It’s impossible to read the headlines or view a financial news channel without hearing about the debt crisis. We hear that the U.S. is facing a debt crisis because budget deficits are out of control. We hear that China is facing a debt crisis because of wasted infrastructure investment, bank ponzi schemes and bad loans to money-losing state sponsored enterprises.
Next we hear that emerging markets are facing a separate debt crisis because of dollar-denominated debt that cannot be repaid if higher U.S. interest rates lead to a stronger dollar. In short, the whole world seems to be facing a debt crisis in various forms. But, just how bad is it overall?
This article attempts to answer that question. The article reports that total global debt now exceeds $233 trillion. Another way to express that figure is about a quarter quadrillion dollars (a quadrillion is one-thousand-trillion). The article also reports that the global debt-to-GDP ratio is about 318%, a dangerously high level especially if interest rates start to rise.
This debt is in addition to approximately $750 trillion of bank derivatives as reported by the BIS. Adding the debt and derivatives together produces over one quadrillion dollars of financial obligations of various kinds. This is far more that the amount of debt and derivatives outstanding before the last financial crisis in 2008.
That fact alone means that the next financial crisis will be exponentially greater than the last one. Regulators won’t admit this and investors are unprepared for it, but it’s true.