Tuesday, January 25, 2022

Combined Global Debt Now a Staggering $215 Trillion

Combined Global Debt Now a Staggering $215 Trillion

Global debt is reaching staggering proportions in 2017. According to a report by the Institute of International Finance the combined household, corporate and government debt hit US $215 trillion last year.

Also read: Bitcoin Traders Worried as Bitfinex Wire Transfers ‘Frozen’ by Wells Fargo

That number, a record high, also represents 325 percent of global GDP. This raises serious doubts the world can ever repay it — or if repaying it is even a serious goal.

credit cards in walletThe total grew by $70 trillion over the past decade, which the IIF attributes to borrowing in emerging markets. These include large economies like China and Russia. Mature markets still have higher debt as a percentage of their GDPs, but emerging markets’ debt share has grown more rapidly.

According to news reports, the IIF described the combined global debt growth as “eye-watering” and a “growing refinancing risk.”

In advanced economies, governments are the most to blame for the past decade’s rise. Since the global financial crisis ten years ago, US and UK government debt has doubled. Meanwhile, private (corporate and household) debt in developed countries has actually fallen as a percentage over the same period.

The Institute of International Finance is an association of banks and other financial institutions, including insurance and investment management companies. Most of the world’s commercial and investment banks are members, along with large multinational corporations as associate members.

It performs research and advocacy in a number of finance-related fields, such as regulation, fintech, financial inclusion, risk factors and capital flows.

Global Debt Hard for Ordinary People to Comprehend

Statistics like “$215 trillion” and “325 percent of global GDP” are beyond comprehension to the average person. This infographic helps to visualize the exponential difference between millions, billions and trillions, but it’s still just large numbers.

The big question is: what happens when all this debt needs to be paid back? Is it realistic to assume it can, and what happens if it isn’t?

When creditors begin to call in debts it can start a chain reaction, leading to situations like the US subprime housing crisis and the global financial crisis that immediately followed it.

Even if there’s no sudden crisis, mountains of debt may lead to higher interest rates, meaning servicing debt at all levels becomes unmanageable. In emerging economies, this could slow growth as companies are unable to borrow more to finance their activities.

Everything Is Debt Now, But Should it Be?

It’s possible to speculate whether even those borrowing understand, or care, what will happen to their debts in the future. If there’s no real intent to ever settle them, do they continue to mount forever? Or will they somehow be “reset” in a global catastrophe, war, or “debt jubilee” in which everyone agrees to wipe the slate clean and start over?

Author David Graeber promoted the jubilee option in his 2011 book Debt: The First 5000 Years. His thesis also posits that debt existed even before money, and forms the basis of all human activity. It also causes much of the world’s turmoil.

Proponents of “sound money” like gold or bitcoin balk at the idea that all money should be credit-based, or that debt can keep growing.

It’s comforting to imagine that more responsible economic systems exist. However, even using sound money as a global reserve wouldn’t erase the global debt mountain that already exists.

Can global debt ever be paid off, or will it grow forever? Let’s hear your thoughts.

Images via Pixabay

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