The world is drowning in debt. This is not a new sensation, but from time to time someone scratches their chin staring at the latest data, pondering potential threats and (im)possible solutions. Namely, the total global debt (private, corporate, public) has exceeded 312 trillion dollars. This is double the amount from the famous 2008 when we realized that the (financial) emperor has no clothes. In the year of the derivatives market crash, based on worthless mortgage loans, the world was in debt to the tune of 165 trillion dollars. Debts are literally being pushed by everyone, primarily the USA and China, largely due to the green transition, unaffordable green investments, and numerous government incentives. However, the fact that debts are rising is merely a statistical anecdote if we do not know whether they can be repaid.
The ratio of global debt to GDP is a kind of indicator of the ability to repay the debt (in theory), and this ratio is currently at 328 percent. Thus, the world is indebted three times more than all that it produces and delivers to the market. This ratio in developing markets is also at a maximum of ‘a mere’ 245 percent!
This refers to the total debts of all sectors. However, when theorizing about state bankruptcy, we usually narrow the issue down to public debt, that which states need to repay (although, in theory, these debts never actually return, but that is a completely different topic). Thus, the total global public debt will exceed one hundred trillion dollars this year and could grow faster than forecasts because global politics favors increased consumption, among other things, due to slow economic growth, the IMF warns.
The latest report from the same organization showed that global public debt will reach 93 percent of global GDP by the end of this year and approach one hundred by 2030. This would exceed the peak of 99 percent reached during the pandemic lockdown, or it would be ten percentage points higher than in 2019, now a new base year. The darkest scenario shows that global public debt could reach 115 percent of global GDP in just three years, twenty percentage points higher than ‘mainstream’ forecasts. That this is not unattainable is confirmed by the USA, more precisely the estimates of the Congressional Budget Office, which states that Donald Trump’s tax cut plans could add around 7.5 trillion dollars of new debt over ten years.
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