Global Debt Overhang

ca-2016-10-15-global-debtYou 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 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.

Sources:

http://www.imf.org/en/news/articles/2016/10/04/am16nafiscalmonitor100416

http://www.cnbc.com/2016/10/06/global-debt-balloons-to-all-time-high-of-152-trillion-imf-warns.html

http://www.tradingeconomics.com/united-states/government-debt-to-gdp

About Objectively Speaking

Tom Batterman, founder of Vigil Trust & Financial Advocacy and Financial Fiduciaries, LLC is in the business of representing the best financial interests of his clients. Having provided objective, fee-only financial management services for over two decades, he specializes in managing the investment and related financial affairs of individuals and mutual insurance companies who do not have the time, interest or expertise to manage such matters on their own. As an objective, unbiased professional who takes on a fiduciary responsibility to his clients, he guides clients to the financial decisions they would make themselves if they had years of training and experience and the time and expertise to fully research and understand all of their options. Founded in 2010 as an outgrowth of Vigil Trust & Financial Advocacy, Financial Fiduciaries, LLC is a financial management solution for individuals and mutual insurance companies who recognize they do not have the time, interest or expertise to properly attend to their financial matters on their own. While there are many financial “advisors”, most of them have investment products to sell and the “advice” they provide is geared toward getting their clients to engage in a purchase. As one of the rare subset of advisors known as “fiduciary advisors”, Financial Fiduciaries does not sell any investment product so its guidance is not compromised by conflicts of interest which plague ordinary advisors. Prior to his employment in the financial industry in financial advocacy and trust positions, he worked at a private law practice in the Wausau area in the areas of estate planning, tax, retirement planning, corporate organizations and real estate. He is a graduate of the University of Wisconsin-Madison and the UW-Madison Law School and has during his career held Series 7, 24 and 65 securities licenses. A longtime resident of the Wausau, Wisconsin Area, Tom is active in the community. He enjoys golf, curling, skiing, fishing, traveling and spending time with his family.
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