IMF Sounds The Alarm on Global Debt, Warns “United States Stands Out”
The comments below are an edited and abridged synopsis of an article by Tyler Durden
A year ago, the IMF warned about the soaring level of private sector debt. More than 20% of US corporations were at risk of defaults once interest rates rose, and the combined assets of firms threatened by default (those who earnings do not cover their interest expense) could reach $4 trillion.
The IMF has again sounded the alarm on debt, this time on the public side of the ledger. There is excessive global borrowing, and with a total of $164 trillion of debt (225% of global debt/GDP), the world’s public and private sectors are more in debt now than at the 2008 financial crisis, when global debt/GDP peaked at 213%.
While advanced economies are responsible for most global debt, in the last 10 years emerging market economies have been responsible for most of the increase. China alone has contributed 43% to the increase in total global debt since 2007.
There is an urgent need to reduce the burden of debt in both the private and public sectors to improve the resilience of the global economy and provide greater firefighting capability when things go wrong.
For the past 10 years, central banks, by keeping interest rates down, enabled the world’s biggest debt issuance spree, for both public and private debt. Now everyone (central banks, bank CEOs, NGOs) is screaming about how dangerous debt really is.
Policymakers who have gotten used to flooding the world in debt should stop using lower taxes or higher public spending to stimulate growth, and instead try to reduce the burden of public sector debts so that countries have more leeway to act in the next recession.
The IMF recommends that countries raise taxes and lower public spending to decrease annual borrowing and get the burden of debt on a firmly downward path.
Somehow, we doubt this advance damage control will work after the next, and likely final, crash.