You haven’t heard much about the U.S. government’s debt, in part because, as a percentage of the economy, the growth of our national debt has slowed dramatically. (See chart.) But measured on a global scale, the world’s $152 trillion of debt—from consumers, corporations and governments worldwide—is more than double the balance at the start of the century, which worries the International Monetary Fund. That total represents 225% of gross domestic product around the world.
Government debt only accounts for about one-third of the total, and not all countries are contributing their share to the total debt burden. The most recent IMF report singles out China as a country at risk of a disorderly wind-down of high debt levels among its corporations, and shows that emerging market economies, with greater access to credit, are among the fastest-growing global debtors.
Why worry? The report suggests that high private debt levels can increase the likelihood of a new financial crisis, which can lead to negative economic growth and another debt spiral. Meanwhile, highly-indebted borrowers are likely to reduce their investment and consumption, dragging down economic growth.
The report doesn’t offer any policy prescriptions, except that the world needs to start digging out slowly and carefully, so as not to trigger a global recession, and in years when the economy is growing, there needs to be a policy that pays down debt—both by governments and the companies and individuals that have a little more money in their pockets.
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