The financial news regularly focuses on day-to-day happenings such as earnings reports, central bank meetings, and the recent overhaul of the tax laws. This “breaking story” mentality is not entirely surprising; it’s the nature of news.
However, amid the rush of new things to report, one ominous problem looms in the background and receives comparatively little attention: the ever-rising tide of global debt.
According to Bloomberg News, worldwide debt has ballooned to another all-time high. The most recent data from the third quarter of 2017 shows global debt reaching the incomprehensible level of $233 trillion. (Yes, that’s trillion with a “t”.) It’s still concerning—although hardly a shock—that there’s been scant mention of the problem of global debt elsewhere in the news.
This $223-trillion figure not only includes the staggering amount of debt taken on by governments, such as the $20 trillion held by the world’s single biggest debtor, the United States. The total cited by Bloomberg also includes privately held debt and even non-financial sector debt.
The total global debt was up $16 trillion from the year previous. That margin represents a chunk of money that is nearly the size of the entire U.S. economy. It’s true that a non-negligible portion of the debt that has been added over the past five years was part of a concerted effort by central banks to revive their economies after the Great Recession.
Yet quantitative easing programs that greatly increased the balance sheets of central banks are not the only component of the problem. Another major contributor has been China, where the gravity-defying growth of the Chinese economy has been fueled in part by excessive debt financing. One of the world’s biggest corporations, Amazon, has used a similar strategy to grow its businesses and is currently tens of billions of dollars in debt.
At the consumer level, subprime automobile loans and student loans have also been sources of rising indebtedness. Meanwhile, the consequences of these various forms of debt—whether held by individuals, corporations, or government institutions—is virtually ignored by the media.
Moreover, as interest rates begin to rise, all of this debt becomes more expensive to service!
While debt is not necessarily a death sentence, it undoubtedly creates an increasing risk of default. In simple terms: If the financial system goes belly-up to any significant extent, as it did in 2008, the value of stocks, bonds, and currencies could tank. Protecting one’s financial position with physical precious metals only becomes more sensible the more that global debt grows.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.