Economists and finance specialists are warning of the potential arrival of a new “Minsky moment” in increasing numbers. The last time this term was used with such conviction was in 2008, at the onset of the Great Recession. It seems that 2021–22 could have some parallels with the world’s last severe recession.
The Twentieth-First Century: The Century of Debt
Until now, the 21st century could be called the century of debt, and if things continue the way they are, it could well be called the century of the great debt default. At the beginning of the century, extremely low interest rates promoted by central banks in practically the entire developed world caused a frenzy of private credit creation and a gigantic financial and real estate bubble that exploded in 2008 with dire consequences for the world
economy.
Central banks, heavily pressured by politicians, redoubled their commitment to low interest rates, causing public overindebtedness to a degree unprecedented in times of peace. In 2020, when the growth model based on the accumulation of public debt and low interest rates seemed to start to weaken, the Covid-19 recession arrived.
The worldwide excess of public spending in 2020 has not been corrected, and it does not appear it will be corrected anytime soon. The new public debt is adding fuel to the fire. And the accumulation of it (and also private debt, especially that issued by companies) could be reaching the point of no return.
Global debt reached $200 trillion at the beginning of 2011, while global GDP was $74 trillion (275 percent debt/GDP). In the second quarter of 2021, global debt reached almost $300 trillion with a global GDP of $83.9 trillion (330 percent debt/GDP).
