Doug Kennedy, President and CEO of Peapack-Gladstone Bank Addresses Recent Events Within the Banking Industry.
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The Weekly Economic & Market Recap
April 20, 2018
We often focus our comments on issues likely to impact the financial markets over the immediate 12-month investment horizon. Over the next year, there does not appear to be a systemic concern that will derail either financial markets or the economy. Interest rates remain historically low, global GDP growth is solid and corporate earnings are accelerating. Other than geopolitical events, which are by nature unpredictable, inflation expectations getting ahead of the Federal Reserve seems to us to be the most meaningful risk. As we expand the time horizon from three to five years, global debt becomes a significant consideration. The International Monetary Fund said that global debt is at a historic high reaching 225% of GDP. Global debt has exploded since the Great Recession mainly related to the fiscal policy response to the crisis, as well as increased spending in emerging economies. The debt concern is heightened because the two largest economies, the U.S. and China, are major culprits in the growing debt problem. China is responsible for three-quarters of the expansion of global debt since 2008. The U.S. national debt currently exceeds $21 trillion (roughly$174,200 per taxpayer), and we are running a deficit that will approach$750 billion in 2018. The IMF predicts deficits will average over $1 trillion in the next three years. Investors have largely ignored the growing debt burden both in the U.S. and globally. If current trends are not addressed, especially with potentially higher interest rates, the cost of interest rate servicing will eventual impact standards of living and economic activity.
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