It was reported the week of 7 October that Kristalina Georgieva, the new Managing Director of the International Monetary Fund, asked staff members to analyze the risks of a prolonged period of negative interest rates and what the “exit strategy” might be.
“Prolonged low rates also come with negative side-effects and unintended consequences,” Ms. Georgieva observed. “Think of pension funds and life insurance companies that are taking on more risky investments to meet their return objectives.”
She said, “In 2019, we expect slower growth in nearly 90 percent of the world. The global economy is now in a synchronized slowdown.”
With the world having taken on some $250 trillion in debt, she warned that “in some countries, firms are using low rates and building up debt to fund mergers and acquisitions instead of investing. Our new analysis shows that if a major downturn occurs, corporate debt at risk of default would rise to $19 trillion, or nearly 40 percent of the total debt in eight major economies. This is above the levels seen during the financial crisis.”
TRENDPOST: Follow the money! Investors yanked $60 billion out of stock funds in the third quarter. This was the heaviest outflow of money, leaving stock funds in a single quarter, since 2009’s Great Recession.