Being optimistic does not mean problems do not exist, rather it is the belief that problems have a solution.
Thus, for most of the challenges that the world is currently facing. All or most of them are immense. Solutions can still be found for them all. Even for the most severe threats, (such as ocean asphyxiation, global warming, or the lack of safe drinking water), solutions are still within our reach.
Besides these major challenges, threatening mankind’s very existence and whose effects we are beginning to worry about, there are also other challenges that are more narrowly defined, which gets even less attention, as if, as time goes on, the problem will disappear of its own accord. This is true in the case of the reception of migrants in Europe, who are arriving in ever-growing numbers, migrants no one wants, as if time would suffice to address their plight either way. Of course, the solution-time trick has not happened. And at some stage, we should make it possible to provide decent facilities and solutions for new arrivals who will not obviously be sent back to the hell of their countries of origin.
Among these problems, there is one that is talked about even less today than others: the next global economic and financial crisis.
Indeed, it is as if today we thought that there would never be an economic and financial crisis again. And that such a risk can be definitely ruled out.
Indeed, there is no indication of its coming.
Growth seems to be back everywhere. Unemployment is being reduced, more or less quickly, depending on the country.
Prudential legislations learned the lessons from previous crises and created the conditions for further enhancing the resilience of international banks, which have been called on to hold more capital, as a precautionary measure.
Finally, technical progress seeks to announce a more glorious Eldorado with each passing day.
And yet how absurd it would be to assume that, in today’s unrestrained and untamed globalization, financial crises
could be ruled out forever. All the more so as the signs of an upcoming crisis are indeed present.
1. First, public and private debt are higher than ever, transferring the financing of our standard of living onto future generations. Both public and private debt of the forty four most affluent countries have reached 235% of GDP compared with 190% of GDP in 2007. In particular, U.S. student loan debt and Chinese banks’ debt are wildly out of control. Without even counting ensuring the payment of future pensions that retirees will assert their right to one day, and that is not accounted for.
2. Companies’ share valuations are out of proportion. And what’s more, the most recent mergers or acquisitions are increasing at an exponential rate out of proportion with the profits that these firms will ever make. And it is those valuations, totally artificial, that have caused the absence of concerns about their counterparties: the amount of debts.
3. Banking regulations in the United States, set up in the aftermath of the 2007 financial crisis, will be slim down, giving U.S. institutions a competitive advantage over their competitors and forcing them to take on new risks in this area, thereby adding to the overall debt load.
4. Neither global growth, nor inflation will top the bill now or in the future to swallow such debts. A month from now, a year from now, ten years from now, lenders will realize that their debts are worth nothing, and they will start to panic and become fearful. It will be triggered by a more or less minor incident in Italy, the United States, China or the Middle East.
Central banks will stop behaving like legal Madoffs and reduce the free money they now give to banks. Governments and corporations will see a massive increase in the cost of borrowing and for some massive savings will be expected, or else they will go bankrupt. The crisis will come back, and along with it unemployment and reduced purchasing power.
There is still time to act for everyone, government, business or individuals, and steps to take to get prepared: we urgently need to reduce all debts bearing interest at variable rates and sell for the highest price what is to be sold.
However, such behavior, if universal, will actually precipitate the crisis, instead of mitigating it. As in a ballroom where there is only one exit: if everyone rushes for it, disaster cannot be averted.
It would, therefore, be timely to go about setting it up. To think and act collectively, calmly, in order to reduce the debt burden, and put in place real and internationally applied financial legislation.
That is what the G20 should have talked about. That is what priorities governments should be working on, if they truly had the interest of future generations at heart.
Of course, this will not happen. Only optimistic and lucid people will survive.