The Risks of Global Economic Stagnation

Case Solution

David W. Conklin, Guy Holburn
Ivey Publishing ()

In early 2016, stock markets around the world crashed, raising the risk of another great depression hitting the world. In their struggle to recover from the post-2008 global recession, many nations expanded their money supply and lowered interest rates to stimulate both consumer spending and business investment. While some of this monetary expansion boosted output and employment, much of it created bubbles in asset prices, particularly equity prices. Investors faced such low returns on bonds and other fixed income investments that they put their funds in stocks, pushing the price / earnings ratio to exceptional levels. This bubble in stock prices increased the risk of a big drop. What could and should governments do to avoid a huge stock market crash and a global depression?

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