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<ul class="summary-list"><li>The International Monetary Fund raised its growth forecast for the US economy to 2.8% this year.</li><li>It expects slower growth of 2.2% next year as the government cuts back and the job market cools.</li></ul>The International Monetary Fund raised its growth forecast for the US, projecting the world's largest economy would expand by 2.8% this year instead of the 2.6% it predicted in July.in its latest <a target="_blank" class="" href="https://www.imf.org/en/Publications/WEO/Issues/2024/10/22/world-economic-outlook-october-2024">World Economic Outlook </a>released on Tuesday, IMF staff cited stronger consumption fueled by "robust increases in real wages" and wealth effects, along with non-residential investment, as the two main reasons for the increase. However, they predicted GDP growth would slow to 2.2% in 2025 as the US government curbs its spending and the labor market cools, sapping consumption.The IMF projected global growth of 3.2% in both 2024 and 2025, virtually unchanged from its previous prediction. They underscored their latest forecast for global growth over the next five years of 3.1% was "mediocre" compared with the pre-pandemic average."Persistent structural headwinds — such as population aging and weak productivity — are holding back potential growth in many economies," the agency's staff wrote.They projected only a slight slowdown in China to 4.8% this year due to resilient net exports, and revised their April forecast for 2025 upward by 0.4 percentage points to 4.5%. They noted the Chinese government's stimulus measures "may provide upside risk to near-term growth."The UN financial agency said that growth in the euro area appears to have troughed in 2023, and it anticipates an acceleration to 0.8% expansion in 2024 driven by stronger exports, then 1.2% in 2025 on the back of improved domestic demand.IMF staff made downward revisions to its growth outlook for the Middle East, Central Asia, and sub-Saharan Africa, citing disruptions to the production and shipping of oil and other commodities as well as "conflicts, civil unrest, and extreme weather events."In contrast, they upgraded their April forecasts for emerging and developing Asia by 0.3 percentage points for both 2024 and 2025, to 5.4% and 5.0%. They cited "surging demand for semiconductors and electronics, driven by significant investments in artificial intelligence, has bolstered growth."

The IMF just raised its growth forecast for the US economy this year — but expects a slowdown in 2025

<ul class="summary-list"><li>The rapid growth of private could end up being a risk to broader market stability, the IMF says. </li><li>The "opaque" corner of financial markets grew to $2.1 trillion last year. </li></ul>The rapid rise of the private credit industry could end up threatening financial stability, given how little is actually known about the sector, the <a href="https://www.imf.org/en/Blogs/Articles/2024/04/08/fast-growing-USD2-trillion-private-credit-market-warrants-closer-watch" target="_blank" rel="noopener">International Monetary Fund wrote</a> in a blog post on Monday. As more and more lending to businesses moves from regulated banking institutions to less regulated firms like private credit funds, risks grow as the window into lending practices becomes opaque, the group said. "The migration of this lending from regulated banks and more transparent public markets to the more opaque world of private credit creates potential risks," analysts wrote on Monday, noting that the sector topped $2.1 trillion in assets and capital last year. And since the start of the century its returns have boomed, increasingly outperforming the <a href="https://markets.businessinsider.com/index/s&amp;p_500?utm_source=markets&amp;utm_medium=ingest%3Futm_source%3Dmarkets&amp;utm_medium=ingest&amp;utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets">S&amp;P 500</a> and MSCI World index. <div type="image" title="Returns of private equity, private credit, and equity benchmarks" height="1182" width="1466" msid="109141720" hostid="261" sizebytes="48188"></div>This industry emerged to provide much-needed financing for firms deemed too risky for commercial lenders. Despite being illiquid, the market's rich returns, speed, and flexibility have won over investors, the IMF wrote.But the sector is also largely unsupervised, and there are some troubling signs as more of the loan market's share goes to private credit. "Valuation is infrequent, credit quality isn't always clear or easy to assess, and it's hard to understand how systemic risks may be building given the less than clear interconnections between private credit funds, private equity firms, commercial banks, and investors," analysts wrote.First, borrowers tend to be indebted firms, already relying on leveraged loans or public bonds. That means that they're more at risk as interest rates rise, with a third of borrowers already facing interest rate costs that exceed earnings, the IMF said. However, credit providers aren't tightening their lending standards, as private credit increasingly comes into competition with larger banks, and since the loans trade infrequently, they can be difficult to value. Not only could private credit standards be worse than they appear, but analysts might not fully appreciate how interconnected the sector is with the wider financial system. For instance, banks may have more exposure to private credit than many realize, while pension funds and insurers have been acquiring more shares of these assets, the IMF said. Meanwhile, new funds are cropping up that target individual investors, spreading risk from Wall Street to Main Street. Given these factors, private credit has the potential to amplify a recession whenever one hits, one of the blog's authors separately said at a Brookings Institution event last week. "I think we don't see a financial stability risk, but … from a macro-financial standpoint, we don't know (how) the sector, given the size, would operate under a severe prolonged recession, Fabio Natalucci said, according to the industry news service <a href="https://www.pionline.com/alternatives/private-credit-not-financial-stability-risk-could-worsen-recession-imf-official-says" target="_blank" rel="noopener">Pensions and Investments</a>.

Huge growth in an 'opaque' corner of global finance could be a risk to broader market stability, IMF warns

<ul class="summary-list"><li>This post originally appeared in the Insider Today newsletter.</li></ul>Good morning! A Sam's Club with robots making pizza and no cash registers could be the new norm for the warehouse club. CEO Chris Nicholas spoke to BI about what he wants <a target="_blank" href="https://www.businessinsider.com/sams-club-ceo-chris-nicholas-interview-2024-10">shopping "in the future" to feel like</a>.In today's big story, Goldman Sachs thinks the past decade of big returns from the S&amp;P 500 <a target="_blank" href="https://markets.businessinsider.com/news/stocks/stock-market-outlook-sp500-future-returns-decade-forecast-goldman-sachs-2024-10">is coming to a close</a>.What's on deck:<ul><li>Markets: Americans' rising pile of debt <a target="_blank" href="https://www.businessinsider.com/big-banks-preparing-loan-loss-credit-card-auto-debt-cre-2024-10">is making banks nervous</a>.</li><li>Tech: SoftBank-backed creator-economy startup <a target="_blank" href="https://www.businessinsider.com/jellysmack-layoffs-restructuring-creator-economy-influencer-content-softbank-investment-2024-10">Jellysmack is cutting staff</a>.</li><li>Business: New York magazine and Olivia Nuzzi are <a target="_blank" rel="noopener" href="https://www.businessinsider.com/new-york-magazine-parting-ways-olivia-nuzzi-third-party-investigation-2024-10">parting ways</a>.</li></ul>But first, is this the end?If this was forwarded to you, <a target="_blank" href="https://www.businessinsider.com/subscription/newsletter/insider-today">sign up here.</a><h3 id="7fa5f018-5b05-4a37-a8dc-d3f89138bcb3">The big story</h3><h2 id="5fd547b9-ec52-41fc-8e08-4f4b27dd8097">A new era for stocks?</h2><div type="image" title="Photo illustration of moody Standard &amp; Poor's sign" height="1440" width="1920" msid="114468948" hostid="261" sizebytes="207764"></div>Forget the economy; Goldman Sachs is projecting a hard landing for future stock returns.The bank's portfolio strategy research team forecasts the S&amp;P 500 <a target="_blank" href="https://markets.businessinsider.com/news/stocks/stock-market-outlook-sp500-future-returns-decade-forecast-goldman-sachs-2024-10">will see annualized returns of 3% over the next decade</a>, writes BI's Filip De Mott.That'd be a sharp comedown for stock investors, who have enjoyed 13% in annualized returns for the major index over the past 10 years.Setting aside the market's recent strength, Goldman's forecast still isn't great. Annualized returns of 3% would put it in the 7th percentile of performance since 1930.Goldman's rationale for the pessimistic take includes two things even a rookie investor can appreciate: The market is overvalued AND too concentrated.Currently, the S&amp;P 500 cyclically adjusted price-to-earnings ratio is 38, well above the index's average of 22. And the usual suspects — tech giants like Nvidia and Meta — have done much of the heavy lifting in helping the S&amp;P 500 to record highs.<div type="image" title="Wall Street sign with New York Stock Exchange building in the back." height="4162" width="6243" msid="114468943" hostid="261" sizebytes="1226440"></div>Not everyone agrees with Goldman's forecast.This very newsletter recently included commentary from experts who said <a target="_blank" href="https://markets.businessinsider.com/news/stocks/stock-market-outlook-bull-rally-anniversary-earnings-interest-rates-sp500-2024-10">the two-year-old bull market still had plenty of gas left in the tank</a>.It seems the only industry consensus we have about stocks' future is there is no consensus. Case in point: Goldman is bullish on a short-term perspective, recently <a target="_blank" href="https://markets.businessinsider.com/news/stocks/stock-market-outlook-sp500-targets-bull-market-goldman-ubs-bmo-2024-10">raising its year-end S&amp;P 500 price target</a>.BI's Matthew Fox has a rundown on predictions from <a target="_blank" href="https://www.businessinsider.com/stock-market-outlook-wall-street-bull-bear-predictions-economy-inflation-2024-10">the bulls, the bears, and those somewhere in the middle</a>.UBS, for example, sees <a target="_blank" href="https://markets.businessinsider.com/news/stocks/stock-market-outlook-sp500-prediction-us-economy-no-landing-ubs-2024-10">another big gain for the S&amp;P 500 next year</a>, writes BI's Jennifer Sor.The bank said a "no landing" for the US economy means the S&amp;P 500 could rise roughly 13% from its current levels. Inflation would remain somewhat elevated in the scenario, but the bank still sees room for the Fed to cut rates, which is bullish for stocks.On the other side of the spectrum are JPMorgan, which has maintained its bearish outlook this year in the face of a surging market, and Stifel, which has predicted a <a target="_blank" href="https://markets.businessinsider.com/news/stocks/stock-market-crash-sp500-prediction-bubble-overvalued-stifel-outlook-2024-10">massive market downturn in 2025</a>.At the center of the debate sits artificial intelligence. Bears point to the tech as overinflating valuations with little to no evidence of it meaningfully driving revenue. Bulls say the hype is warranted, as the impact of AI is inevitable, like the rise of the internet.<h3 id="77f31a4c-8462-4e3d-a71f-838cb79493fb">News brief</h3><h2 id="1fcd294b-3f53-425f-9f20-4093e8623b59">Top headlines</h2><ul><li>Flight logs show Elon Musk's private jets are busy hitting swing states as <a target="_blank" href="https://www.businessinsider.com/elon-musk-private-jet-hits-swing-states-campaigns-donald-trump-2024-10">he campaigns for Trump</a>.</li><li>Ex-Twitter CEO Parag Agrawal has moved his AI startup out of stealth, <a target="_blank" href="https://www.businessinsider.com/ex-twitter-ceo-parag-agrawal-ai-startup-stealth-parallel-2024-10">calling it Parallel</a>.</li><li>'The million-dollar question of this election': Women's health startups are <a target="_blank" href="https://www.businessinsider.com/womens-health-startups-risk-trump-wins-election-2024-10">confronting a shifting legal landscape</a>.</li><li>Putin's expanded BRICS summit proves he has friends — <a target="_blank" rel="noopener noreferrer" href="https://www.businessinsider.com/russia-hosts-brics-summit-defy-west-us-economy-china-dollar-2024-10">but risks buckling under its own contradictions</a>.</li><li>Medicare coverage will change in 2025. Some boomers are <a target="_blank" href="https://www.businessinsider.com/medicare-changes-increase-costs-deductibles-prescription-drugs-premiums-copays-2024-10">already struggling to keep up with their medical bills</a>.</li></ul><h2 id="8120060b-ae66-48dc-b149-f0489a30ffa2">3 things in markets</h2><div type="image" title="Photo illustration of New York's Financial District" height="500" width="1000" msid="114469218" hostid="261" sizebytes="114610"></div><ol><li>Big banks brace for losses as Americans' debt piles up. US consumers and businesses are struggling to pay off auto, credit, and commercial real-estate debt. In response, US banks have <a target="_blank" href="https://www.businessinsider.com/big-banks-preparing-loan-loss-credit-card-auto-debt-cre-2024-10">steadily increased their cash reserves</a> in anticipation of loan losses. (But don't fear the worst; cash reserves are still far from Great Depression levels.)</li><li>Profits, not politics. Bank of America doesn't see November's election substantially impacting the stock market. Share price movement is driven by profit growth, and policies' impact on a sector <a target="_blank" href="https://markets.businessinsider.com/news/stocks/stock-market-election-impact-outlook-harris-trump-energy-tesla-biden-2024-10">can be the opposite of what investors expect</a>.</li><li>A famed short-seller doesn't want beef with Tesla. The EV giant reports earnings on Wednesday, but Carson Block <a target="_blank" href="https://markets.businessinsider.com/news/stocks/tesla-stock-price-short-seller-block-wont-elon-musk-valuation-2024-10">won't be betting against Elon Musk's company</a>. The investor known for his short bets said Tesla's massive size and Musk's ability to pull "rabbits out of the hat constantly" means he'll steer clear.</li></ol><h2 id="f4b54806-7f81-450c-ba32-92560d4fae9b">3 things in tech</h2><div type="image" title="Jellysmack's jellyfish symbol glitching" height="900" width="1200" msid="114469221" hostid="261" sizebytes="37624"></div><ol><li>A creator-economy startup is laying off staff and pointing the finger at Meta. The SoftBank-backed company Jellysmack is <a target="_blank" href="https://www.businessinsider.com/jellysmack-layoffs-restructuring-creator-economy-influencer-content-softbank-investment-2024-10">cutting 22 US staffers</a>. A Jellysmack representative told BI it was "scaling back certain operations in our Creator Program on Meta due to the opacity of their new monetization model." The program originally helped creators make money by sharing their content across Meta's platforms.</li><li>Wall Street can't quit Nvidia. Banks have kept hiking their price targets for the chip titan, whose share price is up almost 200% this year. But <a target="_blank" href="https://markets.businessinsider.com/news/stocks/nvidia-stock-price-prediction-nvda-blackwell-demand-outlook-chips-ai-2024-10">it's not deterring analysts</a>, who remain upbeat about the next-gen Blackwell chip and Nvidia's web of enterprise partnerships.</li><li>Advertisers rally against iPhone "Distraction Control" over fears it could sabotage websites. French groups representing around 800 companies in media and advertising signed an open letter lobbying Tim Cook to suspend the feature, which would allow Safari users to hide images, pop-ups, or ads. They called it <a target="_blank" href="https://www.businessinsider.com/publishers-advertisers-call-on-apple-suspend-distraction-control-feature-2024-10">"an existential threat" to online advertising</a>.</li></ol><h2 id="9260fa45-d397-4b3c-b4f8-4bb193976216">3 things in business</h2><div type="image" title="Photo of Bob Iger" height="1280" width="1920" msid="114468945" hostid="261" sizebytes="74892"></div><ol><li>Disney says it will appoint a new CEO in 2026. The company said it would <a target="_blank" href="https://www.businessinsider.com/disney-bob-iger-ceo-successor-early-2026-james-gorman-chairman-2024-10">announce a successor for Bob Iger</a> before his contract expires in December of that year.</li><li>New York magazine and Olivia Nuzzi are parting ways. The star reporter was placed on leave after her editors learned she'd had a relationship with Robert F. Kennedy Jr. While a third-party investigation into Nuzzi's work found "no inaccuracies nor evidence of bias" in her reporting, the magazine said they'd still <a target="_blank" href="https://www.businessinsider.com/new-york-magazine-parting-ways-olivia-nuzzi-third-party-investigation-2024-10">mutually decided to go their separate ways</a>.</li><li>The vibecession, according to science. Americans are financially better off now than they were at the beginning of the pandemic. So why is everyone so concerned about inflation? A new study details the emotional toll of rising prices, which could explain <a target="_blank" href="https://www.businessinsider.com/inflation-hidden-cost-work-salary-negotiation-boss-conflict-2024-10">why the vibes are so rank right now</a>.</li></ol><h2 id="1ad7b482-3f4b-44b4-81b6-a864aa386478">In other news</h2><ul><li>These tech investors are trawling UC Berkeley <a target="_blank" href="https://www.businessinsider.com/the-house-fund-uc-berkeley-perplexity-databricks-2024-10">to fund the next Perplexity or Databricks</a>.</li><li>Ken Griffin's move to Florida means <a target="_blank" href="https://www.businessinsider.com/ken-griffin-move-to-florida-selling-chicago-homes-at-loss-2024-10">losing millions on homes he never even lived in</a>.</li><li>McDonald's is the latest election battleground <a target="_blank" href="https://www.businessinsider.com/mcdonalds-is-latest-election-battleground-for-trump-and-harris-2024-10">for Trump and Harris</a>.</li></ul><h2 id="9f5d80ac-3466-429f-a50a-2ffbb70c65ff">What's happening today</h2><ul><li>General Motors, GE, Verizon, and other companies report earnings.</li><li>The IMF World Economic Outlook is published.</li><li>NBA season begins with New York Knicks at Boston Celtics and Minnesota Timberwolves at Los Angeles Lakers.</li></ul>The Insider Today team: Dan DeFrancesco, deputy editor and anchor, in New York. Jordan Parker Erb, editor, in New York. Hallam Bullock, senior editor, in London. Amanda Yen, fellow, in New York. Milan Sehmbi, fellow, in London.

The future of the S&P 500 has everyone divided

India is poised to remain the fastest-growing major economy in 2024-25, Chief Economic Adviser V Anantha Nageswaran said in a press conference after the tabling of the <keyword id="20613906" type="General" weightage="20" keywordseo="economic-survey" source="keywords">Economic Survey</keyword> in the Parliament on Monday. The Economic Survey tabled today projected India to grow at 6.5-7.0 per cent in 2024-25. Global institutions, including <keyword id="19896779" type="General" weightage="20" keywordseo="IMF" source="keywords" meta.keywordsubtype="org" meta.entityname="IMF" meta.hostid="261" meta.entityid="IMF">IMF</keyword>, OECD, World Bank, S&amp;P, ADB, and Fitch, have projected India to grow in a range of 6.6-7.2 per cent. The International Monetary Fund (IMF), in its latest outlook, has raised India's growth projections for 2024 from 6.8 per cent earlier to 7 per cent, with the country maintaining the fastest-growing status in emerging markets and developing economies. According to official data of the Indian government, the country's GDP grew at an impressive 8.2 per cent during the financial year 2023-24. India's economy grew 7.2 per cent in 2022-23 and 8.7 per cent in 2021-22 respectively. Further, the CEA in his press conference projected that India's <keyword id="20089672" type="General" weightage="20" keywordseo="per-capita-income" source="keywords">per capita income</keyword> is expected to increase from around Rs 2 lakh in 2022-23 to Rs 14.9 lakh in 2046-47. Further, CEA said <keyword id="20751315" type="General" weightage="20" keywordseo="household-savings" source="keywords">household savings</keyword> of Indians in physical assets have been increasing over the past three financial years through 2023-24. The CEA, addressing the press conference, said household savings in physical assets rose from 8 per cent in 2020-21 to 12.9 per cent in 2022-23. "Households are not in distress, they are investing in <keyword id="20792385" type="General" weightage="20" keywordseo="financial-assets" source="keywords">financial assets</keyword> that have done very well. Financial assets of households are not marked to market so households are doing quite well in the aggregate," he said. India needs both banks and capital markets to provide the required finances sourced from a sustained high level of household savings, according to the Survey. <keyword id="20385790" type="General" weightage="20" keywordseo="Union-Finance-Minister" source="keywords">Union Finance Minister</keyword> Nirmala Sitharaman on Monday tabled the economic survey in Parliament, a day ahead of the full Budget presentation for 2024-25. The Economic Survey document, prepared by the Economic Division of the Department of Economic Affairs in the Ministry of Finance and formulated under the supervision of the chief economic adviser, gives insights into the state of the economy and various indicators of 2023-24 (April-March) and some outlook for the current year. The Economy Survey document also gave some idea about the tone and texture of the actual Budget for 2024-25, to be presented on Tuesday. (ANI)

India to remain fastest growing major economy in 2024-25, says CEA Nageswaran

<ul class="summary-list"><li>The International Monetary Fund aimed criticism at growing risks in the US economy.</li><li>In a report last week, it called out high debt, banking vulnerabilities, and trade barriers.</li></ul>The US was the target of pointed criticism from the International Monetary Fund last week, with the organization calling out everything from Washington's trade policy to its deficits.In its annual evaluation, the IMF touted a "remarkable performance" in the world's largest economy and expects further growth to come. However, some issues are becoming too pressing to ignore, it said."The fiscal deficit is too large, creating a sustained upward trajectory for the public debt-GDP ratio," the summary said. "The ongoing expansion of trade restrictions and insufficient progress in addressing the vulnerabilities highlighted by the 2023 bank failures both pose important downside risks."Chronic deficits are leading toward a debt-to-GDP ratio of 140% by 2032, IMF said, a situation that needs to be addressed urgently. By the US' own estimates, the national debt will balloon to $56.9 trillion by 2034, a steep increase from earlier projections.In an era of higher interest rates, alarms have <a target="_blank" href="https://www.businessinsider.com/us-economy-outlook-prediction-national-debt-risk-spending-milken-conference-2024-5">started ringing over fiscal stability</a> as Washington will need to finance its debts at elevated borrowing costs. Some of Wall Street's heaviest hitters have <a target="_blank" href="https://www.businessinsider.com/jamie-dimon-jpmorgan-inflation-consumer-spending-interest-rates-government-debt-2024-5#:~:text=Dimon%20rang%20the%20alarm%20on,similar%20concerns%20in%20recent%20weeks.">issued warnings of eventual fallout</a>.To counter this, the IMF pushed for policymakers to find efficiencies in discretionary spending and to raise indirect and income taxes — including on those earning under $400,000 a year.What's more, partisan debt ceiling standoffs need to end, it said. The worst instance occurred 2023, when Republicans and Democrats brought the <a target="_blank" href="https://www.businessinsider.com/janet-yellen-debt-ceiling-government-run-out-money-june-1-2023-5">US close to default</a> over funding disagreements."These create systemic risks to the U.S. and global economy that are entirely avoidable. Institutional changes should be designed to ensure that, once appropriations are approved, the corresponding space is automatically added to the debt ceiling," the report said.But threats to financial stability don't end there. Domestically, "concrete actions have been lacking" when it comes to strengthening US banking safety, especially in light of 2023's brief crisis sparked by the failure of Silicon Valley Bank.The US needs to pursue tougher bank supervision, and lower the pool of uninsured deposits, the IMF said.While the fund also suggested a need for the US to implement the Basel III regulatory agreement to do this, the proposal has been widely unpopular in the industry.The legislation would apply larger liquidity requirements on big dealers, which <a target="_blank" href="https://www.businessinsider.com/banks-consumer-groups-basel-iii-finance-regulation-capital-requirements-liquidity-2024-1">banks have argued as a cut back to their ability to invest.</a>Meanwhile, Washington's increasingly protectionist approach to trade is a risk to US and global growth, the IMF said.The criticism comes soon after President Biden issued new tariffs on specific advanced manufacturing products from China in an effort to boost the US green energy industry.But the practice goes further back, when former President Trump set off a trade war with Beijing. If the Republican candidate wins the White House again, he has promised to apply universal tariffs on all imports, which economists have warned would be <a target="_blank" href="https://www.businessinsider.com/trump-tariff-plan-inflation-policy-impact-trade-war-china-rates-2024-5">massively inflationary.</a>"The U.S. should unwind obstacles to free trade and seek instead to bolster competitiveness through investments in worker training, apprenticeships, and infrastructure," the IMF wrote.

The IMF slams the US with urgent warnings over its debt, deficits, and trade barriers

<ul class="summary-list"><li>The US's $33 trillion debt pile is reflecting "unsustainable" fiscal policy, the IMF said.</li><li>The government has already racked up a $1.5 trillion deficit in the first 11 months of 2023.</li></ul>The US debt situation is looking increasingly precarious, and corporate defaults are up as interest rates stay high, according to the International Monetary Fund.The US's fiscal situation is the "most worrying" among all world countries, the IMF's research director Pierre-Olivier Gourinchas said in a <a href="https://www.imf.org/en/News/Articles/2023/10/10/tr101023-transcript-of-october-2023-world-economic-outlook-press-briefing" target="_blank" rel="noopener">press briefing</a> on Tuesday.That's largely due to the rapid pace of government spending, with the US already having racked up a $1.5 trillion deficit in the first 11 months of the fiscal year, according to a recent Brookings Institution estimate.And in an interview with Bloomberg on Wednesday, IMF Fiscal Affairs director Vitor Gaspar also said US deficits are elevated and look to be persistent."Under unchanged policies, debt dynamics in the US are very unfavorable," he said, later adding that the "the perpetuation of current policies entails an unsustainable fiscal path."The total federal debt <a href="https://markets.businessinsider.com/news/bonds/treasury-yields-jump-us-debt-hits-record-33-trillion-2023-9">blew past $33 trillion for the first time ever</a> this year. That amounts to around 121% of 2022's GDP, but that is projected to blow up in the coming years, with the added risk that the <a href="https://markets.businessinsider.com/news/bonds/us-debt-crisis-gdp-ratio-unsustainable-default-treasury-bond-crash-2023-10?_gl=1*mufg2d*_ga*MjMxMzA1Mzg2LjE2NTY0NDQxNTU.*_ga_E21CV80ZCZ*MTY5NzAyOTU5NS43MzIuMS4xNjk3MDMxNzk0LjYwLjAuMA..">US could default on its debt in as soon as 20 years</a>, Penn Wharton School researchers warned.That future spells trouble in the backdrop of rising interest rates, with rates now at their highest level since 2001 as the Fed keeps a hawkish eye on inflation. That could raise the <a href="https://markets.businessinsider.com/news/bonds/us-debt-costs-interest-rates-economy-record-2025-goldman-sachs-2023-10">borrowing costs on US debt to a new record by 2025</a>, Goldman Sachs strategists said.Higher rates are also bound to spark some distress for borrowers, with over $2 trillion of corporate debt set to mature in the US alone in 2024."Making debt more expensive is an intended consequence of tightening monetary policy to contain inflation. The risk, however, is that borrowers might already be in precarious positions financially, and the higher interest rates could amplify these fragilities, leading to a surge of defaults," the IMF warned in a <a href="https://www.imf.org/en/Blogs/Articles/2023/10/10/higher-for-longer-interest-rate-environment-is-squeezing-more-borrowers?utm_medium=email&amp;utm_source=govdelivery" target="_blank" rel="noopener">blog</a> on Tuesday.Corporate debt defaults have already been rising globally, notching their highest monthly increase in August, according to S&amp;P Global data.<div type="image" title="Corporate debt defaults just notched their highest monthly tally since 2009 in August, S&amp;P Global data shows." height="1475" width="1689" msid="104350326" hostid="261" sizebytes="54190"></div>Meanwhile, defaults on US high-yield bonds are expected to notch 4.5%-5% this year, according to an estimate from Fitch Ratings, more than six times the 0.7% default rate recorded among all high-yield bond issuers in 2021.<a href="https://markets.businessinsider.com/news/bonds/us-corporate-debt-recession-outlook-defaults-bonds-bankruptcies-rates-fed-2023-10#:~:text=The%20US%20could%20see%20defaults,US%20economy%20into%20a%20recession.">Peak defaults and bankruptcies</a> in the US could come as soon around the first quarter of 2024, Charles Schwab estimated, as higher borrowing costs break weaker firms financially.

The US debt situation looks 'unsustainable,' and corporate defaults are rising, IMF warns

<ul class="summary-list"><li>Argentina leaned on its $18 billion currency swap line with China to cover part of an IMF payment, sources told Reuters.</li><li>This isn't the first time yuan was used to help meet IMF debt requirements.</li></ul>Argentina tapped its Chinese currency swap line to help cover part of an October payment that was due to the International Monetary Fund, a <a href="https://www.nasdaq.com/articles/argentina-used-china-yuan-swap-to-pay-the-imf-in-october-source" target="_blank" rel="noopener">source told Reuters on Tuesday</a>.Overall, Buenos Aires owed the lender 1.98 billion, or $2.6 billion, in so-called special drawing rights (SDR), which is an international reserve asset created by the IMF.Argentina had 1.4 billion in SDR available last month, and used Chinese yuan to help close the gap, according to Reuters.The payment covered maturities stemming from a $44 billion debt deal that Argentina holds with the IMF, one replacing a failed bailout program from 2018. Use of the yuan comes as the South American country continues to face depleted dollar reserves, which has forced the government to leaned on its $18 billion yuan swap line on other occasions this year. Between June and July, $2.8 billion worth of yuan was used to help meet IMF obligations.And as Argentina taps Chinese yuan to repay the IMF, it's also using IMF money to repay China.In August, Argentina repaid $1.7 billion to the People's Bank of China using a <a href="https://markets.businessinsider.com/news/currencies/argentina-yuan-borrowings-china-pboc-currency-swap-imf-bailout-repayment-2023-8">disbursement secured from the IMF</a>. Other lenders were also paid back, including Qatar and the Development Bank of Latin America.Meanwhile, daily yuan transactions in Argentina's foreign exchange markets hit a <a href="https://finance.yahoo.com/news/argentinas-chinese-yuan-soaring-dollars-010014589.html" target="_blank" rel="noopener">record of 28% in June</a>, while over 500 companies looked to purchase imports using the yuan. Still, the greenback remains popular among Argentine consumers, who are increasingly using it for daily transaction as hyperinflation erodes faith in the country's own peso.And the idea to dollarize Argentina's economy has taken center stage in its presidential elections, pushed by candidate Javier Milei. Though elections were held in October, the libertarian is facing a runoff with Economy Minister Sergio Massa on November 19.

Argentina used Chinese yuan for part of its payment to the IMF as US dollars remain scarce

<ul class="summary-list"><li>Dollar dominance faces key challenges in the future, Brookings researchers said.</li><li>The think tank pointed to four forces that could be make the greenback less attractive. </li></ul>There are a handful of challenges to the dollar's top status in financial markets, according to researchers from the Brookings Institution.In a recent <a target="_blank" class="" href="https://www.brookings.edu/articles/the-changing-role-of-the-us-dollar/">note</a>, the think tank pointed to the US dollar's shifting status in global financial markets, with the use of the <a target="_blank" class="" href="https://www.businessinsider.com/dedollarization-imf-stealth-erosion-global-us-dollar-forex-reserves-sanctions-2024-6">greenback declining steadily </a>over the past several decades. While the <a target="_blank" class="" href="https://markets.businessinsider.com/news/currencies/dedollarization-dollar-dominance-currency-war-trade-usd-reserves-explained-2024-5">dollar still dominates</a> central bank reserves and world trade, the currency accounted for 59% of all global reserves at the start of 2024, down from 71% of reserve in 1999, according to estimates from the International Monetary Fund.<div type="image" title="Dollar's share of global reserves graph" height="1138" width="1145" msid="112816893" hostid="261" sizebytes="59508"></div>Meanwhile, the share of nontraditional currency reserves has edged higher. Currencies like the Australian dollar, the Swiss franc, and Chinese yuan accounted for 11% of all central bank reserves at the start of this year, up from 2% recorded in 1999, per IMF data.<div type="image" title="Share of nontraditional currency reserves" height="1162" width="1151" msid="112816894" hostid="261" sizebytes="62210"></div>That decline has sparked some fear among investors that the dollar could soon be ousted from its top-dog position in financial markets. While most experts say that <a target="_blank" href="https://markets.businessinsider.com/news/currencies/de-dollarization-dollar-war-usd-yuan-china-russia-brics-currency-2024-7">likely isn't happening anytime soon</a>, the think tank said the dollar's dominant status faces key challenges, pointing to four factors in particular.<h2 id="eb86da1f-7f18-4189-b9a3-3748f015a7bb">1. US sanctions</h2>The US began implementing sanctions on Russia and its allies after Moscow began its invasion of Ukraine in 2022. That's sparked a de-dollarization drive in Russia and other BRICS nations, which have suggested they're looking to shift away from the dollar as a reaction to Western trade restrictions.Russia, in particular, has taken steps to heavily de-dollarize its economy, with the nation adopting a <a target="_blank" href="https://www.businessinsider.com/dedollarization-russia-china-yuan-ruble-exchange-rate-benchmark-new-sanctions-2024-6">yuan-to-ruble exchange rate</a>, proposing a <a target="_blank" href="https://markets.businessinsider.com/news/currencies/de-dollarization-dollar-dominance-currencies-brics-china-russia-india-putin-2023-7">rival currency to the greenback</a>, and reportedly spearheading an <a target="_blank" href="https://www.businessinsider.com/dedollarization-russia-actively-working-brics-local-currencies-platform-us-dollar-2024-6">alternative payment platform</a> that wouldn't be reliant on the dollar.China, which saw its companies hit with <a target="_blank" href="https://home.treasury.gov/news/press-releases/jy2546">secondary sanctions</a> from the US Treasury last week, has also signaled a shift away from the dollar, <a target="_blank" class="" href="https://www.businessinsider.com/dedollarization-china-yuan-cny-trade-usd-sanctions-protection-reserve-currency-2024-5">promoting its yuan as an alternative</a>."If the United States is capricious with sanctions, acts unilaterally, and fails to develop a doctrine of economic statecraft, the dollar could be dethroned," Brookings researchers said, citing <a target="_blank" class="" href="https://www.businessinsider.com/economic-sanctions-russia-us-dollar-dominance-yellen-alternative-yuan-dedollarization-2023-4">comments</a> from US Treasury Secretary Janet Yellen.<h2 id="eff7251a-f1be-40d0-8494-5988c77ddab7">2. US debt</h2>The US's rising debt load could make currency holders more wary of the dollar, especially if there are concerns that the US may not be able to pay back its dues.While the US debt balance hasn't yet breached unsustainable levels, the government's rapid pace of spending has done little to ease markets. Fitch, for instance, <a target="_blank" href="https://www.businessinsider.com/fitch-downgrades-us-credit-rating-deficit-debt-ceiling-2023-8#:~:text=Fitch%20downgraded%20the%20US's%20credit,the%20debt%20limit%20until%202025.">downgraded the US</a><a target="_blank" class="" href="https://www.businessinsider.com/fitch-downgrades-us-credit-rating-deficit-debt-ceiling-2023-8#:~:text=Fitch%20downgraded%20the%20US's%20credit,the%20debt%20limit%20until%202025."> credit rating</a> last year, citing a "steady deterioration in standards of governance.""Bickering over appropriations, Congress has shut the government down several times. Further political instability could erode investor confidence in the dollar," the researchers said.<h2 id="c18d8d68-8ac9-451c-b2c2-8ff5942f963f">3. Improved payment technology</h2>More advanced payment systems have made it easier to exchange nontraditional currencies. That could weigh on demand for the US dollar, which has traditionally been seen as the most attractive medium of exchange."Typically, converting such currencies to dollars, and vice versa, has been easier and cheaper than exchanging them for one another. But China and India, for example, will soon no longer need to exchange their respective currencies for dollars to conduct trade cheaply. Rather, exchanging renminbi for rupees directly will become cheaper. Consequently, the reliance on 'vehicle currencies,' particularly the dollar, will decline," Eswar Prasad, a senior fellow at the Brookings Institution, said in a previous note.<h2 id="0b9967af-c144-471b-8ee3-4faf7baad925">4. Central bank digital currencies</h2>Digital currencies issued by central banks could also make it easier and cheaper to nontraditional currencies. China is developing one such <a target="_blank" class="" href="https://markets.businessinsider.com/news/currencies/dollar-dominance-outlook-china-india-digital-currency-race-fed-innovation-2024-1">CBDC</a>, and CIPS, China's Cross-border Interbank payment system, has been "growing rapidly" over the past few years, the think-tank noted.The Fed has created its own instant payment network, but hasn't moved to create a CBDC, with Powell suggesting last year that a <a target="_blank" class="" href="https://www.federalreserve.gov/faqs/is-fednow-replacing-cash-is-it-a-central-bank-digital-currency.htm">digital currency would require approval from lawmakers</a>. That means the US risks falling behind other countries, where digital payment tech is rapidly developing, Brookings researchers said.Still, despite warnings, most currency experts <a target="_blank" class="" href="https://markets.businessinsider.com/news/currencies/de-dollarization-dollar-war-currency-usd-dominance-china-yuan-economy-2024-5">do not believe de-dollarization</a> is a near-term threat to the US or its currency. At the moment, there are no close competitors to the greenback in financial markets — and countries that try to de-dollarize anyway <a target="_blank" class="" href="https://markets.businessinsider.com/news/currencies/de-dollarization-dollar-war-usd-yuan-china-russia-brics-currency-2024-7">risk a host of economic consequences</a>, like slower growth and lost investment value, one commodities vet told Business Insider.

The 4 forces that will challenge the dominance of the dollar, according to economic researchers

<ul class="summary-list"><li>The IMF warned of bond market risks amid fears of a Silicon Valley Bank repeat.</li><li>Stricter lender scrutiny is necessary, the IMF's Tobias Adrian told the Financial Times.</li></ul>The sharp rise in Treasury bond yields provoked warnings from the International Monetary Fund, which called on regulators to increase their financial markets oversight."When you see large moves that are very fast, it has more potential to trigger instability, because market participants have to reposition, and there are these accelerators in the system that could kick in," Tobias Adrian, who heads the IMF's monetary and capital markets department, told <a href="https://www.ft.com/content/96940eed-8149-4608-9c31-1f6c1c6f2328" target="_blank" rel="noopener">the Financial Times</a>.The warning comes after Treasury yields hit highs not seen in nearly two decades, amid one of <a href="https://markets.businessinsider.com/news/bonds/treasury-bond-yields-market-selloff-market-crashes-dot-com-bubble-2023-10">history's most extreme US bond sell-offs</a>.When yields rise, bond prices fall, which has already been known to set off banking turmoil. In March, <a href="https://www.businessinsider.com/svb-failure-what-the-hell-happened-2023-3">Silicon Valley Bank was forced to sell its bond holdings</a> at a major loss, sparking a flight in deposits that triggered its collapse along with other lenders. Though significantly wider credit spreads are yet to be seen from today's bond retreat, it could happen at some point, Adrian said.Part of this year's banking failures resulted from lax management and institutional unpreparedness for higher interest rates. It's for this reason that Adrian encouraged tougher financial scrutiny."Forceful supervisory action can really make a difference," he said.US regulators have <a href="https://www.businessinsider.com/big-banks-capital-requirements-regulation-basel-2023-6">proposed tighter capital rules</a> for the biggest lenders. While bank executives <a href="https://markets.businessinsider.com/news/stocks/jpmorgan-jamie-dimon-bank-stocks-fed-capital-rules-economic-outlook-2023-9">are opposed to these ideas</a>, the Federal Reserve Vice Chair for Supervision Michael Barr recently <a href="https://www.bloomberg.com/news/articles/2023-10-09/fed-michael-barr-defends-bank-capital-rule-plan-that-wall-street-hates" target="_blank" rel="noopener">defended the plan</a>, saying it would limit the risks faced by lenders."This may result in higher funding costs," he said at the American Bankers Association on Monday. "But this is only half the story. Capital also enables banks to absorb more losses without risking their ability to repay their creditors."According to a Tuesday <a href="https://www.imf.org/en/Publications/GFSR/Issues/2023/10/10/global-financial-stability-report-october-2023" target="_blank" rel="noopener">report from the IMF</a>, inaction could be consequential, as around 42% of the world's banking assets would be affected if a global recession was to take hold. That's as 215 institutions would be at increased risk."The global stress test shows a wide set of banks will suffer capital losses under an adverse stagflationary scenario, including several systemically important institutions in China, Europe, and the United States," it wrote.

The IMF warns of bond market risks amid fears of a Silicon Valley Bank repeat

<ul class="summary-list"><li>Dollarization would end inflation risks in Argentina, said former IMF board member Mark Rosen. </li><li>"It would anchor monetary policy, and be a big positive change," he told Bloomberg.</li></ul>Ditching the <a href="https://markets.businessinsider.com/currencies/usd-ars">Argentinian peso</a> and adopting the US dollar could put an end to Argentina's inflation risks, a former International Monetary Fund official said."Dollarization would be very positive for Argentina," Mark Rosen, who was a US member of the IMF board from 2019 to 2021, told <a href="https://www.bnnbloomberg.ca/former-imf-board-member-backs-milei-s-dollarization-of-argentina-1.1974665#:~:text=%E2%80%9CDollarization%20would%20be%20very%20positive,which%20is%20a%20huge%20issue" target="_blank" rel="noopener">Bloomberg</a>. "It would basically eliminate most of the risk of future inflation, which is a huge issue. It wouldn't necessarily deal with the spending issue, but it would anchor monetary policy, and be a big positive change."Dollarization is a key priority of Javier Milei, the frontrunner in Argentina's presidential election. The strategy is meant to tackle the country's hyperinflation, which sits at a <a href="https://www.reuters.com/markets/argentine-shoppers-face-daily-race-deals-inflation-soars-above-100-2023-09-13/" target="_blank" rel="noopener">124.4% annual rate</a>. The proposal still lacks key details, such as where to source the dollars needed for a currency transition. The country has long faced a shortage, <a href="https://markets.businessinsider.com/news/currencies/dedollarization-faces-headwinds-argentina-dollar-zooms-5000-percent-vs-peso-2023-7#:~:text=In%20Argentina's%20case%2C%20a%20crippling,worst%20dollar%20shortage%20since%202016.">fueling exchange rate turmoil</a> and forcing Buenos Aires to <a href="https://markets.businessinsider.com/news/currencies/dedollarization-argentina-current-savings-bank-accounts-chinese-yuan-dollar-peso-2023-7">turn to other currencies, like the Chinese yuan</a>.Francisco Zalles, an economist who helped Ecuador dollarize <a href="https://markets.businessinsider.com/news/currencies/de-dollarization-dollar-dominance-pegged-currencies-argentina-countries-greenback-inflation-2023-6?utm_medium=ingest&amp;utm_source=markets" rel="">in 2000</a>, said earlier this month that <a href="https://markets.businessinsider.com/news/currencies/argentina-dollarization-peso-dollars-economist-presidential-javier-milei-recession-inflation-2023-9">Argentina doesn't need dollars to dollarize</a>, predicting that greenbacks would flow back into the country as soon as it makes the switch.But critics of Argentina's dollarization idea have previously pointed out that it would be handicapped by the shortage. In essence, moving from the peso would be the same as <a href="https://markets.businessinsider.com/news/currencies/argentina-dollarization-peso-dollars-economist-presidential-javier-milei-recession-inflation-2023-9">suddenly shrinking</a> the nation's monetary supply, which would jump start a recession.Even Rosen acknowledged the dollar shortage concern: "Dollarization — if they can fund it — makes sense. The issue is can they fund it? And will the international community fund it?"Now a partner at Advection Growth Capital, Rosen's four-decade career as an investment banker included exposure to Latin America. In his view, dollarization would force coherence in Argentine policy, as it's a change that would be difficult to reverse. The currency has also grown in de-facto use throughout the country, used in <a href="https://www.businessinsider.in/stock-market/news/argentina-is-already-dollarizing-these-businesses-have-switched-to-greenbacks-as-the-peso-is-worth-a-fraction-of-a-penny/articleshow/102994394.cms" target="_blank" rel="noopener">company wages</a> and in certain consumer transactions. But not every IMF official shares his take. Former official Alejandro Werner has previously called the plan impossible, Bloomberg reported.Though the lender has not officially weighed in on dollarization, Argentina's economic situation does matter to it. The IMF has lent $44 billion to the country, a debt Buenos Aires has yet to fully pay back.

Dollarization would eliminate Argentina's future inflation risk, former IMF board member says

<ul class="summary-list"><li>Argentina secured $7.5 billion from the International Monetary Fund on Wednesday.</li><li>Some of the funds will be used to partially pay China back, sources told Reuters.</li></ul>The $7.5 billion disbursement that Argentina secured from the International Monetary Fund this week will go towards partially repaying China for currency swap line borrowings, <a href="https://finance.yahoo.com/news/exclusive-argentina-imf-money-pay-184857435.html" target="_blank" rel="noopener">sources told Reuters</a>.As soon as this week, Argentina is expected to use some of its bailout money to funnel the equivalent of $1.7 billion back to the People's Bank of China, after tapping $2.8 billion from the swap line in recent months.The swap line, first established in 2009, has been a saving grace for Buenos Aires amid a severe dollar shortage and a financial crisis roiling its economy. Apart from helping meet repayment requirements on a separate 2018 IMF loan, the $18 billion line has also been used to pay for imports into Argentina. Argentina is also using the latest IMF disbursement to pay back other lenders. That includes $1 billion borrowed from the Development Bank of Latin America (also known as CAF), and $775 million in special drawing rights from Qatar."The funds that will be disbursed today go in part to Qatar, to CAF and will lower the level of how much has been used from the swap line. Qatar will be paid in SDRs, China in yuan," a source at Argentina's central bank told Reuters, adding that the CAF loan will be repaid in dollars.The IMF's board approved the disbursement on Wednesday, which is part of a $44 billion program that is mostly being used to pay off an earlier IMF bailout. The next review is scheduled for November. Fall will also be notable for Argentina's upcoming presidential election, with mounting uncertainty of how this may impact the country's commitment to pay back the IMF. Meanwhile, the eventual winner will also have to contend with the country's triple-digit inflation and a collapse in the local peso. Frontrunner Javier Milei has garnered support with an idea to <a href="https://markets.businessinsider.com/news/currencies/argentina-peso-usd-javier-milei-presidential-candidate-dollarize-economy-primary-2023-8?utm_medium=ingest&amp;utm_source=markets">ditch the peso for the US dollar</a>, though this would be met with a number of legislative challenges.

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