Here is a transcript of the video.
The world is in debt. That totals $315 trillion and counting.
$315 trillion is a staggering number, but consider this. In 2024, global gross domestic product (GDP) will reach US$109.5 trillion — Slightly more than a third of global debt.
Another way to picture it? There are approximately 8.1 billion people in the world today. If we divided this debt per person, we would each owe approximately $39,000.
So, with global debt hitting record highs, should you be worried? How did we get here in the first place?
Global debt includes borrowing by households, businesses and governments.
You’re probably most familiar with household debt, which includes things like mortgages, credit cards, and student debt. At the beginning of 2024, this number reached $59.1 trillion.
Commercial debt used by companies to fund their operations and growth amounts to US$164.5 trillion, of which US$70.4 trillion is accounted for by the financial sector alone.
Finally, there is government debt, used to fund public services and programs without raising taxes.
Countries can borrow from each other and from global institutions such as the World Bank and the International Monetary Fund.
But the government can also raise money by selling bonds…which are essentially IOUs from the state to investors. Like all loans, it includes interest.
Public debt is $91.4 trillion. While debt may have a bad rap, it’s not necessarily a bad thing. It can help individuals gain an education or join the property ladder. It enables businesses to launch and scale. Although the national debt is the most controversial of the three, it can provide governments with the leverage they need to build the economy, social spending, or respond to crises.
Written records show that public debt has existed for at least 2,000 years, primarily to build towns, cities, states, and countries… and to finance wars. Governments have long accumulated heavy debts from wartime expenditures, such as the Napoleonic Wars, the Franco-Prussian War, and the American Civil War in the nineteenth century.th century.
World War II was the most expensive war in history and caused many debt crises, with most of the outstanding loans owed to the United States.
Since the 1950s, there have been four major waves of debt accumulation.
The first debt wave originated in Latin America in the 1980s and resulted in debt restructurings in 16 countries in the region.
The second wave hits Southeast Asia at the turn of the 21st centuryYingshi In the 1930s, the United States and Europe bore the brunt of the third wave of global debt during the 2007-2008 global financial crisis.
We are now in the fourth wave, which began in 2010 and coincided with the Covid-19 pandemic. Governments have had to take on more debt to help businesses and their citizens cushion the impact of the lockdown.
In 2020, the global debt-to-GDP ratio rose to 256%, an increase of 28 percentage points, the largest debt increase since World War II.
But the pandemic has only exacerbated already existing problems. Debt has been piling up for at least a decade as individuals, companies and governments struggle to make ends meet. Take a look at this chart from the World Bank, which shows debt as a percentage of GDP rising rapidly starting in 2008.
This brings us to a key question: How much debt is too much debt? When does it become unsustainable?
Simply put, it’s when you can’t afford it.
For example, when governments are forced to cut back on areas that hurt their people, such as education or health care, just to keep up with payments.
Take Zambia for example. In 2021, debt servicing accounted for 39% of the state budget. That year, the government spent more on servicing these debts than on education, health, water and sanitation combined. This completely hinders the country’s ability to invest in its future.
The debt-to-GDP ratio is an economic indicator that compares a country’s government debt to its gross domestic product. It is usually expressed as a percentage and is considered a good indicator of the country’s ability to repay its debt.
So, let’s assume there are two countries, each with $30 billion in debt. Sounds like they have the same problem, right? But if it turns out that one of the countries has an economy of $30 billion and the other has an economy of close to $30 trillion Economically speaking, it is clear which country has the greater debt burden.
Combined with unfavorable foreign exchange and interest rates, this is why debt is riskier for smaller economies.
But of course there are exceptions.
Japan is the world’s fourth largest economy and one of the most indebted countries in the world, with total debt accounting for more than 600% of GDP. Although most of Japan’s debt is public debt, in recent years it has been the financial sector, not the government, that has increased the debt.
About two-thirds of the $315 trillion in debt comes from mature economies Japan and the United States have the largest debt burdens. But overall, debt-to-GDP ratios have been falling in mature economies.
On the other hand, emerging markets hold $105 trillion in debt, but the debt-to-GDP ratio of emerging markets hit a new high of 257%, pushing the overall ratio to rise for the first time in three years. China, India and Mexico are the largest contributors.
The fourth wave of debt growth is the largest, fastest and most widespread since World War II. Better policy and financial regulation averted a far-reaching debt crisis.
But with so much money, a stronger dollar or the prospect of a trade war could be enough to push one or a few countries into default.
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