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Macroscope | A protracted trade war may be the final blow that will sink the indebted world economy
- Global debt is growing faster than the global economy, which is simply not sustainable
- And as the US-China trade war drags on, major economies that are reliant on the global supply chain are running just to stay in the same place
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Why you can trust SCMP
With global debt rising, the world economy has to run just to stand still, like Alice in Through the Looking-Glass. It might seem odd to reference Lewis Carroll’s 1871 children’s book but Alice’s experience in the looking-glass world has a modern-day resonance for the economy. It also underlines the world’s urgent need for Beijing and Washington to reach an accommodation on trade.
In Carroll’s book, Alice gets into a race with the Red Queen, only to find that, although she runs faster and faster, she gets nowhere.
A surprised Alice says that, in her country, “you’d generally get to somewhere else – if you ran very fast for a long time”. “A slow sort of country!” replies the Red Queen. “Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”
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Well, with the world’s debt accumulation outstripping its economic growth, we have all gone through the looking-glass now. More and more money is being borrowed in an effort to stimulate economic activity but with less and less effect. We’re all in the Red Queen’s race.
“The debt is growing faster than the economy, than the nominal GDP, and ultimately, in the long run, that’s not a sustainable place to be,” Federal Reserve chair Jerome Powell said last week. He was only referring to the US economy but his remarks have broader implications.
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