Global debt has jumped by $57 trillion in less than a decade, a number unimaginable in practical terms. That’s 17 percent — nearly one fifth — of the world’s GDP.
The number has climbed significantly since the last economic crisis for most entities — government, companies and household budgets alike — making the prospect of another financial nightmare all too possible:
The figures are as remarkable as they are terrifying. Global debt – defined as the liabilities of governments, firms and households – has jumped by $57 trillion, or 17pc of global GDP, since the fourth quarter of 2007, which was supposed to be the peak of the bad old credit-fuelled days. In 2000, total debt was worth 246pc of global GDP; by 2007, this had risen to 269pc of GDP and today we are at 286pc of GDP.
So what, exactly, is going on in the global economy? The one big lesson from the bubble days was that we had too much debt. Yet fresh figures from McKinsey examining 47 of the world’s most important economies show that the situation has become worse rather than better. In net terms, there has been no deleveraging – in fact, economies have levered up further.
Companies and people are much more likely to go bust, taking banks down with them. A low-leverage economy inevitably does better in a downturn than a high-leverage one.
As the New York Times reported, this means that things will have that much more gravity the next time that the music stops:
[D]ebt plays an outsize role in creating boom-bust cycles across the world and through history. High debt increases the amplitude of economic swings. To think of it in terms of the corporate metaphor, high reliance on borrowed money may not affect a company’s level of output in theory, but makes it a great deal more vulnerable to bankruptcy.
That’s what makes a new report from McKinsey, the global consulting firm, sobering. Researchers compiled data on the full range of debt that countries owe — not just their governments, but corporations, banks and households as well.
The massive size of this debt can hardly be overstated, and not only is this financial weight leveraged across more entities than ever before, it is making nearly everyone on the globe potentially more vulnerable to collapse than ever before:
Only Argentina, Egypt, Saudi Arabia, Romania and Israel saw their overall non-financial private and public debt ratio fall since 2007.
Meanwhile, even places like Canada, typically well adjusted and stable, are showing signs of shaky ground with unsustainable levels of household debt that rival everyone but Greece, which is now engulfed in turmoil over debt once again:
Alarm bells sound over ‘unsustainale’ household-debt levels in Canada
Canadians, in fact, have taken on so much debt in the years since 2008, the jump in the country’s debt-to-income ratio is second only to Greece, the report found. The household debt referred to in the report includes mortgages and is based on data to Q2 2014.
The conditions for crisis are potentially even worse than they were last time:
“A number of countries in northern Europe, as well as Canada and Australia, now have larger household debt ratios than existed in the United States or the United Kingdom at the peak of the credit bubble,” the report said.
If these numbers show us anything, it is that virtually no one learned the lessons of the gaze at total financial apocalypse.
As we know from Greece’s current crisis, and the one that came before it, totally out of control debt is a teetering domino ready to knock down any and all others lined up to take a blow and continue the path of destruction.
All too few governments or households took preparations to shield themselves from dangerous levels of leveraged debt, and instead have made themselves all too vulnerable to another leveling, if one should come.