The chief executives of major banks and financial institutions are concerned with the population’s ageing against the rising debts.
Andrew Wilson, head of Europe, Middle East and Africa at Goldman Sachs Asset Management warns that the huge amounts of debt are to get out of control, that could be the biggest threat to the global economy.
“The demographics in most major economies including the US, in Europe and Japan – are a major issue and present us with the question of how we are going to pay down the huge debt burden. With life expectancy increasing rapidly, we no longer have the young, working populations required to sustain a debt-driven economic model in the same way as we’ve managed to do in the past.”
The demographic challenge is extremely threatening for Japan, as its population ageing is to soar by 2050.
The OECD has already sounded out a warning about Japan’s growing debt pile. The Paris-based think-tank said gross government debt was on course to balloon to more than 400pc by 2040 if the government did not carry out reforms.
Angel Gurria, the OECD’s secretary-general, said monetary stimulus and stronger growth alone would not be enough to haul the economy out of its two-decade malaise.
Others have warned privately that Japan’s debt mountain is unsustainable. “The crunch point is when it starts to run a current account deficit,” said one senior banker. “When they stop running a current account surplus and they need our money to survive, we’re not going to lend to them at 30 or 40 basis points.“
Mr Wilson said there was hope for countries with high debt burdens. “The demographic shift means that we need to look to more creative policy, including immigration and workforce expansion in order to find ways to pay down debt.
This can be seen in Japan as current Shinzo Abe’s drive to increase female labour participation and via efforts to boost inflation.”
The Goldman chief also said that warnings about liquidity shortages in the market were being “overplayed”, especially with regards to the corporate bond market. He also said that bouts of volatility when the US Federal Reserve starts to raise interest rates were to be be expected.
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