A British investment
manager who predicted the 2007 credit crunch has warned that
Keynesian economic policies followed by governments are in danger of
deepening the global downturn.
David Kauders, an
investment manager and analyst, said the policy prescriptions derived
from the 1930s no longer work. “Keynes was right at the time”
said Kauders, “but after 75 years of post-1945 application, the result –
rising interest payments – now
neuters any benefit.
private sector debts post-war, credit cards, personal loans,
mortgages and all forms of business borrowing are now approaching
three times GDP (economic output) worldwide.
borrowing by government, the interest burden faced by the private
sector has been getting more expensive. Banks are less willing to
support businesses and when they do, they charge more to cover the
risk of rising bad debts. Equally, some businesses are reported as
not wanting to add to their debt.
“Policy advice is
now trying to make the debt-saturated global economy more indebted.
borrowing” says Kauders “flies in the face of common sense.
People want to pay their big loans off. People now want to save
instead of spend more.”
Because all advanced
economies are dominated by consumption and services, when people
choose to spend less and save more their national economy shrinks.
Perfectly rational behaviour deepens the recession.
Speaking about his
latest book, The
Financial System Limit – Radical Thoughts About Money,
he said: “Credit is not infinite and debt brings with it interest
cost, which in turn takes a substantial toll on economic prosperity.
Already one-fifth of economic output is devoted to paying interest.
This is close to unaffordable. Professional economists argue that
this is just a transfer payment from one group of people to another.
They overlook that ever-rising interest payments destroy those who
have borrowed and make it harder to repay debt.
“The more debt
that businesses and households take on, the nearer we come to the
financial system limit. Cheap government borrowing is fine until it
is passed to businesses and households at much higher interest
Kauders, who is
credited with forecasting the 2007 crash, added: “Though it is too
early to say for sure what the outcome will be, I am concerned that
this poor outlook for businesses will affect pensions and thereby
According to the
International Monetary Fund (IMF), the Covid-19 outbreak is set to
wipe 6.5% off the world economy in 2020 and 2021.
But Kauders, whose
book provides a radical new critique of dominant monetary and
economic policies, said the resulting additional borrowing could take
the world closer to its “financial system limit.”
This occurs when a
country’s total debt – comprising government borrowing as well as
corporate, banking and personal debt – becomes so large that the
majority of its resources are used to repay the loan and not for
It means that funds
which would otherwise be used for internal growth – like job
creation and public services for example – are lost.
When this happens,
state and work-based pensions devalue and banks increase borrowing
rates as personal wealth and asset values decline.
projections are based on logic and thought rather than obsolescent assumptions
about how the world ought to work.
He said: “A case
study of a defaulting country in the book, showed that default
occurred when 38% of economic output was spent on interest. The
pandemic has already pushed interest costs up and economic output
down. Few economists seem to appreciate the limits to interest cost.”
Notes for editors
Financial System Limit
ISBN 9781907230776 will be published by Sparkling Books as an e-book
on 27th July, price USD 6.99, EUR 5.99. The book is non-technical,
intended for all to read. More information at
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
contact the author: e-mail firstname.lastname@example.org
Press release distributed by Pressat on behalf of Sparkling Books Limited, on Wednesday 22 July, 2020. For more information subscribe and follow https://pressat.co.uk/