Daily Management Review

Risks Of Return Of Great Depression Faced By Global Economy: IMF Chief


Risks Of Return Of Great Depression Faced By Global Economy: IMF Chief
Inequality and financial sector instability in the world could result in a return of the Great Depression, warned the head of the International Monetary Fund.
The IMF has completed an new research which compared the situation of the current global economy to that of the “roaring 1920s” which was a precursor to the great market crash of 1929 and the report has concluded that there was a similar trend already underway, said Kristalina Georgieva while speaking at the Peterson Institute of International Economics in Washington.
She said that on the overall in the last two decades, there has been a reduction in the inequality gap between countries, but there has been an increase of the same within countries. She pointed to the current situation in the United Kingdom as a case in hand.
“In the UK, for example, the top 10% now control nearly as much wealth as the bottom 50%. This situation is mirrored across much of the OECD (Organisation for Economic Co-operation and Development), where income and wealth inequality have reached, or are near, record highs,” she said.
“In some ways, this troubling trend is reminiscent of the early part of the 20th century – when the twin forces of technology and integration led to the first gilded age, the roaring 20s, and, ultimately, financial disaster,” she added.
It is likely that there would be widespread social unrest and financial market volatility because of some new issues in the global economy and trade that have cropped up such as the climate emergency and increased trade protectionism, she warned.
“If I had to identify a theme at the outset of the new decade, it would be increasing uncertainty,” she said.
“The global trading system is in need of a significant upgrade”, she said in reference to the still raging disputes between the United States and Europe.
It is not only business but individuals are affected by uncertainty – particularly because of the inequality within many countries, Georgieva said.
She said that “excessive inequality hinders growth and ... can fuel populism and political upheaval”.
“The IMF delivered a stark message about the potential for another massive financial disaster that we last experienced during the Great Depression. With inequality on the rise and concerns of stability in the markets, we need to take this warning seriously,” said Eric LeCompte, the head of debt charity Jubilee USA.
Georgieva said that while the key lied in government spending for helping out those who lie at the bottom, and added: “Too often we overlook the financial sector, which can also have a profound and long-lasting positive or negative effect on inequality.”
How the access to the financial sector in China and India in the 1990s “paved the way for enormous economic gains in the 2000s”, highlighted the report from the IMF which was released before the publication of its updated economic forecasts next week.
“This in turn helped in lifting a billion people out of poverty,” she said.
However she also warned against excesses that led to the 2008 global financial crisis with respect to access to the financial sector.
“There is no substitute for high-quality regulation and supervision,” Georgieva said. “We are safer but not safe enough.”


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