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Global debt continues to be 325% of the world’s annual GDP

Global debt continues to be 325% of the world’s annual GDP

There remains to be an underlying question in the global economy as the world’s central banks begin to tighten the screws on their policies of cheap money. ¬†And that is, since the banks and economy have relied almost solely on the Fed, ECB, BOJ, and Bank of China’s printing of 10’s of trillions of dollars to ‘stimulate’ the financial system, what is bound to happen once they turn off the monetary spigots?

The reason this question is so important, and perhaps why very few economists are daring to bring it to light, is that the amount of debt created to sustain the world’s financial system over the past 10 years sits at around 325% of global GDP. ¬†And since nearly all of that debt will never be paid off, and has been continuously rolled over with newly printed money, what will be the consequence once the central banks no longer make money cheap to borrow, for both banks and sovereign governments?

Global debt levels have surged to a record $217 trillion in the first quarter of the year. This is 327 percent of the world’s annual economic output (GDP), reports the Institute of International Finance (IIF).

The surging debt was driven by emerging economies, which have increased borrowing by $3 trillion to $56 trillion. This amounts to 218 percent of their combined economic output, five percentage points greater year on year.

The biggest contributor was China with $2 trillion. In June, the International Monetary Fund urged Beijing to tackle its ballooning debt, describing it as unusually high for a developing economy. Some estimates say China’s debt stands at 260 percent of its GDP.

Advanced economies have cut debt levels by $2 trillion over the past year. However, the US is approaching $20 trillion, almost 10 percent of global debt.

“Rising debt may create headwinds for long-term growth and eventually pose risks for financial stability,”¬†the report said. – Russia Today

There is very little money left in savings for both individuals, and for governments at every level.  And so it will be interesting if not impossible to tell what will come of a debt crisis once cheap money sources become exhausted, and markets such as housing, equities, and derivatives no longer have the fuel to continue their torrid pace of rising prices based on central bank stimulus and zero interest rates.

Already the state of Illinois is beyond salvaging, and the U.S. Federal debt is at 105% of its own GDP.  And with a global recession appearing to rear its head in multiple facets of the current economy, the debt monster that has been pushed off for nearly a decade may finally have its day, and central banks no longer have the ammunition to counter it.

Kenneth Schortgen Jr is a writer for The Daily Economist, Secretsofthefed.com, Roguemoney.net, and Viral Liberty, and hosts the popular youtube podcast on Mondays, Wednesdays and Fridays. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.


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