Saxo Bank: Personal savings remedy to 'perfect storm'

As private savings are at their highest relative to GDP, it’s the cash of ordinary people, not banks, that should compensate for predicted funding shortages in a corporate credit market, Steen Jakobsen, chief economist at Saxo Bank, told Business RT.

In the wake of gloomy forecasts for the global corporate credit market, as well as for the US and eurozone economies, pointing together at a ‘perfect storm’, the Saxo Bank expert says deeper involvement of people’s savings in economic processes is the only thing that could help weather the tempest.

“Everything the central banks and politicians do is by definition wrong,” he said.“You need to incentivize private capital to take part in the solution for the public sector,” Jakobsen added.

“You’ll increasingly see, particularly in Europe, that individual companies will issue debt and you and I will buy the debt with a sort of discount enabling us to take a high-risk reward,” the expert explained.

The comments come days after global rating agency S&P warned against increasing the fragility of the corporate credit market, identifying the process as a coming “perfect storm.” The agency said companies across the world might start lacking funds in the near future, struggling to raise up to $46 trillion over the next 5 years when creditors seem to have scarce money themselves.

The companies across the US, the eurozone and slowing China will need money to fill in debt gaps in their books, as well as provide for growth. Meanwhile, “banks seek to restructure their balance sheets, and bond and equity investors reassess their risk-return thresholds," said Jayan Dhru, senior managing director of Global Corporate Ratings at S&P.