Global Debt Levels Top 225% of GDP: A $152 Trillion Nightmare Looms

Alas, the evergreen joys of record highs, fueled by a mechanism that has produced more debt to GDP in the history of mankind. Naturally, if you all went out and maxed out your credit cards and spent all of your money on stuff, you’d look and feel rich too. But eventually the stuff you bought would begin to rot and get old and then you’d need more stuff. By then, it’d be too late. Credit would’ve dried up and you’d need to restructure your balance sheet in order to start anew.

The global debt burden is of an unprecedented quality. But with markets at new highs and the status quo drifting on like a summer breeze, anyone who dares to mention this very real, and very dangerous set of circumstances are castigated out for spreading insipid intellectual fare.

This pablum is out of the IMF this morning.

Gross debt in the non-financial sector has more than doubled in nominal terms since the turn of the century, reaching $152 trillion last year, and it’s still rising, the International Monetary Fund said. The figure includes debt held by governments, non-financial firms and households.

Current debt levels now sit at a record 225 percent of world gross domestic product, the IMF said Wednesday in its semi-annual Fiscal Monitor, noting that about two-thirds of the liabilities reside in the private sector. The rest of it is public debt, which has increased to 85 percent of GDP last year from below 70 percent.

Slow global growth is making it difficult to pay off the obligations, “setting the stage for a vicious feedback loop in which lower growth hampers deleveraging and the debt overhang exacerbates the slowdown,” said the Washington-based fund.

“Excessive private debt is a major headwind against the global recovery and a risk to financial stability,” IMF fiscal chief Vitor Gaspar said in prepared remarks. “History has taught us that it is very easy to underestimate the risks associated with private debt during the upswing.”

There’s no consensus on what levels of debt-to-GDP should be the considered alarming, the IMF said. However, financial crises tend to be associated with excessive private debt in both advanced and emerging economies, the fund said. In addition, research has shown that high debt is linked with lower growth, even when a crisis is avoided.

If companies postpone paying off debt, they could become “very sensitive to shocks, increasing the risk of an abrupt deleveraging process,” the IMF said.

Depressed economies with weak banking systems should avoid premature tightening of fiscal policy, the fund said.

The IMF flagged the euro area and China as economies where it’s particularly important for deleveraging to occur.

Markets continue to grind higher, effectively and absolutely ignoring the headwinds that are coming.