments need to do more to regulate borrowing and lending practices to prevent irresponsible borrowing. Stricter lending controls would help to reduce risk and make the financial sector more stable.

Finally, there needs to be a concerted effort to reduce debt levels. This means implementing policies that encourage debt reduction, such as debt restructuring programs. Governments and corporations need to work together to find ways to reduce their borrowing levels and stabilize their finances.

The Call to Action

The global debt crisis is a ticking time bomb that needs urgent attention. Governments, central banks, and financial institutions worldwide need to work together to find a solution before it's too late. We cannot afford to wait for another financial crisis to hit before we act.

Therefore, everyone needs to take action. Share this article with friends, family, and colleagues to raise awareness of the issue. Start thinking about your own finances and take proactive measures to reduce your debt levels and research how to diversify your saving strategies away from traditional banking services. Together, we can work towards a financially stable future.