Macroscope | Fugitive thief of global debt is now a potential killer

The mountain of global debt is of particular concern because of the sharp series of interest rate increases in the US

The threat that debt levels in different sectors of the economy pose to financial markets should be more clearly communicated

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A trader works, as a screen displays a news conference by Federal Reserve chairman Jerome Powell following the central bank’s interest rate announcement, on the floor of the New York Stock Exchange on January 31. Photo: Reuters

Published: 3:45pm, 24 Feb 2024Updated: 5:16pm, 24 Feb 2024

Financial crises have a way of creeping up on the world like a thief in the night and they come from different causal directions. The next one is very likely to come from debt problems – unless beaten to it by a stock market crash – and it is already close on our heels.

It may not appear that way because global debt has been mounting for decades and life goes on. But the nature of the debt threat has changed relatively recently along with rising interest rates, and the figurative “thief” is now a potential killer.

Not all great financial crises of the past have been debt crises, but debt defaults, especially at the government level, have a way of morphing into “panic on financial markets and economic slowdowns”, as the World Economic Forum put it in December.

The Institute of International Finance (IIF) reported in its latest Global Debt Monitor on February 21 that over US$15 trillion was added to the global debt mountain last year, and the total is now a record US$313 trillion. But it is not so much facts that provide most cause for concern.

Nor is it the IIF warning that uncertainty about US interest rates and the dollar could increase market volatility and tighter funding conditions for some countries and that “deepening geoeconomic fragmentation, geopolitical conflicts and rising trade protectionism may lead to more frequent and abrupt changes in global risk sentiment”.

It is that fact that the recent inflation episode in the US which proved to be more than just “transitory” has been followed by an extended period of rising interest rates that is also proving to be more than transitory. Other things being equal, this might be something the global economy could cope with.

Macroscope | Fugitive thief of global debt is now a potential killer

The mountain of global debt is of particular concern because of the sharp series of interest rate increases in the US The threat that debt levels in different sectors of the economy pose to financial markets should be more clearly communicated

The mountain of global debt is of particular concern because of the sharp series of interest rate increases in the US

The threat that debt levels in different sectors of the economy pose to financial markets should be more clearly communicated