- Major economies may be heading for recovery, but excessive government borrowing is at risk of fueling a financial crisis, World Bank chief economist Carmen Reinhart said on Thursday on Bloomberg TV.
- The path of government fundraising and bond buying is unsustainable and could provoke debt crises if they continue, the economist said.
- “It did not start as a financial crisis, but it is getting a major economic crisis with serious serious financial consequences,”; he said.
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If not managed properly, the coronavirus pandemic could start a global financial disaster and exacerbate economic damage, World Bank chief economist Carmen Reinhart said Thursday on Bloomberg TV.
Even after the virus drove the biggest economic decay in almost a century, losses were somewhat lost by massive government stimulus and central bank easing. But the path of global volume easing “is not a sustainable one,” and many countries could face a debt crisis just as their recovered economies have said, Reinhart said.
“It did not start as a financial crisis, but it is getting a major economic crisis with serious serious financial consequences,” he said.
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Central banks in developed and emerging economies are among the undisclosed bond purchase programs to add liquidity to markets and ensure that governments can pay for massive relief measures. The introduction of such purchases has helped drive the initial stage of economic recovery, but vulnerabilities in the global debt-to-debt space “have become apparent,” the economist said.
“The longer the uncertainty, the longer the pandemic through the global economy, the greater the damage to sheets,” Reinhart added.
This is not the first time that governments need to raise money quickly and put their balance in jeopardy. The World Bank economist pointed to World War II, when “extreme demand” for funding pushed the record loan and prompted the use of untested monetary policies.
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The coronavirus pandemic presents a similar global crisis, Reinhart said. But government spending “is not military spending that can be reversed quickly,” he said, and uncertainties about the virus’s impact indicate that spending needs will continue for the foreseeable future.
“The need to find new sources of income to support social needs would, I think, be a compelling move,” he said, adding that the risk of a debt crisis “in all regions, at different levels, and across all revenue strata. “
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