The dangers of the global financial crisis

in the current international situation, characterized by a very high level of uncertainty, appears to be an element that can affect the overall functioning of the globalized economy. That is, specifically, the possibility of a deep global financial crisis.

The basis from which this risk arises is the high and growing level of indebtedness, both public and private, observed in different regions and countries. A recent book by Nouriel Roubini, entitled Megathreats, contains valuable information about The size of the problem. According to this author, who uses data from Institute for International Finance, Debt it would grow from 220.0% of GDP in 2019 to 350.0% of GDP, in 2021, adding that if the debt growth trend continues towards 2030, that percentage would reach 400.0%.

In the so-called “advanced countries” this level has already been exceeded, reaching 420.0% of GDP. This is a figure that exceeds the state recorded towards the end World War II, where it is evident that this is not the exclusive situation of countries with weaker relative development.

The problem is that every limiting element, limits or reduces the expansion of the volume of credit or, for one reason or another, limits the ability of debtors to meet their payment obligations, would produce a huge financial crisis. This, without a doubt, would affect the real sector of the economy causing deep economic recession.

There are many factors that can cause this situation. Examples include: increasing interest rates to deal with inflation; the possible effects of the escalation of geopolitical conflicts, including those openly warlike character, possibility new pandemics disrupting international supply chains and the impact of increasingly pressing environmental problems.

The problem lies in the large number of economic units, including states, located in what Minsky calls the speculative financial situation or Ponzi.

The first economic units are whose the income is sufficient pay the interest, but not the principal, so they need to permanently refinance the debt. Any financial disruption that eliminateshinders or limits this possibility, puts these companies at risk of bankruptcy.

The situation is even worse financial units with a Ponzi situation, since they have incomes that are not even sufficient to pay the interest. Then they need more and more debt to meet their financial obligations. Among them are the so-called zombie companies, which not only have problems with liquidity, but also with solvency. According to Roubini This could add up to 17.0% of the total number of corporations globally.

It is evident that the occurrence of a global financial crisis in the near future would have a serious recessionary impact on our economy. To begin with, we must remember that by 2022, public debt, plus private debt with banks and financial companies represented close to 133.7% of GDP.

Therefore, considering our financial structure and commercial connection with the world market, one can only expect that a possible international financial crisis will quickly infect the national economy, generating a deep recessionary situation. This infection and its consequences it would combine elements from the real and financial sectors. It deals with the impact of the international recession on local economy through effective demand, along with a very strong credit contraction situation. Faced with this possibility, it turns out that, unfortunately, the state does not have a plan for emergency situations.