These aren't the rantings of some wackadoodle.
It comes from Desmond Lachland of the American Enterprise Institute, who had previously served as deputy director of the IMF's Policy Development and Review Department.
He, in turn, shares the outlook of someone he respects a great deal:
The world is soon headed for a period of serious economic disorder, warns Ray Dalio, founder of the world’s largest hedge fund, Bridgewater.
And (to paraphrase what a 1970s brokerage-firm commercial used to say about E.F. Hutton) when Dalio speaks, people need to listen.
Especially with his alarming warning backed up by historical experience and by current trends.
The essence of Dalio’s message: Economic disorder looms as a result of the combination of three factors all too reminiscent of the economically turbulent 1930s.
The first: The world has never been indebted before as it is today.
The second: Populism driven by income inequality has become the order of the day in all too many countries, including most importantly the United States.
Finally: Rivalry between major world powers like China, Russia and the United States has echoes of the world geopolitical tensions experienced in the first half of the 20th century with the rise of Germany as an economic powerhouse.
The world's debt level has a direct bearing on interest rates:
per the Bank for International Settlements, if interest rates were to reach the levels of the mid-1990s, the debt-service burden for developed economies would be the highest in history.
Unfortunately, there is every prospect that interest rates in the developed countries will reach or surpass their mid-1990s level.
Over the past year, both the Federal Reserve and the European Central Bank have raised interest rates to combat inflation at the fastest pace since the early 1980s.
At the same time, both Fed Chairman Jerome Powell and ECB President Christine Lagarde are warning that interest rates might need to be raised further in light of inflation’s current stickiness.
They have also warned that interest rates will stay high for longer than the market currently expects.
There's a sociocultural element as well:
The political calendar suggests that debt problems could coincide with increased domestic political strife, especially in the United States.
Polls indicate that the nation has never been as politically polarized as it is today in the post-war period.
They also suggest a divisive Donald Trump very likely could be the Republican Party’s nominee in the 2024 presidential election.
And then there's the geopolitical level of the matter:
As if the debt and domestic political problems were not a sufficient challenge for the global economy, there’s the real prospect that the world’s already difficult geopolitical environment could take a turn for the worse.
This would be particularly the case were China’s President Xi Jinping to take a page out of Russian President Vladimir Putin’s playbook and embark on a Taiwanese military adventure to divert attention from a struggling domestic economy.
It hardly helps that Taiwan supplies around half of our electronic chips and an even higher proportion of the more sophisticated of these chips.
Now, think about the foregoing in terms of what we can and cannot do about these factors.
There's only so much we can do about rogue actors on the world stage threatening tumultuous changes to the existing order. We'll need to respond if they really press their intentions, but they will do what they're going to do.
But the debt? Here in the United States, we could do two things right away to veer off of this disastrous path. We could look squarely, like responsible adults, at the glaringly obvious need to restructure the entitlement programs our government has instituted over the past century. And we could quit engaging in redistribution of money that belongs to private individuals and organizations for stupid stuff like "investing" in play-like energy forms and identity-politics social engineering.
Re: our polarization: We could give up our enthusiasm for knuckleheads, grifters and unhinged maniacs with no understanding of what history tells us about the human condition, or real Americana exceptionalism.
I'm not encouraged about the chances of us acting on that which is within our power to act on.
So, here we go, I guess.
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