Global debt is skyrocketing – and we need to talk about it
This month, the nasty topic of debt creeps onto Washington’s political radar at the end of the week. Last week, Treasury Secretary Janet Yellen declared the Congressional debt ceiling (or borrowing limit).
Meanwhile, the Biden administration faces opposition to raising taxes for wealthy Americans Paying its estimated $ 3.5 trillion spending plan without adding to its ever-growing debt.
But in the midst of these national financial struggles, a startling series of recommendations from the Institute of International Finance, another corner of Washington, to pay attention to investors, policymakers and citizens. The numbers have appeared.
The IIR’s “pandemic updates” on global debt show that Yellen’s latest demands are just a small symbol of a much larger global trend of relentlessly rising borrowing levels. to augment. The only thing more remarkable than the magnitude of this long-term surge is that there is little public debate about the consequences. This is mainly due to the fact that voters and investors tend to be distracted by the short-term issues that are happening in their backyards.
The question of global debt is the classic domain of “social silence”, citing the concept advocated by French intellectual Pierre Bourdieu. He advocated the concept of problems hidden in an obvious view that we usually ignore because they appear to be slow, technical, or vaguely familiar due to our cultural biases. ..
Consider the numbers in this case. The IIR calculates that at the end of the second quarter of 2021, total global debt hit a record $ 296 trillion from $ 270.9 trillion the previous year. The government, non-financial enterprises, the financial sector and households borrowed respectively $ 86 trillion, $ 86 trillion, $ 69 trillion and $ 55 trillion.
The good news for those worried about excess debt is that the post-freeze recovery in global growth earlier this year reduced the ratio of global debt to gross domestic product by a record 362% in March to 353 in June. It has been reduced slightly to%.
But the bad news is that when the government embarks on crisis-induced fiscal easing, “only” 353% is well above the level of 333% seen before the pandemic. In addition, at the start of 2010, this ratio was close to 300%, but in 2008 it was 280%. Yes, you read well. Global borrowing has risen by more than a third as the world has been hit by a major financial crisis, prompting manual work on the dangers of excessive leverage.
Optimists can argue that this is not a problem for three reasons. For Americans, one of the comforting slight details of the IIR data is that most of the recent increase has occurred in China. In the United States, corporate debt has declined amid economic uncertainty, despite rising government and household debt, which has recently slowed the overall pace of new debt accumulation.
Some observers may think the second reason they aren’t worried is that this surge hasn’t systematically panicked investors. Yes, there are pockets of market nervousness around the Chinese real estate sector, for example. However, as central banks keep borrowing costs low, debt repayment costs are also low, making this problem easy to ignore.
A third point for those seeking comfort is that 20th century history shows how debt trends move back and forth. For example, during World War II, the Western debt burden exploded to over 90% of GDP, but has since fallen to less than 30%. As paper Shown by Carmen Reinhart and Verence Blancia. Unsurprisingly, policymakers want to tell voters this will happen again due to strong growth and austerity going forward.
But it seems difficult to visualize. The rate of expansion required for countries like the United States and China to emerge from current debt levels is staggering. And, as the treatises of Reinhardt and Subrancia point out, growth is not the only thing that caused miracles after World War II. Instead, it was about “financial restrictions,” or the fact that the government has kept interest rates below inflation for years in regulating capital and finance, robbing investors. This tip can be difficult to repeat in the age of the digital marketplace.
Therefore, we are faced with long term existential problems. Will the government finally be forced to trigger ultra-high inflation to reduce its debt? Is there a wide range of debt forgiveness in the future to avoid political or social explosions? It might seem hard to imagine now, but as the late anthropologist David Graber explained in his book. Debt, the first 5,000 years, Book of Jubilees — Forgiveness of Debt by Rulers — Occurred occasionally in history to avoid social explosions. Or will there be a major default and a financial crisis?
Alternatively, in the 21st century, interest rates remain very low, learning to accept dramatic debt figures as an inevitable consequence of high asset prices, expanding money supply, and financial system enthusiasm. . This can change in an age of ignorance. ?? Does debt look like an unread email in our inbox for investors and policymakers? It’s a terrifying and huge problem, but is it constant enough to be ignored? We just don’t know and may not know until the price goes up.
But the fact that our global system has tripled and grown deserves a lot more debate, even if you’re optimistic about its impact – I’m not.
Global Debt Is Soaring – And We Need To Talk About It Source Link Global Debt Is Soaring – And We Need To Talk About It