Macroscope | Global mountain of debt should give stock market investors pause

Rising interest rates, a colossal increase in borrowing and the remarkable lack of concern on the part of policymakers, economists and investors all add up to trouble

Reading Time:3 minutes

A hot dog stand near the New York Stock Exchange on January 18. Many analysts believe the worst is over and that it is time to get back into the market. Photo: AFP

Published: 11:00pm, 25 Feb 2023

As any competent chess player knows, the ability to think ahead is critical to winning, yet lately, many policymakers, economists and investors seem unable to understand this. Instead, they lurch from one falsely optimistic assumption to another.

It is troubling that so many seem to have got much wrong about where the global economy is headed, while remaining convinced that everything is about to come right. This is as shortsighted as ignoring the danger of a fool’s mate in chess.

By letting interest rates stay so low for so long, by being caught off guard by inflation once governments started making cash transfers, then by embarking upon panicked interest rate rises, central banks showed an inability to see beyond one move, as have many other economic players.

This same syndrome is manifesting again in a myopic belief that because interest rate rises appear to be putting a lid on inflation, all will be right before long, that it is fine to start behaving as though the worst is over, that recession threats were just a bad dream.

It is not. Monetary policy works with a lagged effect – and we haven’t really begun to experience it yet. But as interest rates continue to rise on the back of inflation, we will.

Asia will not be immune to this; its impact on consumption, investment, the health of the financial system and economic growth will be severe. This is clearly not obvious to those who believe every little improvement signals the imminent end of a problem.

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.css-1m2rp1p{color:#34b8b5;}Macroscope | Global mountain of debt should give stock market investors pause

.css-1mniedq{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;}Rising interest rates, a colossal increase in borrowing and the remarkable lack of concern on the part of policymakers, economists and investors all add up to trouble

Macroscope | Global mountain of debt should give stock market investors pause

Rising interest rates, a colossal increase in borrowing and the remarkable lack of concern on the part of policymakers, economists and investors all add up to trouble