The world is over 250 Trillion Dollars in debt: public plus private. Is this vast debt sustainable? Is this debt a bubble about to burst? The COVID 19 Pandemic is costing world GDP or annual global economic output multiple trillions of dollars in lost revenue.
Global GDP in 2019 was over 82 Trillion dollars. GDP is expected to contract sharply in 2020.
Then global public plus private debt today, is over $250 Trillion, over 300% of Global GDP. The pandemic has driven up debt levels steeply.
US debt is driven by annual deficits that have been increasing steadily from the days of President George Bush the Second. Western countries have followed a similar trajectory increasing annual deficits and increasing national debt.
A culture of easy credit has further exacerbated the problem of high debt. Credit is a tool for investors and businesses to increase consumer demand and increase profitability. However this can lead households into unsustainable debt.
Photo courtesy Sharon McCutcheon, Unsplash
And that means that for every dollar earned, the world economy owes $3.00 to investors. This vast debt has been driven up by a massive surge in COVID 19 stimulus by western governments especially, led by the USA. That debt is simply unsustainable, state the experts.
In October, the International Monetary Fund put the figure of lost output as a result of the pandemic at 28 Trillion Dollars to date. How much greater that lost output is when the pandemic ends is guesswork. But it will be much greater.
In recent history, at times of severe economic crises, the financial culture in the West led by the US Federal Reserve has displayed a willingness to borrow vast amounts of cash from investors- Quantitative Easing- and use that cash for stimulus spending to generate consumer demand.
This is stimulus that is driven by flooding markets teetering on the edge- and suffering deflation and recession- with cheap cash. Employers use that cash to keep workers in jobs which in turn stabilizes falling consumer demand that in turn keeps these employers in business.
This is cash either given freely as grants to failing businesses, or offered as cheap loans. Ultimately it is the taxpayer that is lender of last resort and who underwrites this stimulus.
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