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.