There are three certainties in life: death, taxes and that global debt will keep rising in perpetuity.
Addressing the third, yesterday the Institute of International Finance reported that global debt has now hit $250 trillion and is expected to hit a record $255 trillion at the end of 2019, up $12 trillion from $243 trillion at the end of 2018, and nearly $32,500 for each of the 7.7 billion people on planet.
“With few signs of slowdown in the pace of debt accumulation, we estimate that global debt will surpass $255 trillion this year,” the IIF said in the report.
The surge was driven by a $7.5 trillion surge in the first half of the year which was used to reverse the global slowdown that sent stocks into a bear market in 2018, and which shows no signs of slowing. Around 60% of that jump came from the United States and China. Government debt alone is set to top $70 trillion this year, as will overall debt (government, corporate and financial sector) of emerging-market countries.
The total debt breakdown as of Dec. 31 is as follows:
- Household debt: $47.9 trillion
- Non-financial corporate: $75.7 trillion
- Government: $70 trillion
- Financial corporate: $61.7 trillion
And this is what the total debt picture was like at the start of the century, 20 years ago…
… and again today:
This amounts to a grand total of just over $255 trillion, roughly equivalent to a record 330% of global GDP.
WATCH: Follow the increase of global #debt over two decades.
Latest IIF Global Debt Monitor finds global debt has now surpassed a record $250T & is projected to reach $255T by the end of 2019. pic.twitter.com/D001VVzZmD
— IIF (@IIF) November 14, 2019
Separately, Bank of America’s Michael Hartnett on Friday calculated that since the collapse of Lehman, government debt has increased by $30tn, corporates debt by $25tn, household by $9tn, and financial debt by $2tn; And with central banks expected to support government debt, BofA warns that “the biggest recession risk is disorderly rise in credit spreads & corporate deleveraging.”
Overall, global bond markets have increased from $87 trillion in 2009 to over $115 trillion, with government bonds now making up 47% of the market compared with 40% in 2009 according to Reuters.
Crushing Ray Dalio’s delightful, if impossible, dream of a “beautiful deleveraging”, borrowing by the four separate categories – governments, households, financial corporates, non-financial business – is growing faster than the global economy especially among emerging markets, where as noted above, Chinese companies were the biggest source of debt issuance the Washington-based IIF said in its Thursday report, although more than half of “corporate” debt in those countries is likely held by state-owned businesses, which means that effectively this is government-backstopped debt.
With state-owned companies now accounting for over half of non-financial corporate debt in emerging markets, sovereign-related borrowing has been the single most important driver of global debt over the past decade.
Not surprisingly, in developed countries it was governments that account for the bulk of borrowings.
As it does every quarter, the IIF report warned about the limits and risks of debt-fueled economic growth, a warning that has not only been widely ignored by virtually every politician (now that even the Tea Party has thrown in the towel), but a warning which is clearly being ignored by the US where the CBO projects debt to grow exponentially until something finally breaks.
The IIF also said that emerging markets that have increasingly relied on foreign-currency borrowing – including Turkey, Mexico and Chile – could be exposed to risks if growth slows further. Separately, the IIF warned that the three EM economies with the greatest percentage increase in debt year-over-year from Q2 2018 to Q2 2019, were Chile, South Korea, and Argentina. Of these, the first is currently being rocked by unprecedented social upheaval, while the latter effectively defaulted on its debt, sending its bond prices plummeting last quarter, crushing the IMF’s credibility in the process.
Altogether, emerging market debt hit a new all time high of $71.4 trillion in Q2, up nearly $5 trillion in the past year.
— IIF (@IIF) November 15, 2019
And, in yet another hint that MMT is only a matter of when, not if, the IIF suggested that “high-debt countries that also have high exposure to climate risk” – like Japan, Singapore, Korea and the U.S. – may struggle with the rapid increase in funding that the fight against climate change will require. Of course, there will be no such issue if the Treasury can openly monetize the debt it issues, something MMT claims would lead to global utopia and instead will lead to the end of the current monetary system as we know it.