The Institute of International Finance, an association of financial institutions created after the debt crisis of the early 1980s to help the industry with risks management, has recently released a worrying new report. It shows that the world’s total debt surged by $7.5 trillion in the first half 2019, hitting a new record of $250.9 trillion at the end of the period.
The world’s total liabilities continue to grow rapidly as a new report reveals global debt is now over a record $250 trillion. For many investors and market watchers this raises the specter of another potential major economic crisis triggered by a collapse of the global financial system. Despite this, the central bankers who are causing the situation with historically low interest rates remain complacent, with the head of the Fed saying the situation is “pretty sustainable.”
World’s Total Debt Sets New Record
The report explains that China and the U.S. accounted for over 60% of the increase. Additionally, emerging market debt also hit a new record of $71.4 trillion, equal to 220% of GDP. And with this rapid pace not cooling off global debt is expected to surpass $255 trillion by the end of this year. “With no sign of a slowdown, we expect the global debt load to exceed $255 trillion in 2019 -largely driven by the U.S. and China”, the researchers warned.
Many investors and market watchers consider the ever mounting debt to be a serious risk for the global economy. Even the International Monetary Fund (IMF) published a report about the systemic risks faced by the global economy in October, highlighting the high level of global debt caused the historically low interest rates and money printing (QE). The IMF explained that “Low interest rates have reduced debt service costs and may have contributed to an increase in sovereign debt. This has made some governments more susceptible to a sudden and sharp tightening in financial conditions.”
Moreover, interest rates that can’t go any lower and soaring debts leave governments and central banks with no tools to react to another crisis. “With diminishing scope for further monetary easing in many parts of the world, countries with high levels of government debt (Italy, Lebanon) – as well as those where government debt is growing rapidly (Argentina, Brazil, South Africa, and Greece) – may find it harder to turn to fiscal stimulus”, the Institute of International Finance report warned.
US Federal Reserve Head Sees Nothing to Worry About
In the face of growing fears in the market, and repeated warnings from professional bodies such as the International Monetary Fund and the Institute of International Finance, central bankers appear complacent. The U.S. Federal Reserve Chairman, Jerome Powell, informed lawmakers on Thursday that he sees no financial bubbles or serious risks to the system despite the fact that the debt is growing faster than the American economy. “If you look at today’s economy, there’s nothing that’s really booming now that would want to bust”, Powell told the House Budget Committee. “In other words, it’s a pretty sustainable picture.”
This is in sharp contrast to what Powell himself said back in January when he admitted to be very worried about the high levels of U.S debt. “it’s a long-run issue that we definitely need to face, and ultimately, will have no choice but to face”, he explained at the time. One way of understanding this contradiction in the thinking of the Fed head is that he simply hopes the next crisis won’t happen during his shift if he kicks the can down the road long enough.
The Institute of International Finance report finds global government debt will surpass $70 trillion in 2019, up from $65.7 trillion in 2018, mainly propelled by the rise in U.S. federal debt. “The big increase in global debt over the past decade – over $70 trillion – has been driven mainly by governments and the non-financial corporate sector (each up by some $27 trillion)”, the researchers noted. “For mature markets, the rise has mainly been in general government debt (up $17 trillion to over $52 trillion). However, for emerging markets the bulk of the rise has been in non-financial corporate debt (up $20 trillion to over $30 trillion).”
If central bankers now fear that another economic crisis is on the way, but are not willing to admit so publicly to avoid stoking the fire that might consume them, it explains why the establishment is so worried that people will have another system outside their control to escape to such as cryptocurrency. This is the reason they try to label it as a tool for criminals. For those people around the world looking to protect their savings from another global financial crisis, or from their local government defaulting on its mountain of debt turning its fiat money worthless, private digital assets now appear to be the last solution.