Understanding Global Debt

Understanding Global Debt

Global debt currently stands at about three times the size of the entire global economy. Trends indicate global debt levels are rising.

A healthy amount of debt is necessary for economic expansion, but too much debt can cause financial distress.

According to Marketwatch:

“In a relatively high-growth economy, ostensibly high debt levels are not necessarily a problem, as long as that debt is being used to fund investments that either yield high returns or create assets worth more than the debt.”

Many developed countries’ tight budgets and rising debts are preventing them from investing much at all.

“Record low interest rates have encouraged countries and companies to issue debt as central banks around the world try to stimulate growth”- Telegraph.

A major concern for many financial experts is that global debt has already topped 2008 levels.

According to the Wall Street Journal:

“Global debt- including households, businesses and governments – has risen from 221% of GDP at the end of 2008 to 242% at the end of the first quarter.”

At 400% of GDP, Japan’s debt level is by far the highest in the world.

Current global debt has risen to an estimated $152 trillion.

One of the main reasons that global debt is rising is because of low interest rates. More governments are borrowing and spending on infrastructure and healthcare.

At the consumer level, household debt is rising rapidly too. As more people struggle to stay ahead of rising inflation and the rising cost of living, they are borrowing more. Unproductive debt is on the rise- whereby excessive credit card debt is pushing consumer spending beyond sustainable levels.

Three types of debt are at the core of global debt, namely:

  • Government (or public debt)
  • Corporate debt
  • Household debt

Many financial experts are cautioning about another potential global financial meltdown if current global debt levels aren’t curbed.

Categories: Debt consolidation