Global Debt Levels Reach Record High of $307 Trillion
In a recent report by the Institute of International Finance, total debt — from sovereigns, corporates, and households — increased by $10 trillion to roughly $307 in the six months up until June.
The previous peak for global debt was reached in early 2022, prior to central banks starting to hike interest rates. Global debt as a proportion of GDP increased to 336% by June of 2023, a 2% point increase since the start of 2023. This global debt to GDP ratio remains below a peak of roughly 360% hit during the Wuhan virus pandemic.
The increase in debt comes at a time when higher interest rates in the majority of countries are pushing up borrowing costs. Similarly, this also comes at a time when financing the climate transition places pressure on governments to increase spending. “Our concern is that countries will have to allocate more and more to interest expenses,” declared Emre Tiftik, the main author of the IIF’s report. “It will have long-term implications for countries’ funding costs and debt dynamics.”
The IIF noted that north of 80% of the additional debt in the first half of 2023 came from mature markets, with the US, Japan, UK, and France recording the largest increases. “Rising interest bills are a key risk to public finances and sovereign ratings, particularly in developed markets,” declared Edward Parker, managing director at Fitch Ratings.
Developed markets’ interest bill stayed roughly the same in nominal terms between 2007 and 2021, despite rising debt levels. “But that free lunch is over and interest payments are now rising faster than debt or revenue,” Parker added. Debt interest costs are expected to continue increasing as more debt is refinanced and interest rates stay higher to combat inflation, per the report. On September 19, 2023, the OECD cautioned that central banks should maintain interest rates at high levels or increase them further to beat inflation. The report came after a warning that the IMF recently issued which called for governments to “take urgent steps to help reduce debt vulnerabilities and reverse long-term debt trends”. “Reducing debt burdens will create fiscal space and allow new investments, helping foster economic growth in coming years,” the IMF highlighted.
Governments worldwide are engaging in reckless spending and easy monetary policies. The result has been indebted and economically stagnant economic situations across the globe.
Interventionist economic policies don’t discriminate between polities. They’re universal guarantors of economic misery and stagnation.
Only free market reforms such as abolishing central banking, downsizing the regulatory state, slashing spending and taxes will prevent countries from falling into the very predictable economic stagnation death spiral.