TRIBUNE – Ngrowth and propagation, the fall of a financial system born at the end of the Bretton Woods agreements
50 years after the unofficial end of the Bretton Woods agreements with the suspension of the convertibility of the US dollar into gold, the international financial system appears threatened following the various crises experienced at the beginning of the 21st century and the unique economic thought that seems to be spreading throughout the world. within the Western elite.
I – The 2008 financial crisis, the roots of the coming crisis
The causes of the 2008 international financial crisis have been largely hidden from the public. Behind the bankruptcy of Lehman Brothers and the subprime crisis, much less avowable interests seem to have been concealed, interests which were able with impunity to continue their harmful activities, but also made followers, which constitutes a major systemic risk for the system. global financial institution fourteen years later.
II – “Quantitative easing” and management of the Covid-19 crisis: remedies worse than the harm
The monetary and budgetary policies carried out in recent years in the West to deal with the crises of the beginning of the 21st century have generated enormous speculative bubbles (real estate and the stock market in particular) and abysmal indebtedness, both private and public.
These gigantic imbalances can only be corrected by a brutal financial crisis unprecedented on a global scale.
1. Speculative bubbles and low productivity
By injecting billions of euros / US dollars of liquidity into the global financial system with no opposite value creation, Western central bankers have created financial bubbles across the world. The current values of many assets are thus disconnected from reality.
Moreover, if market participants can invest at almost zero cost in both financial and physical assets, they run the risk of acquiring non-profitable assets. We then have non-optimal equilibria as they have been described by game theory, where the parties do not choose the options which are best for the whole. According to certain currents of thought, this policy of non-discrimination by prices is even at the origin of low productivity.
2. Private debt
The outstanding debt of non-financial corporations has jumped raising fears of corporate over-indebtedness, an increase largely attributable to State Guaranteed Loans in France.
Repayment of government guaranteed loans (PGEs) could be problematic for many businesses. In August 2021, 15% to 25% of companies having taken out an EMP would be unable to repay an annuity corresponding to 20% of the amount of this loan. A repayment of the first annuity is however not planned before spring 2022. At the end of July 2021, there were already more than 20 billion debts restructured since the start of the health crisis in France (Vallourec, AccorInvest, etc.) on a total of 118 billion euros for all of Europe and 503 billion euros worldwide.
A rebound in business failures through a catch-up effect is also inevitable given that state aid has made it possible to “keep afloat” non-viable businesses. Government aid should have focused on promising companies in order to weather the Covid-19 crisis calmly.
In the United States, according to Janet Yellen, the swelling of corporate debt puts them at risk of “bankruptcy” in the event of a severe economic downturn.
We also note that bond issues backed by mortgage loans in the United States by banks and real estate players exploded in the second quarter of 2021 reaching $ 42 billion, one of the highest amounts since the subprime crisis.
In addition to this corporate debt, in the United States, there is household and student debt.
3. Public debt
The pandemic cost, over 2020 and 2021, in all between 170 and 200 billion to the French State between exceptional expenditure and revenue losses. In 2021, for the second year in a row, France’s deficit will exceed 9% of GDP, a deficit which unfortunately finances, as in many Western countries, current expenditure.
The public debt ratios of OECD countries are extremely high in 2021: 117% in France, 141% in the United States, 157% in Italy, 245% in Japan, 72% in Germany.
The United States is facing a debt ceiling which has been reached and which has been raised in extremis, pushing back for a few months the historic financial crisis which could result from a US payment default (soaring interest rates, sudden fall in price). stocks and other financial troubles to expect).
III – Development of the Western Single Thought Culture
As a result of the interplay of international stock markets, the policies of the Federal Reserve of the United States (FED) and the European Central Bank (ECB) align with each other, each repeating the errors of the other. Their independence and the objectives set for them do not respond to the optimization of the “well-being” of the populations concerned in the long term. The liberal currents destabilized by the Covid-19 epidemic seem to have drowned in a sea of debts and policies of “whatever the cost” contrary to their doctrine, thus applying schemes that they do not not master.
Although the coming global financial crisis is predictable from a strictly economic and financial point of view, central banks and Western governments refuse to see the obvious and prefer the “Coué” method, or worse, dream of “Candide”. Voltaire. The only way out of the looming troubled days seem to be good knowledge of macro and microeconomic workings, an overhaul of the current financial system, poise, empathy and courage.
Sources: Les Echos (Karl Eychenne, Nathalie Silbert, Guillaume Benoit, Anne Drif, Patrick Artus)