The Strategist

Goldman Sachs: The World Has too Much of Debts and Retirees

05/27/2015 - 16:32

The world gathered too many debts and faced aging of the population, and it means that debt loading of the countries can get out of hand soon, says the head of division of Goldman Sachs Asset Management in Europe, the Middle East and Africa Andrew Wilson.

In his opinion, the growing debt loading worldwide is one of the biggest threats for world economy.

- There are too many debts, and it constitutes danger to economy. Therefore, there is an obvious need to generate growth for fight against a debt, but because of change of a demographic situation, new ways of thinking at the level of policy are necessary, - Wilson added.

Traditionally demographic problem in the majority of large economies, including the USA, Europe and Japan, is not considered as the main, and it puts the authorities and the governments in the face of a difficult question of the debt repayment.

Considering growth of life expectancy and the general aging of the population, there already are not so much the working young people, how many it is required to maintain the economic model based on a debt. In the past, it worked not bad, but now times are changing.

Japanese total debt of the government rose higher than 200% of gross domestic product, and it is a very good example on how demographic changes can work against economy.

The Organization for Economic Cooperation and Development also sounded the fears concerning the growing debt in Japan. If the reform is not carried out, the indicator will exceed 400% of GDP by 2040.

Ángel Gurria, the secretary general of OECD, told that monetary stimulation and stronger growth of economy in itself are insufficient factors to cope with problems, which we have seen for 20 years.

Prospects of Japan depend on ensuring financial stability in the long term, and at a budget deficit about 8% of GDP, the debt relation to GDP will only grow. And everything is still not really bad as there is a positive balance of a current account of the balance of payments. But if the situation changes, the government would be compelled to borrow extremely actively, and banks would hardly want to give money at the low rates, as now.

Nevertheless, there is a hope for the countries with the high level of debt. Demographic shift has to lead to more creative policy, including stimulation of immigration and expansion of structure of labor to find ways to satisfy the debt. For example, Japanese prime minister Shinzo Abe took an unusual step, trying to increase participation of women in labor, and also seeking to increase inflation.

The top manager of Goldman told that all warnings of deficiency of liquidity in the market does not reflect reality, especially in the corporate bonds.

Thus, it is possible to expect the sharp growth of volatility at increase of rates of U.S. Fed.

According to many heads of investment banks, the additional measures of regulation entered in connection with crisis of 2008 can potentially bring huge volatility on the markets.


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