If you were worried about the debt of the United States then hold on to your heart because the figure for global debt is even more alarming. In a report issued by the Institute of International Finance in November last year the global debt hit a new high of over $250 trillion dollar for the first half of 2019!
According to the report, China and the US were two of the biggest contributors to global debt. The IIF said the overall number hit $250.9 trillion at the end of this period, and will exceed $255 trillion dollar by the end of 2019.
The IMF also warned at the end of 2019 that almost 40%, or around $19 trillion dollar , of the corporate debt in major economies such as the U.S., China, Japan, Germany, Britain, France, Italy and Spain was at risk of default in the event of another global economic collapse.
The IIF cites the deepening of global bond markets as the reason for the rise in debt levels. The global bond markets increased from $87 trillion dollar in 2009 to over $115 trillion in mid-2019.
Investors and policymakers have long relied on one bond market indicator to gauge whether or not a US financial collapse is close. That indicator is the US yield curve. Typically, short term interest rates are lower than long term interest rates because investors demand a bit more compensation to lend on a longer term basis. This is also known as the risk premium. When short-term yields rise higher than long-term yields people often take this as an indication that monetary policy is just too tight and economic collapse could be coming and that the Fed is going to have to lower interest rates in order to protect the economy. People pay attention to when the US yield curve inverts because it has turned negative before every stock market crash and recession of the last 50 years.
So far we have established that the yield curve always goes inverse before financial collapses. Now you can say that the graphs show that the curve has also gone inverse in many other places where crashes have not hit. True. It is not necessary for a crash to occur every time the yield curve goes negative but whenever a crash has hit, yield curve has always been negative right before it.
In the video you can clearly see that before each stock market crash the yield curve went inverse and touched the 0% mark. Last year June – October the yield curve remained inverse for a period of almost 3 months and it has since then recovered only because Fed raised the rates twice after that.
What does this mean?
When the yield curve inverts, short-term interest rates become higher than long-term rates. This type of yield curve is the rarest of the three main curve types and is considered to be a predictor of economic collapse. Because of the rarity of yield curve inversions, they typically draw attention from all parts of the financial world.
This means that yield curve is one of the key indicators of a coming stock market crash and the latest inversion ended in October, so are we lucky or are we still in the danger zone for the upcoming economic collapse?
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