A Global House of Debt? 2016 Economic Outlook Professor Amir Sufi

Not Forecast Mistake, Forecast Bias: World Bank Forecasts Too Optimistic

Household Debt and Global Growth

Emerging Market Debt Binge: Brazil WSJ: 2013: “Most people think of Brazil as a poor country that lives or dies on sales of commodities. But aspiring shoppers fueled much of the country’s recent boom, as consumer loans more than doubled in five years” 2016 growth forecast by World Bank reduced by 2.4 percentage points between 2014 and 2015 Draw a picture on board

Emerging Market Debt Binge: Kazakhstan FT: 2014: “Something strange is happening in Kazakhstan. Over 12% of consumer loans are non-performing and yet the banks are dishing out more consumer credit than ever. Lending increased 37% between July 2011 and November 2013.” 2016 growth forecast by World Bank reduced by 1.8 percentage points between 2014 and 2015 Draw a picture on board

Borrowing Too Much = Big Trouble

Risk Premium Shift

When the Credit Market and Stock Market Disagree, Who is Right? quarter S&P 500 return Change in High Yield Spread Subsequent quarter S&P 500 return 1997q4 0.024 0.370 0.135 1998q2 0.029 0.540 -0.103 2000q1 0.020 0.990 -0.029 2004q1 0.013 0.230 2005q2 0.009 0.330 0.031 2005q4 0.016 0.110 0.037 2006q3 0.052 0.070 0.062 2007q2 0.058 0.090 2007q3 1.270 -0.038 2013q2 0.360 0.047 2014q3 0.006 0.870 0.044 2014q4 0.640 0.004 Draw a picture on board

End of 2015: Disagreement, with Credit Market Winning in 2016 So Far! Draw a picture on board

Pressure on Fed: Weak Global Economy Draw a picture on board

Pressure on Fed: Yield Curve Draw a picture on board