EDITOR NOTE: What’s the likelihood that another global financial meltdown will unfold like it did in 2008? According to Mervyn King, a governor of the Bank of England during the 2008 crisis, such a scenario is not only possible but highly probable. What does he see as the catalyst? Corporate and sovereign debt defaults, both of which are on the rise. What does he forecast as the immediate outcome? Debt restructuring across the board. This inconspicuous term means “writing down asset values on the balance sheet” to more realistic levels. What’s at stake here is fiat money and credit, which circulates like blood throughout the global economy. That bad news is actually good news when what you’re stashing away is “Real Money” and not fiat currency. Real Money will remain sound. And that’s another compelling reason why you should own non-CUSIP gold and silver. There really is no other more sound form of “currency.”
Debt defaults among businesses and countries are rising, and these could cascade through the financial system and possibly trigger another financial crisis, the former head of the Bank of England said Monday.
In a talk delivered to the American Economics Association’s annual meeting, Mervyn King, who was governor of the Bank of England during the last financial crisis, said significant debt restructuring may be a necessary precondition for restoring the global economy to health.
But this restructuring implies “writing down asset values on the balance sheet of many financial intermediaries to more realistic levels,” King said. And that, he said, will require the “recapitalization” of some financial institutions in some countries.
“To put it more bluntly, there is a risk of another financial crisis,” King said.
The former BOE governor noted that, relative to GDP, global debt levels are higher today than in the run-up to the 2008 financial crisis. “If the problem before the [2008] crisis was too much borrowing and too much spending, than the problem today is too much borrowing and too little spending,” King said.
An early task for the incoming Biden administration in the U.S. will be to restore international cooperation so a crisis can be averted, King said.
“The looming wave of debt restructuring, both corporate and sovereign, will be difficult to handle without greater cooperation between countries if we are to avoid another debt crisis,” King said.
Originally posted on MarketWatch
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