With economic growth picking up in the epicenter of the global financial crisis of 2008, it would seem that the global economy is back on track 10 years after the crisis was triggered by the collapse of Wall Street giant Lehman Brothers. However, the celebrations might be premature. The current recovery, both in the US and in majority of the rest of the world, is built upon banking bailouts, fiscal stimulus and aggressive quantitative easing (QE) by central banks. This has created a menace that can disrupt the very recovery: a mountain of global debt. The world’s debt load has risen from around 200% of GDP in 2008 to 244% by the end of 2017. This could severely impair the ability of countries to respond to another financial crisis. The stimulus, which relied on bank credit, eventually led to a huge pile-up of debt. It also led to excessive infrastructure investment without creating the required demand, leading to ‘overcapacity’ in the Chinese economy and slowing the wheels of China’s growth engine. China began to dump goods in other economies at cheaper prices, eventually escalating to the current round of global trade war. Only a few years ago, Brazil was considered the global economy’s ‘shining star’. But the optimism surrounding economies of commodity exporters such as Brazil, Russia and Indonesia is now lost. The financial crisis arguably gave impetus to alternative currency like bit-coins which thrived in an environment where people lost confidence in the fractional banking reserve system. The global economy is no longer the same place 10 years after the collapse of Lehman Brothers.

(Live Mint)