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Illustration: Aïda Amer/Axios

The world appears to be at a debt inflection point where traditional rules no longer apply.

Driving the news: Following a substantial increase of $21 trillion in 2017, debt accumulation rose by just $3.3 trillion in 2018, bringing "the global debt mountain to $243 trillion," the Institute of International Finance reported this week.

Why it matters: While economic orthodoxy holds that high levels of debt lead to higher interest rates, that correlation — like many others — is unraveling in the post-financial-crisis era.

  • "Many commentators might suggest that interest rates are low because central banks have made them low," David Page, senior economist at AXA Investment Managers, tells Axios. "Actually, it's the other way around. Central banks have had to lower rates as much as they have because the natural rate of interest has fallen" as a result of the growing debt.

The big picture: Over the past 10 years the money supply has increased significantly and wealthy businesses have used the wellspring of free cash to buy back shares and acquire rivals to inflate their stock price and reward executives.

But real wage growth has been flat in developed countries and largely capped in developing nations. That has meant a growing number of people have to take on more debt to finance the increasing cost of middle class necessities like a mortgage, medical bills and college tuition.

  • Both the increase in debt and lower interest rates "are symptoms of grander issues such as slowing population growth, an aging population and therefore an easing of economic growth rates," says Lou Brien, rates strategist at DRW Trading.

What it means for the market: The traditional tools of monetary policy by central banks no longer function as they once did.

  • "Central banks have cut interest rates in many places to 0% or negative levels and the economies are not accelerating," Robert Tipp, chief investment strategist at PGIM Fixed Income, tells Axios.
  • "Why are people not borrowing money at zero? Either they don't have anything to do with it or they are overly indebted."

The increased debt also means it takes lower interest rates to slow the economy. With a mountain of debt already accumulated, few can afford the 4% or 5% interest rates of the past, AXA's Page says.

Go deeper

CCP releases two jailed Canadians after Huawei CFO deal with DOJ

Photo: Sheldon Cooper/SOPA Images/LightRocket via Getty Images

Two Canadians imprisoned by the Chinese government for over 1,000 days have been released and are expected to arrive in Canada on Saturday, Prime Minister Justin Trudeau said Friday.

Why it matters: Their release comes hours after Huawei Technologies CFO Meng Wanzhou reached a deal with the U.S. Department of Justice that resolves the criminal charges against her and could pave the way for her to return to China.

Updated 22 hours ago - Politics & Policy

Arizona GOP's private recount of 2020 election confirms Biden's win

Contractors working on behalf of the GOP examine and recount 2020 ballots at Arizona Veterans Memorial Coliseum in Phoenix in May. Photo: Courtney Pedroza/Getty Images

In an odd coda to the 2020 election, private contractors conducting a GOP-commissioned recount in Arizona confirmed President Biden’s win in Maricopa County.

Why it matters: The unofficial, party-driven recount has been heavily covered on cable news as part of former President Trump's continued effort to sow doubt about the election result.

Del Rio bridge camp empty following Haitian migrant surge

A boy bathes himself in a jug of water inside a migrant camp at the U.S.-Mexico border on Sept. 21 in Del Rio, Texas. Photo: John Moore/Getty Images

The last migrants camping under the Del Rio International Bridge, which connects Texas and Mexico, departed on Friday, Homeland Security Secretary Alejandro Mayorkas announced during a White House press briefing.

Driving the news: Thousands of migrants, mostly from Haiti, had arrived to the makeshift camp after crossing the southern border seeking asylum. Roughly 1,800 migrants will now head to U.S. Customs and Border Protection processing centers.