The IMF said that if no action is taken to reduce this debt, it may cause another world financial and economic crisis as seen from the USA sub-prime housing-bubble of 2008.
These admonishments are based on research of 113 countries which shows that private and public debt from all over the world has reached a record 225% higher than global economic output. Private debt accounts for 67% of this total. Experts say that rapid rises in private debt often led to financial-sector triggered recessions that last longer and are more severe than normal downturns.
The director of the IMF’s fiscal affairs department Vitor Gasper said most of the debt is in advanced countries of the West and is in big emerging markets like China.
The IMF also said that the world is experiencing a ‘vicious feedback loop’ which means that lower growth is making it difficult to reduce borrowing.
While central banks have been trying to deal with this issue, the IMF is urging world governments to intervene using fiscal policy. "It is crucial to have in place measures to prevent excessive debt build-ups," said Gaspar.
The IMF also suggested governments stop giving tax incentives that encourage borrowing.
crisis - an event that can lead to destruction
record - a condition / achievment that has never happened before
sub-prime - below what is best - in reference to giving loans to people will bad credit
bubble - a financial situation where no one has money to buy anything and companies cannot sell
admonishments - warnings
to intervene - to come between two or more things and try to change the situation
financial sector - the banking / financial industry
to trigger - to quickly cause something to happen (like a 'trigger' in a gun that shoots a bullet extremely quickly)
recession - a period of declining economy
downturn - a temporary period of slow economy
feedback loop - a cycle that feeds itself
fiscal policy - laws and regulations made by governments concerning money / finance / commerce
incentive - something that motivates you to do something