The chief economist of the world’s third largest bank, HSBC’s Stephen King, has compared the global economy to the Titanic.

In a note to clients on Wednesday he wrote “We may not know what will cause the next downswing but, at this stage, we can categorically state that, in the event we hit an iceberg, there aren’t enough lifeboats to go round.”

“The world economy is like an ocean liner without lifeboats.” As we have been warning in recent months, when another recession arrives, governments do not have the ability or the reserves to prop up the economy like they did in 2008.

Global debt has soared by 40% since the Great Recession. We now have a staggering$200 trillion of debt globally, or almost three times the size of the global economy. It would be a “truly titanic struggle” for policymakers to right the economy, King said.

He believes that we are now nearer to the next global recession than we are to the last one which ended six years ago. In that time, however, the world has amassed mountains of new unpayable debt – expanding 25% in the last six years – and the U.S. economy has been sluggish despite an unprecedented wave of money printing which was intended to boost the economy. Indeed, post recession growth has never been so anaemic in recent history.

This weakness has left policy makers ill-equipped to deal with the next crisis,

“Whereas previous recoveries have enabled monetary and fiscal policymakers to replenish their ammunition, this recovery – both in the U.S. and elsewhere – has been distinguished by a persistent munitions shortage. This is a major problem. In all recessions since the 1970s, the U.S. Fed funds rate has fallen by a minimum of 5 percentage points. That kind of traditional stimulus is now completely ruled out.”

Elsewhere in the note he describes the problem facing policy makers as “titanic”. He identifies four areas as being of particularly high risk,

• The equity bubble may burst as increasing wages impair corporate profits. This would lead consumers to lose confidence triggering another an economic contraction.
• Pension funds and insurers may not have cash to meet future obligations causing them liquidate assets. This may cause a scramble for liquid assets and mass panic-selling in an environment of low demand causing a collapse in asset prices.
• A recession in China would likely force the PBOC to weaken the Yuan. This would cause a consequent rise in the dollar further undermining the ability of the U.S. to export. In such an environment the Fed has typically dropped rates by around 5%.  As the Fed’s base rate is currently at 0.25% it has absolutely no policy tools left to deal with such an event. King concludes “The U.S. is eventually dragged into a recession through forces beyond its control.”
• If the Fed were to raise rates too soon it could expose the very fragile nature of the “recovery”. Neither governments, nor corporations nor households would have the strength to absorb the costs of servicing their debts should the Fed begin raising rates.