Global Debt Hits A New Record High Of $217 Trillion; 327% Of GDP

The Institute of International Finance is perhaps best known for its periodic - and concerning - reports summarizing global leverage statistics, and its latest Q1 report was the most troubling yet, because what it found was that in a period of so-called "coordinated growth", global debt hit a new all time high of $217 trillion, or over 327% of global GDP, up $50 trillion over the past decade. So much for Ray Dalio's beautiful deleveraging, oh and for those economists who are still confused why r-star remains near 0%, the chart  below has all the answers.

Not surprisingly, China continues to be the biggest source of global debt growth, with the country's total debt load now surpassing 300%.

While much of the debt issuance at the financial sector level has moderated in recent years, supplanted by outside money created by central banks, debt in the non-financial sector has continued to grow, and as of Q1 2017, hit an all time high of 242% of GDP.

An interesting observation by the IIF: despite the recent dollar strength (if not so much in the past quarter), dollar bond issuance in Emerging Markets has been on a tear over the past year.

Another notable observation: while the EM bond universe has increased by $2.5 trillion to $18.4 trillion since 2016, only 25% of this debt is tradeable via benchmark bond indices.

What is more troubling, however, is the IIF's observation that despite the relentless foreign portfolio inflows into EM, the credit quality of many emerging markets has deteriored rapidly in the past year.

This is an especially acute problem because there is over $1.9 trillion in EM bonds and loans coming due by the end of 2018. Should the EM sector fall out of favor with investors, and if the debt can not be rolled over, it could result in substantial liquidity events across the EM space.

Finally, here is perhaps the most troubling chart of all: for all those wondering how oil-exporters in the Gulf region have funded their budgets, and maintained their economies from sliding into recession or social disorder, the answer is shown below: a dramatic increase in new debt issuance.

So what is the policymakers' response as global debt hits new all time highs? To raise interest rates.

Comments

Reichstag Fire Dept. hedgeless_horseman Thu, 06/29/2017 - 20:42 Permalink

"One man's debt is another man's passive income." ~ HHSo, bankrupt ALL the EM currencies is the plan?Qatar, Libya, Iraq, singled out for switching away from the US$...makes me think of Cyprus & Greece being the alternative to doing so.Capital controls in Cyprus & Greece led the Bitcoin (BTC) surge. I'm not a Crypto advocate per se but for countries that DO NOT want to be bombed back to the stone age it looks like national bankruptcy is in the future. This is you best indicator that BTC et al will continue to surge into the future IMHO.What happens when individuals start hedging against capital debasement by holding BTC? How are they going to bomb individuals worldwide? The man in the street has few tools to counter such risk...BTC is thge easiest....or is that what the drone program is for??

In reply to by hedgeless_horseman

any_mouse medium giraffe Thu, 06/29/2017 - 18:20 Permalink

Another planet on which to create debt.

They are going to need trillions to get the tribidium and dilithium mines going. Oh yeah, and maybe a million for some air scrubbers for the mine slaves and their families.

Let me guess, Company scrip for pay, Company housing for rent, Company food stores, Company entertainment and news, and a Company bank. Company schools.

John D. Rockefeller XIV travels to the Stars.

In reply to by medium giraffe

Robert A. Heinlein Thu, 06/29/2017 - 15:43 Permalink

That huge roar of approval comes from the Keynsians. But, we're not 'there' yet,  We need to keep it up for this to work.  You just have not thrown enough money at it yet. Once you get enough debt, it will work out perfect.  Every one will be rich and famous.  Carry on!

JackMeOff Thu, 06/29/2017 - 15:58 Permalink

History has proven that all wars start over the economy and what is owed to who...  When China implodes and the Global GDP explodes, watch for the guns to be unleashed.

PhiBetaZappa Thu, 06/29/2017 - 16:41 Permalink

No worries. A $217 Trillion Commemorative coin the size of an asteroid will take care of it.Take the USS Enterprise out of moth balls and hop to it Captain Yellen.

NYC_Rocks Thu, 06/29/2017 - 16:45 Permalink

The Fed isn't raising the rates materially and won't follow through like the free market would if there was one.  If we had a truly free market banking system with no monopoly power and printing presses, then the interest rates would rise in response to the rising debt.  So the Fed is actually doing (for once) what the free market would do (directionally anyway).  However, if we had true free markets in money, the debt would have never gotten this far out of hand because there would be no one printing and subsidizing the market with tax payer money (inflation tax).  Rates would rise in response to debt increases and put the breaks on leverage earlier in the cycle. 

besnook Thu, 06/29/2017 - 16:51 Permalink

this is all dollar and euro debt which means neither are worth very much. the yen is still viable if only because the japanese people inherit a bankrupt japan whereas japan, china and a few other countries get to split up the eurozone and the usa with the euro and american hedge funds and the fed.oh, yeah, this also means the dollar and the euro aren't worth much but they are fortunate fundamentals don't matter anymore.

moonmac Thu, 06/29/2017 - 17:07 Permalink

New rules will cause some credit scores to rise July 1

  • New criteria will strip some negative information from credit reports.
  • For those affected, scores could rise by up to 20 points.
  • The changes take effect July 1st

Wilma Flintstone and Betty Rubble yell “Charge It” as they head out on another shopping spree. Cartoons were much better at teaching us about financial issues than most of today’s top Economists.