From 2007 through the second quarter of 2014, global debt grew by $57 trillion, raising the global debt-to-GDP ratio by 17 percentage points to 286 percent, according to the
McKinsey Global Institute.
The endgame of this global cesspool won't be pretty, says
Jeremy Warner, assistant editor of The Daily Telegraph. "The world is sinking under a sea of debt, private as well as public, and it is increasingly hard to see how this might end, except in some form of mass default," he writes.
And it won't just be sovereign nations, but the corporate sector as well, Warner says.
"You might have thought that a financial crisis as serious as that of the past seven years would have ended the world economy’s addiction to debt once and for all. It has not. If anything, the position has grown even worse since the collapse of Lehman Brothers [in 2008]."
Governments in advanced economies have borrowed heavily to fund bailouts and boost demand. Private sector debt also has climbed rapidly in many countries.
The massive debt burden makes the global economy very vulnerable to financial crises, Warner maintains.
"How might the present explosion in debt end? The only thing that can be said with certainty is 'badly.'"
The McKinsey report expresses concern too.
"Absent additional steps and new approaches, business leaders should expect that debt will be a drag on GDP growth and continue to create volatility and fragility in financial markets," the study notes.
"Policymakers will need to consider a full range of responses to reduce debt as well as innovations to make debt less risky and make the impact of future crises less catastrophic."
The increasing global debt "slows the recovery, raises the risk of new crises and it limits the ability to respond to them. While significant deleveraging may prove elusive for many countries, effectively managing the growth of debt — and reducing it where necessary — is an imperative."
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