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Global Debt Remains At Record High

Global debt will reach more than $255 trillion, according to the Institute of International Finance. Nearly $32,500 for each for the 7.7 billion people on the planet.

At the end of their report, economists warned that “high debt burdens could curb efforts to tackle climate risk.”

The IIF reported: “Global climate finance flows remain far short of what’s needed for an effective transition to a low-carbon economy.”

Citing the United Nations Intergovernmental Panel on Climate Change’s estimation in 2010 that an average of $3.5 trillion is needed annually to prevent global temperatures from increasing 1.5 degrees Celsius by 2050, the report said that “public and private finance flows will have to be scaled up rapidly.”

“This is a growing source of concern for high-debt countries that also have high exposure to climate risk,” the report added, listing Japan, Singapore, Korea “and even the U.S.”

The report noted limits and risks attached to debt-fueled economic growth. It said that emerging markets that have increasingly relied on foreign-currency borrowing, including Turkey, Mexico and Chile, may be exposed to risks if growth slows further.

That amount, caused by a $7.5 trillion surge in the first half of the year, is more than three times the world’s annual economic output.

Approximately 60% of that increase came from the United States and China. Government debt is expected to top $70 trillion this year, including overall debt (government, corporate, and financial sector) of emerging-market countries.

“With few signs of a slowdown in the pace of debt accumulation, we estimate that global debt will surpass $255 trillion this year,” the IIF said in a report.

Compared with other sectors, government debt increased the most in the first half of 2019 –– 1.5 percentage points. Non-financial companies came next, with a 1 percentage point rise. State-owned companies accounted for over half of non-financial corporate debt in emerging markets. Sovereign-related is the leading form of new borrowing.

Bank of America and Merrill Lynch on Friday deduced that since the collapse of Lehman Brothers, a U.S. investment bank that collapsed in 2008 at the onset of the financial crisis, governments have borrowed $30 trillion. Companies have taken on $25 trillion, while households have taken on $9 trillion, with banks having taken on $2 trillion.

The IFF data is based on Bank for International Settlements and International Monetary Fund figures. It demonstrates how the debt outside the financial sector surpassed 240% of world gross domestic product at $190 trillion.

Global bond markets increased from $87 trillion in 2009 to more than $115 trillion. Government bonds comprise 47% in comparison to 40% in 2009, while bank bonds fell to fewer than 40% from more than 50% in 2009.

“The bond universe has grown most rapidly in emerging markets, swelling by over $17 trillion to near $28 trillion since 2009,” the report stated.

“If you look at today’s economy, there’s nothing that’s really booming now that would want to bust,” Jay Powell said in testimony before the House Budget Committee. “In other words, it’s a pretty sustainable picture.”

Hidden debt and other “poorly understood contingent liabilities” can create additional uncertainty, the report said, “and could leave some sovereigns struggling to source international and domestic capital — including to combat climate change.”

The International Monetary Fund heightened its warnings for the corporate debt market on Wednesday, as investors search for richer returns in riskier assets after recent interest rate cuts by central banks.

The IFF report noted that fiscal stimulus would likely return diminishing returns. “However, 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 IIF report stated.

This a lamentable increase over the last nearly 75 years. Over that time, there has been a considerable increase in the stock of money, as detailed by Henry Hazlitt, in his book Economics In One Lesson. In 1947, there were $113 billion of demand deposits plus currency stored outside of banks. By August 1978, that had ballooned to $357 billion in August 1978.

The consumer price index in 1946 rested at 58.5. In September 1978, it had increased to 199.3. Last month, it stood at 256.59.