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MacroscopeWhy the era of easy money could be with us much longer than expected
- The long-term damage from the pandemic, nagging economic uncertainties and rising credit default risks mean major industrial nations could be stymied on tighter policy for some time
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The troubles facing embattled Chinese property giant Evergrande are a stark reminder that we live in a tightly interconnected global village and world financial confidence is a fragile, fickle thing. Even relatively minor tremors can cause much bigger shocks around the world.
After all, it was the failure of just two small, highly leveraged subprime mortgage funds at Bear Stearns and the subsequent collapse of Lehman Brothers which brought the world to its knees in 2008. Thirteen years on, the world remains in a precarious state, and it’s not just because of the Covid-19 pandemic.
Evergrande is not an isolated case, and debt default risks remain a blight of our times. World financial markets can ill-afford another credit crisis, especially when global policymakers are on the brink of withdrawing their super-stimulus.
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Global markets might be booming, but investors are right to question whether the world is heading towards another Lehman moment.
Economic confidence may be recovering from the Covid-19 crisis, but the means for dealing with another major global shock are thin and drying up fast. While Beijing should have more than enough resources to cope with its own domestic credit problems, the bigger challenge is global containment.
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Nowadays, world financial markets are so closely interlinked that the risk of wider contagion is always high. As Evergrande struggles to manage its US$300 billion-plus debt pile, shudders are still being felt far beyond the confines of China’s property markets.
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