The bigger picture of the economy sometimes gets lost because we try to look at the economy in too much detail, argues economist Edin Mujagic. “Suppose you are very close to the Night’s Watch, and as a result you don’t see them. The only way to see that beautiful painting is to take a few steps back».
Mujagic uses this metaphor in relation to data released by Statistics Netherlands (CBS). ‘It came this morning with the news that 71 per cent of entrepreneurs expect to be able to live for at least another year. This means that a large group thinks they won’t make it to next Christmas. This fits the long-lasting wave that will be accompanied by a wave of bankruptcies.’
The fact that there hasn’t been a wave of bankruptcies yet, despite the coronavirus crisis and the war in Ukraine, has to do with the government’s huge support packages, Mujagic says. And that support probably won’t stop, the economist expects. ‘The president of the European Commission, Ursula von der Leyen, has said that European companies must receive subsidies to remain competitive with Americans. They get support from the US government.”
The debt mountain continues to expand
Mujagic fears the huge mountain of debt that will arise. “We’re already thinking about what the plan might look like, but there’s something bigger behind it. The hypothesis that the accumulation of debt can continue. No one questions that.’ Mujagic sees that one should therefore take a step back: ‘The choice of short-term self-interest takes precedence over long-term self-interest. We know that protectionism is costly, inefficient and that it depresses economic growth in the long run.’
Away from corporate balance sheets, debt is growing, warns Mujagic. “It’s about $85 trillion, that’s what it says out of balance on the foreign exchange market. There, loans are continuously taken out with a currency as collateral. Those invisible debts remain invisible until something goes wrong somewhere.’ And if that happens, the impact will be huge. “Then it will have major consequences for the rest of the economy,” warns Mujagic.
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
