DID YOU know that the total debt in the world is around $250 trillion?
It’s a staggering amount which equates to more than $30,000 for every person on the planet.
And if that’s not enough to shock you then maybe this will: the total amount of debt in the world is three times the global economic output, which is to say that the combined debt of the globe is three times larger than our assets.
Debt is a tricky thing. Some economists will argue that you can run as much debt as you want, so long as your debt servicing capacity/debt-service coverage ratio can handle it. To put it in simpler terms, you can have as much debt as you want as long as you have enough money to pay it off. Unfortunately, it’s never as simple as that.
Debt matters. It matters in the sense that it needs to be paid off or written off otherwise, it’s not really debt. When an economy, company or household has too much debt, it needs to allocate a significant portion of its productive activity to pay off its debt and interest.
Furthermore, debt – on a societal level – can also be a symptom of capital misallocation and intense inequalities. In the case of the $250 Trillion global debt, the big question is, who owns that debt, and who should pay it off? If each person on the planet owes more than $30,000, then to whom should they pay their debt to?
Some may argue that debt exists because of savings but then the counter to that is the question, who owns most of the world’s savings? Who owns most of the capital? If the total global debt is three times larger than the global economy then it means that the human race owes three times more than what it produces, and how is that possible?
I’m not an expert on this subject, but as far as I’m concerned, there’s something really wrong in the global economy. Massive debt is a symptom of a world that cannot sustain its economic growth. It needs to keep borrowing in order to stay afloat. But how much debt is too much debt? More importantly, why is the debt growing at all? Is debt really the only way to sustain economic activity? How did we end up in a situation where the global debt is three times larger than the global economic output? Just a few questions to think about./PN