Climate change will make the next global crash the worst

(The Guardian, 11 Oct 2018) The storm clouds are gathering, but the world’s economies now have far fewer shelters from disaster than they did in 1929.

Late last month Indonesia was hit by a devastating earthquake and tsunami that left thousands of people dead and missing. This week the International Monetary Fund arrived in the country to hold its annual meeting on the island of Bali. On the day when the IMF issued a warning about trouble ahead for the global economy, the latest report from the UN’s intergovernmental panel on climate change said the world had only a dozen years left to take the steps necessary to prevent a global warming catastrophe. The message is clear for those willing to hear it: get ready for a time when economic failure combines with ecological breakdown to create the perfect storm.

Even without the added complication of climate change, the challenge facing the finance ministers and central bank governors gathered in Bali would be significant enough. The IMF has cut its forecast for global growth, but the chances are that next year will be a lot worse than is currently forecast. The risks, the IMF says, are skewed to the downside. You bet they are.

Here’s a brief checklist. For the past 10 years, the world economy has been surviving on a diet of low interest rates and money creation by central banks, but that stimulus is now being gradually withdrawn. In the United States, growth has been further pumped up by Donald Trump’s tax cuts for individuals and companies, but only temporarily. The impact will start to fade next year as higher interest rates start to bite. Trump is already berating the Federal Reserve, America’s central bank, for increasing borrowing costs.

In Europe, a colossal row is brewing between Italy’s populist government and the fiscal conservatives at the European commission because the budget proposed by Rome runs completely counter to the EU’s fiscal rules. Officials in Brussels are more worried about Italy than they are about Brexit, and with good reason. Italy’s banks are awash with bad debts and could not survive the sort of financial crisis that appears to be in prospect. It is a much bigger country than Greece, and far too big for Europe to bail out if the worst happens.

External link

The Guardian, 11 Oct 2018: Climate change will make the next global crash the worst