Page 5: We must learn to live on high alert. Economic and geopolitical certainties we once took for granted - from job security, to a sustainable and healthy planet, where most infectious diseases were conquered, and to peace among rival great powers are disappearing.
Page 6: We Cannot assume that lowering tax rates, liberalizing trade, and reducing regulations will unleash economic energy that will benefit everyone.
Page 7: Increasingly, the entire world resembles Argentina. Public debt owed by governments, on top of private debt owed by corporations, financial institutions, and households, was soaring out of control before the gigantic tab for the COVID-19 pandemic response came due… former treasury secretary Lawrence Summers warned in early 2021 in a Washington Post op-ed, where he correctly expressed concerns that such a large, excessive stimulus would overheat the economy and cause high inflation.
Page 12-13: “Those [European] debts surging to levels not seen since World War Il,” the New York Times reported in February 2021.3 In many European countries, debt is growing so fast that it is vastly outpacing the size of national economies.
**Page 13: *“*If the global debt pile continues to grow at the average pace of the last 15 years, our back-of-the-envelope estimates suggest that global debt could exceed $360 trillion by 2030-over $85 trillion higher than current levels.” That would bump the global debt ratio to more than four times global output, a level that would smother economic growth under the massive costs of debt service.
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The kinds of harsh remedies available -devaluing currencies and cutting off the social safety net, for example - often lead to all manner of unintended consequences, including market crashes, authoritarian populism, and even the quiet sale of missile and nuclear technologies to the highest rogue bidders.
Page 14: Debt that was manageable when interest rates were zero or negative will become unsustainable as central banks now have to sharply raise their policy rates to fight inflation. This time, we are racing toward an inflection point that will alter life for lenders and borrowers, whether public or private, prudent or profligate. The Mother of All Debt Crises may take place sometime during the current or next decade.
Page 16: If everyone in the Davos set believes something will happen- good or bad, as it may be - they are highly likely to be wrong.
Page 21: These volatile assets [overvalued assets] produced revenue in local currencies but required payment, rain or shine, in dollars and Japanese yen. The currency mismatch between dollars and yen, on the one hand, and (for example) the Thai baht, doomed those speculative investments. The fallout soon engulfed not just the Asian Tigers but banks and investors worldwide.
Page 23: During the savings and loan crisis of the 1980s, when speculative real estate loans caused innumerable small financial institutions to go belly-up, regulators formed the Resolution Trust Corporation, which bundled risky assets for sale to investors with sturdy risk appetites. Savvy buyers saw high returns on risky real lending and snapped up fire-sale bargains. A subprime industry took off. Creative minds on Wall Street started turning sows' ears into silk purses. With the hasty blessing of debt rating agencies paid by debt issuers, risk appeared to vanish. This pattern set the table for home buyers to go hog wild in the following decade, goaded by lenders with few standards and no scruples. Fast forward to today. The COVID-19 crisis initially led to the worst global recession since World War II. The pandemic rocked a global economy already burdened with enormous amounts of private and public debt.
Page 25: Many experts brushed off these episodes as a fleeting departure from rational judgment. But can we overlook the fact that the US government had just sent checks to millions of adult Americans? Is this how some of them spent the money? Millions were day trading and gambling their little savings in meme stocks or crypto assets with no fundamental value. It did not help them and did not help the economy as policy makers had intended.
Page 26: The real economy that produces goods and services is poised to boom for a while, fed by debt arising from low interest rates, ample credit, and enormous economic stimulus by governments.
The party will go on until reckless speculation becomes unsustainable, ending with the inevitable collapse in bullish sentiment, a phenomenon called a Minsky moment, named for economist Hyman Minsky. It's what happens when market watchers suddenly begin to wake up and worry about irrational exuberance.
Page 28: If this free fall causes domestic inflation to spike as economies shrink and currencies are debased, we can expect an economic tar pit that hedge fund luminary Ray Dalio calls "inflationary depression." Instead of exporting goods or commodities, struggling emerging markets will export citizens hoping for better lives elsewhere.