Global economy is 'walking on a tightrope,' economist says
Many economists are pessimistic about the state of the global economy, as the 10-year Treasury note broke below the 2-year rate for the first time in more than a decade in the U.S. and plunging global interest rates may be signaling a looming worldwide recession. Several of those economists provided The Washington Post with their takes on what's going on.
"It seems very fragile at the moment," Torsten Slok, chief economist at Deutsche Bank Securities, told the Post. "We're walking on a tightrope."
Outside of the U.S., the Post reports, 43 percent of bonds are trading at a negative interest rate, which is one of the major reasons for the worried outlook. Those yields have complicated central banks' management of the economy, but raising rates wouldn't necessarily be a quick fix. "If interest rates keep going down, the banks will be under pressure," economist Ashoka Mody, a former International Monetary Fund official said. "If they go up, governments will be under pressure. They're caught in a bit of a pincer."
While negative rates don't spell immediate doom, the longterm outlook is somewhat bleak if the situation remains in its current state. "You can survive, quote-unquote, or can live with negative yields for quite some time," economist Claudio Borio, the head of the monetary and economic department at BIS, said. "Indefinitely? It would be very odd to think about that being possible. There would be distortions in the economy. You will have resources in the wrong sectors, in the wrong firms, and therefore productivity and growth will suffer. On top of that, you're likely to have quite a lot of debt out there, which will make it harder for policymakers to raise rates without creating some tensions and problems." Read more at The Washington Post.