Excessive liquidity and low inflation created a massive financial bubble. Stock indices also posted record rises in the last ten months.
With the mission to stop the destructive economic effects that the coronavirus has already generated globally, most countries went to design fiscal stimulus packages, representing an emission of 12.7 trillion dollars.
Such assertion emerges from a Report about the Situation and Outlook for the World Economy in 2021 that the United Nations (UN) prepared.
The 198-page document explains in detail that the pandemic spread like wildfire in 2020, reaching every corner of the world to infect more than 90 million people and kill about 2 million individuals.
It highlights that “governments worldwide responded quickly and with enough courage to avoid economic contagion from the crisis. The fiscal and monetary stimulus packages appeared quickly to save the economy. ‘
Although central banks worldwide kept successfully injecting massive liquidity and keeping long-term interest rates low, the text points out that they have been less successful in meeting their inflation targets.
The Report highlights that the environment of excessive liquidity and low inflation has allowed financial markets to take risks and create a massive financial bubble, which can exacerbate economic instability.
The Largest Increase in Public Debt, Even More than the Debt that World War II Originated
According to the UN, to acquire financial assets, there was excessive liquidity. Countries did not do much for fixed investments that are essential to create jobs and boost economic growth.
In the context of a violent pandemic, the world is observing the accumulation of a financial bubble, with the leading stock indices registering record rises in the last ten months. The S&P 500 index is a clear example of this, with increases of almost 40% in comparison to the average annual increases of 10% in the last five years, “said the international organization.
The brief also points out that finances and public debt are dealing with unprecedented risks. The publication explains that, along with the growing fiscal deficit, total public debt worldwide rose to $ 9.9 trillion in 2020. “This is the largest increase in public debt after World War II.”
The UN publication also refers to the crisis that worsens poverty and inequality among the most vulnerable sectors. The situation might increase to 131 million people living in dire conditions. According to the publication, 797 million people will suffer from extreme poverty until 2030, representing a rate of more than 9% worldwide, which will miss the Sustainable Development Goals to eradicate extreme poverty within nine years.
By: Jenson Nuñez
