Amid soft monetary policy – including during the coronavirus pandemic – the total debt of the world economy rose to 260% of GDP. This was announced in a speech at the Gaidar Forum by Finance Minister Anton Siluanov.
“The last few years, debts have grown very strongly. If we look, today the total debt of the world economy is about 260% of GDP. Moreover, both public debt and corporate debts have grown very steeply,” Siluanov said.
During the pandemic, the states “warmed up” the economies with the help of soft monetary and budgetary policies, which led to a rapid increase in inflation, and now the main question is how to get out of this trend, the Minister of Finance said. “And how to get out? By raising interest rates, reducing excess budget deficits. And this is a very painful process,” Siluanov concluded.
The two key world central banks that issue the two main world reserve currencies – the US Federal Reserve System (FRS) and the European Central Bank (ECB) – have de facto conduct a soft monetary policy (keep low or zero rates, carry out “quantitative easing” programs) since the past the world economic crisis of 2007. During the coronavirus pandemic, quantitative easing programs through bond market buybacks and stimulating investments in the real economy were strengthened. A side effect of this stimulation of economic activity was the emergence of “bubbles” in a number of sectors of the stock market and the rapid rise in inflation.
So, in 2021, inflation in the United States became a record since the early 1980s, reaching 7%, in the eurozone, according to preliminary data, it was 5%, which was not the case in the entire history of the euro. The Fed announced the gradual curtailment of the asset repurchase program at the end of 2021 (it is likely to end in the spring and summer), the ECB plans to begin a gradual curtailment of the program in the first quarter. It is possible that both regulators may start raising interest rates in 2022.