Two dozen nations including the US’ annual debt whopping 300% of their GDP

The world is engulfed in a debt trap, and banks are powerless to resist the temptation to maintain interest rates low.

The world is facing a new bout of double digit inflation. Despite the interest rates remaining steady for the last few months, the inflation continues to surge. Food prices and commodities have seen such a surge not seen for some time. Experts have indicted the fear of a surge in COVID cases and the resultant buying spree by banks for the sudden surge in inflation. However, many experts feel that this surge in inflation is temporary.

Looking at the above evaluation, only one evaluation fits in the present scenario, the world is stuck in a massive debt trap. The total debt globally has become more than three times, 350% of the Global GDP.

Loans with low interest rates invested in stocks

As the Central banks started releasing loans at lower interests, the market was flooded with liquidity which was invested in stocks. Bonds and other financial instruments started flooding the market and it equalled four times the global GDP. The realization is running in the market that the market is being crushed under the weight of debts and any surge in the market is not permanent.

The advent of the vaccine and the opening of the markets have led to consumers to embark on a spending spree. However, it must be remembered that this inflation surge is not going to be a short phenomenon. Headline inflation in America has touched 6% which is one of the highest in three decades.

World is seeing a surge in double digit inflation

Economic indicators were very good. Daily wages of workers were rising. A feeling of smugness was seen in US with every unemployed having an option of six employment options. It was predicted that the economic growth will touch pre-pandemic levels soon. Output will take care of demand. Still the world is seeing a surge in double digit inflation.

Global Bond market is hiking prices in the belief that next year the Central Banks will reduce the interest rates of short term loans. However, too much pressure could have a negative effect.

In the last two decades, the numbers of nations which have debt to GDP more than 300% have increased from half a dozen to more than two dozen. The world is in a grip of a debt trap and the banks cannot resist the pressure to keep interest rates low. The coming times will be tougher for the world economy.

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