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Debt Concerns Take Centre Stage In BSCC Economics, Investment Seminar

Tom Burroughes, Group Editor , London, 9 May 2016

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This publication joined the British Swiss Chamber of Commerce in London for a seminar that zoomed over the economic and investment landscape.

Angst over Chinese debt, US corporate borrowing and the potential risks from a Brexit vote and Japan’s vast experiment in quantitative easing were among some of the topics discussed when the British Swiss Chamber of Commerce held a breakfast briefing in London recently.

Paul Marson, chief investment officer of Monogram Capital Management, Diana Choyleva, chief economist of Enodo Economics, were joined by WealthBriefing’s group editor Tom Burroughes on the panel discussion, held at the Grange, St Paul’s. WealthBriefing was the media partner for this event.

While currently overshadowed in the UK to some extent by the debate over whether the UK should stay in the European Union or leave, a good portion of the discussion focused on the economic and financial market positions of China, Japan and the US. Marson, for example, questioned the extent to which the US has significantly reduced borrowing levels since the financial crisis of 2008. 

“Banks and other financial entities in the US have cut leverage, and added equity, but the non-financial corporate sector as a whole hasn’t done so and has a record level of credit market debt outstanding. From a global perspective, total credit market debt outstanding amounts to over $240 trillion, a record level, and continues to grow at a pace in excess of nominal income,” Marson said.

“This is a large issue for the US,” he said. As far as the Chinese economy goes, Marson said the total size of the balance sheets of banks in the country were up to 3.5 times the size of the country’s gross domestic product (GDP is around $10 trillion). The country is seeking to adjust from a manufacturing-based, high-investment model to a more developed one, and the transition is likely to be painful, Marson said. “The adjustment process in China is going to be both prolonged and costly and has the potential, if managed incorrectly, to trigger the greatest financial catastrophe in history. Levels of bad loans already identifiable imply a bank recapitalisation bill that could exceed $4 trillion, or 40 per cent of GDP, and with debt growth at the present extraordinary rate the cost is surely increasing,” he warned.

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