The world economy is on its way towards an iceberg, and central banks are out of ammunition, says the banking giant HSBC's pessimistic chief and economist Stephen King.
In a 17 pages long gloomy report, King writes that "the world economy is like an ocean liner that lacks lifeboats."
The lifeboats which usually can be launched in crises are already exhausted. High government debt leaves little room for government stimulus packages and central banks have expended all ammunition when interest rates already are around zero.
King sees a vulnerable world economy which could collapse in four ways.
The first way is that wages increases and can get the stock market to crash. Wage growth is low in both Europe and the US but if it grows a lot, it may turn corporate earnings and subsequently the inflated stock market to collapse.
The next way is that insurance companies and pension funds are overloaded. Some big pension funds in the US in particular will have difficulty living up to its commitments in the coming 10 years. It could lead to a dumping of assets in search of cash.
The third way is that China's economy abruptly stops growing. The world's second largest economy is growing at its slowest pace in six years. If the slowdown continues, commodity prices will collapse and the global economy collapses with it.
And the fourth way is that central banks, and especially the Federal Reserve, may raise interest rates too early. FED, with Janet Yellen in the lead, was previously expected to begin a slow rate increase in June but is now believed to postpone the announcement.
Stephen King often returns to the comparison with the Titanic in the report:
"We will continue to sail across the sea in a ship that has a serious lack of lifeboats. Many, including Titanic's owners, believed that the ship was unsinkable. The ship constructor, however, was quick to point out that "She is made of iron, sir. I assure you that she can sink."
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