William White, Chairman of the Economic and Development Review Committee (EDRC) at the Organisation for Economic Co-operation and Development (OECD) and former Chief Economist at the Bank for International Settlements (BIS), is warning that the risks posed by global debt levels are greater today than they were back in 2007 and at that central banking monetary policy has lost its effectiveness.
White accurately predicted the financial crisis of 2007–2010, before 2007’s subprime meltdown (subprime mortgage crisis). He was one of the critics of Alan Greenspan’s theory of the role of monetary policy as early as 1996 and challenged the former Federal Reserve chairman’s view that central bankers can’t effectively slow the causes of asset bubbles.
“If you think about a crisis period as a period of deleveraging, in fact this has not happened and we’ve gone in the very opposite direction. Now, on the household side, clearly there have been some improvements made but on the corporate side in the US, things have gotten significantly worse—the debt ratios for corporations have gone up very substantially as has government debt…”
“More importantly—again, when I say the situation is worse today than it was in 2007—in 2007 this debt problem was essentially confined to the advanced market economies. Since then, the debt ratios—the private debt ratios in particular—have exploded in the emerging market countries and so we now have in a sense a global problem whereas in 2007 you might say we had a regional problem with the advanced market economies. But now it’s basically everywhere so, yes, I do think that the situation is worse than it was then…“
Read more from the Financial Sense