Jul 15, 2019

The global debt binge begins anew

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Reproduced from Institute of International Finance; Chart: Axios Visuals

The world's debt rose by $3 trillion in the first quarter of 2019 — an almost unprecedented borrowing binge that brought total global debt to $246.5 trillion.

Why it matters: High levels of debt put countries in a vulnerable position in the event of a downturn and could endanger the world's economic recovery, said economists from the Institute of International Finance, which released the study today.

What's happening: Countries had been reducing their debt burdens since the beginning of 2018, when global debt reached its highest level on record, $248 trillion. But Q1's major uptick brought it to nearly 320% of the world's GDP, also near the all-time high, according to IIF's data.

  • Lower global interest rates and increased government spending are fueling the trend.
  • Total U.S. debt rose to a new all-time high of more than $69 trillion — led by federal government debt, which is now over 101% of GDP.
  • The U.S. corporate sector is also issuing more debt, boosted by an increase in bank lending, IIF noted.

What they're saying: "The 2018 slowdown in debt accumulation is looking more blip than trend," Emre Tiftik, IIF's deputy director of global policy initiatives, said in the report, released today.

  • "Helped by the substantial easing in financial conditions, borrowers took on debt in Q1 2019 at the fastest pace in over a year."
  • Further, Tiftik added, there's growing concern that central banks easing policy around the globe will prompt countries to issue more debt. "For some vulnerable low-income countries, debt sustainability is already at risk," he said.

Background: The Fed is expected to lower U.S. overnight interest rates at its policy meeting this month, following rate cuts from the central banks of Australia, India and New Zealand as well as multiple emerging market countries this year.

  • Market analysts are expecting the world's largest monetary authorities to embark on a coordinated effort to loosen policy, as the ECB and BOJ also are expected to cut rates.

Watch this space: Substantial debt growth is taking place in Finland, Canada and Japan, which have seen the largest increase in debt-to-GDP ratios of all countries IIF tracks over the past year. Developed markets, like the U.S., Western Europe and Japan, saw total debt rise by $1.6 trillion in Q1, with debt outstanding now totaling $177 trillion.

Go deeper: One nation, drowning in debt

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Emerging market debt hits record high

Debt in smaller emerging market countries, which are now providing the majority of the world's growth, rose to a record high of $69 trillion in the first quarter, IIF reported.

Why it matters: EM debt has been growing at a breakneck pace so far this year, as global investors search for yield with developed market interest rates at or near all-time lows.

Go deeperArrowJul 15, 2019

Worry grows about China's falling currency and rising dollar debt

Data: Institute of International Finance; Chart: Axios Visuals

The Chinese government had put plans in place to reduce the high levels of debt in the country's economy this year, but the negative economic effects of the trade war have put those plans on the back burner and companies are again levering up, in large part with dollar-denominated debt.

Why it matters: As the yuan weakens, debts held in dollars get more expensive. That could pose a major problem for China should the economy continue to slow. It would also mean problems for the rest of the world, as China is the planet's No. 1 trading nation.

Go deeperArrowAug 12, 2019

House votes to suspend debt ceiling through 2021

Illustration: Aïda Amer/Axios

The House voted 284-149 on Thursday to pass a budget that suspends the debt ceiling through 2021 — allowing the government to borrow money for 2 more years — and raises spending caps by about $320 billion.

The big picture: The federal debt exceeded $22 trillion in February and the Congressional Budget Office projects it to reach "unprecedented levels" over the next 30 years if current laws go unchanged. The federal deficit has grown 23% this fiscal year. Thursday's deal passes the buck on the next federal debt showdown until after the 2020 elections.

Go deeperArrowJul 25, 2019