Macroeconomic Threats: Tax, Rising Interest Rates and New Asset Bubbles

Michael Grimwade

“It’s a recession when your neighbour loses his job, and a depression when you lose your job.”

attributed to Harry S. Truman, 33rd US President


The developed world is not well placed to survive another financial crisis. The scope for fiscal stimulus is restricted by the significant increases in debt-to-GDP ratios, while, with interest rates in many economies ranging between near zero and negative, the only scope for further monetary stimulation seems to be increasingly negative rates and even more quantitative easing.

In its 2015 Annual Report to Congress the Office of Financial Research observed that the elevated corporate debt levels and sinking earnings were “hallmarks of the late stage of the credit cycle, which typically precedes a rise in default rates”. In line with this, 2015 had the second-highest level of defaults of companies with a global presence over the preceding decade and was exceeded only by 2009, at the height of the global financial crisis. The defaults of 2015 were largely driven by a combination of China’s slowdown and the impacts of low commodity prices, eg, the effects of oil prices on the US shale gas producers (“when China sneezes

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