A sudden rise in interest rates poses the greatest threat to the global economy, the IMF’s former chief economist has told the BBC.Ken Rogoff, who famously predicted a big bank would collapse during the financial crisis, warned that people had got used to ultra-low interest rates. He also said the economic policies of the Trump administration posed a risk. Previously the economist had said China was the number one threat.Talking to the BBC’s World at One Mr Rogoff said that levels of personal and corporate debt had risen in the global economy.’Start to unravel’ This was while interest rates had been held at historic lows in many countries, to encourage investors to borrow and spend after the financial crisis. “If something was to happen that pushes interest rates up, we could see a lot of soft spots – places where there is high debt – start to unravel,” Mr Rogoff said.
He also said that the economic policies of the White House were creating uncertainty, without naming specific policies. President Donald Trump is pursuing a more protectionist trade agenda and trying to relax regulations brought in to protect the financial system after the crash.He has also pledged to slash taxes and boost infrastructure spending. “The risk is that the White House or the US will do something really irrational. That may seem hyperbolic but we are all holding our breath,” Mr Rogoff said. ‘Scarred generation’He added that China, the world’s second largest economy, remains a threat due to its own debt problems, political instability and dependency on exports.Speaking ten years on from the start of the financial crisis, Mr Rogoff said the US had substantially recovered from the downturn of 2007-8. But he said a generation had been “scarred” by the crash and many young people had struggled to find work as a result. “I think the crash greatly amplified this wave of populism that the world’s feeling right now,” he said.”The US would not have had Donald Trump as president without the crash.”
Source: BBC News