Around 6 trillion US dollars in the United States, just under 1 trillion US dollars in Japan and around 500 billion euros from the European Commission, which does not yet include the support totals of the individual member states – these are just a few of the sums that are being channelled into eco- nomic stimulus programmes worldwide to alleviate the crisis triggered by Covid-19. This is because estimates from the Organisation for Economic Co-operation and Development (OECD) suggest that the coronavirus crisis will reduce added value in industrialised countries by around 25 percent.
According to calculations by the International Monetary Fund (IMF), global public debt amounted to 83 percent of economic output in 2019. Forecasts have this ratio approaching 100 percent in 2020. The G20 countries’ economic stimulus packages already amount to almost 10 percent of gross domestic product (GDP) in 2019, while at the same time the measures to curb Covid-19 are causing a supply and demand shock. For example, the IMF expects the global economy to collapse by 3 percent in 2020. Currently, more accurate figures are unavailable.
The dilemma now lies in the large mountains of debt piling up on one hand, and sources of income stagnating on the other. The IMF has already said that governments should be quite generous during this period, but also keep clean accounts – because eventually, the day of reckoning will come. And the epidemic is not yet over.
The situation is exacerbated by a monetary policy that may work today because there is no immediate danger of inflation. In the medium term, however, it increases the risk of market distortion and bubbles forming in tangible assets.
The key interest rates of the US Federal Reserve (the Fed) and the European Central Bank (ECB) are already hovering around zero. This deprives savers and pension systems of their foundation for building up capital. In addition, authorities are relaxing the criteria for purchase programs to buy risky securities. With the financial crisis, central banks’ balance sheets have been continuously inflated, now this trend is continuing. If we link the situation in monetary policy with the shrinking economies and rapidly growing national debts, and if we also take into account the debt ratio of companies and private households, a picture of a very fragile future emerges. With the current manoeuvres, the Fed and ECB are increasingly restricting their scope for action, so that they will be unable to prevent the debt spiral from spinning out of control.
Request for farsighted planning
In this «whatever it takes» environment it is important to act with caution. Eventually, states will have to recoup the money they are spending now. They will not be able to avoid expanding their revenue streams. New types of taxes and levies are already being discussed. Regulatory pressure will also increase and the pressure on «offshore», now synonymous with private wealth, will continue to intensi- fy. Although the realisation of a global asset register is still a long way off, it does indicate a direction in which the world is developing. It is therefore necessary to take precautions and plan and structure one’s own assets with foresight so that they are secured against future challenges of all kinds.
For an asset structure to be sustainable over the long term and across national borders, it must meet the long-term goals, requirements and circumstances of a family, while at the same time taking into account the relevant legal, regulatory, tax, economic and business requirements. Every asset situation is different. It is therefore important for an asset structure to be tailored to the client’s needs and yet flexible enough to allow it to be adapted to changing circumstances in the future.
Anton von Seilern-Aspang
Member of the Management Board