At the recent AIM Summit in London, I had the pleasure of co-chairing an invitation-only roundtable discussion with Lord Mervyn King on the critical topic: “Are We Sleepwalking Into a Sovereign Debt Crisis?”
Lord King joined the Bank of England in 1990 following a distinguished academic career and became Governor in 2003. He subsequently led the Bank through the 2008 Global Financial Crisis, a period many of us still remember vividly.
Our discussion took place against the current backdrop of rising global debt, persistent inflationary pressures, geopolitical fragmentation and growing questions surrounding the resilience of the international financial system.
Many of the conditions preceding the 2008 crisis are beginning to reappear albeit in a different form and this was a theme that emerged particularly clearly from our discussion. Leverage, opacity, excessive confidence in liquidity and growing interconnectedness remain deeply embedded within the system today particularly across private credit and certain other areas of non-bank finance.
We explored whether governments and central banks now face far greater constraints than in 2008. Certainly public debt levels have risen dramatically following the banking crisis, Covid-19 and subsequent fiscal support measures. This raises an uncomfortable question. If another systemic crisis were to emerge, do policymakers still possess the financial and political tools to respond on the same scale as previously?
We also discussed at length the challenges presented by the growing fragmentation of the global order itself.
Perhaps, however, the most striking conclusion was that sovereign debt crises rarely are caused simply because debt becomes too high. They usually begin when market confidence in fiscal credibility, monetary stability and the ability of governments to manage mounting structural pressures begins to erode.
That possibility may still appear distant. I am not entirely convinced that it is.
#economics #debt #investing #geopolitics #centralbanks #globaleconomy
