Global Debt Hits $237trillion. What Next?


Yesterday we discussed warnings of faster rising inflation than expected forcing the US Fed to raise rates faster than expected and have previously discussed the spiking Libor rate, especially against OIS.  Part of the danger of quickly rising rates is the unprecedented amount of debt exposed to them.

Yesterday we saw the latest update from the Institute of International Finance (IIF) showing that 2017 saw no less than $20 trillion in global debt added in just one year taking the total to $237 trillion.  The graph below illustrates the sheer amount of debt added, up $70 trillion in just a decade.

For those that argue more debt is fine if GDP is outpacing it… Debt to GDP has risen to 318% (consolidated, you can see for each market on the graph).  So to be clear, there is over 3 times more debt accumulated each year than entire global economic output….

The US is the biggest chunk of that debt, and according to the IIF its government debt alone is at 99% of US GDP in that sector.  Amid talk of ‘new growth’ in the US, its very own Congressional Budget Office (CBO) paints a more sobering picture with their projections now seeing the US deficit hitting $1 trillion by 2020, 2 years earlier than their last projection.

But there is possibly a small flaw in their already dire estimates in our humble opinion.  They somehow think ‘this time is different’ (the 4 most expensive words in investment) and that the US will not see a recession for another 10 years, or just shy of 20 years in total since the last recession in 2009… That is around twice as long as the longest continuous period of economic growth in history…

So in the context of a burgeoning debt pile over three times the size of economic output, rising interest rates adding to the burden of servicing all that debt, and post GFC economic activity due in large to an unprecedented program of central bank monetary stimulus which is now being scaled back, that graph seems pretty reasonable yeah?

One wonders if the CBO would be interested in buying a bridge we have for sale…