Source: Press Release Service – New Zealand
Described by the Financial Times as a “radical thinker”, the investment manager David Kauders has warned that attempts to stimulate the global economy out of the coronavirus-related recession will do little to alleviate the situation.
Coronavirus has brought an extremely deep recession to the world, which New Zealand cannot escape despite its success in containing the pandemic. The immediate concerns of people are survival: family, health, jobs, a roof over one’s head and food on the table.
Kauders says that despite vows by many governments to “do whatever it takes” to get the economy back on track after the global pandemic, their actions are hampered by something that nobody seems to have taken into account: TOTAL debt. People are now frightened that unemployment could bring serious problems for household finances; businesses are concerned they will never be able to repay new borrowing.
His sombre projection is based on a revolutionary new financial concept he has developed, known as the ‘Financial System Limit’, which provides a more comprehensive understanding of the health of national, and global, economies. This and related concepts are explained in his new book, The Financial System Limit.
The financial system limit can be defined as the proportion of a nation’s economic output spent on interest on debt, above which that debt can no longer be repaid in full. Unlike the traditional focus on government borrowing, the financial system limit is the first theory to consider ALL forms of debt: corporate, banking and personal debt (such as in overdrafts, bank loans, mortgages and credit card debt).
Kauders believes these conditions had already been reached before the pandemic struck. About one-fifth of world economic output was spent on interest – a statistic that Kauders says “nobody previously seemed to be aware of”.
Given this, any attempts to stimulate the economy out of crisis, including encouraging the public to ‘spend, spend, spend’, will fail. In the latter case, this is because consumer borrowing costs remain high while incomes are falling. Rather than splash their cash on restaurants and other luxuries, people will instead concentrate on saving more, borrowing less and paying off existing debts. In societies driven by consumption of goods and services, these are all actions that reduce, not stimulate, economic activity.
The Financial System Limit ISBN 9781907230776 will be published by Sparkling Books as an e-book on 27th July, price NZD 9.95. The book is non-technical, intended for all to read. More information at www.sparklingbooks.com/limit.html
About the author
David Kauders FRSA was educated at Latymer Upper School, Jesus College Cambridge and Cranfield School of Management. He is an investment manager and also contributes occasional articles to the UK financial press.
To contact the author: e-mail info@kauders.ch
Contact the publisher via website www.sparklingbooks.com
Media Release on 20 July 2020
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