In a World of Increasingly Extreme Policies Come Extreme Corrections

World Economic Forum  ( Original )
FEB 15, 2018

Against an ever-more-volatile geopolitical backdrop and neck-deep in a rising morass of debt, the cracks and fissures in markets are starting to show. Whether we have one last gasp to the stock market upside left or not, the clock is ticking on when we can no longer kick the can down the road.

Geopolitical risk remains considerable. Bridgewater Associates’ Developed World Populism index surged to its highest point since the 1930s in 2017, factoring in populist movements in the US, the United Kingdom, Spain, France and Italy. So long as populism lingers as a political threat, the risk of reactionary protectionist trade policies and higher capital controls will remain heightened, and this could derail economic growth.

The market is mispricing perennial structural challenges, in particular mounting and unsustainable global debt and a dim fiscal outlook, particularly in the US, where the price of this recovery is a growing deficit. In other words, short-term economic gain is being supported by policies that threaten to sink the economy in the longer term.

The Congressional Budget Office, for example, has forecast that the US deficit is on course to triple over the next 30 years, from 2.9% of GDP in 2017 to 9.8% in 2047, “The prospect of such large and growing debt,” the CBO cautioned, “poses substantial risks for the nation and presents policymakers with significant challenges.”

ORIGINAL SOURCE: The payback date for today's economic recovery is getting closer by Dambisa Moyo at World Economic Forum on 2/12/18