McKinsey concluded that total global debt was $199 trillion and the little covered report was released in February – 3 months ago – meaning that the figure is likely over $200 trillion.
With a global population of 7.3 billion this works out out at over $27,200 of debt for every man, woman and child alive in the world today.
Almost 29% of that debt – $57 trillion – has been accumulated in the relative short period since the financial crisis erupted in 2007 – just 8 years.
This has increased the total debt-to-GDP ratio by 17% and “poses new risks to financial stability and may undermine global economic growth.”
The report, entitled “Debt and (not much) deleveraging”, analyses the debt situation in 47 different countries – 22 of which have advanced economies and 25 with developing economies.
Of the 22 advanced economies every one was found to have higher debt-to-GDP ratios today than they did in 2007. For many, the ratio had grown by more than 50%.
The three major areas for concern according to the report are rising government debt, rising household debt and rising total debt in China – which has increased a staggering four-fold since 2007.
The McKinsey report states bluntly that “government debt is unsustainably high in some countries.”
Government debt has expanded by 25% since the crisis began and much of it stems directly from the crisis.
The report states that for the six of the most highly indebted nations deleveraging has become impossible – at least without “implausibly large increases in real-GDP growth or extremely deep fiscal adjustments.”
With regard to household debt the report states that household debt-to-income ratios in some countries exceed those of the crisis countries in the run-up to 2008.
In those crisis countries – the report cites the U.S., the U.K., Ireland and Spain – households have managed to pay down some debt. According to the report, in advanced countries – like Australia, Canada, Denmark, Sweden and the Netherlands – but also in Malaysia, South Korea, and Thailand household debt relative to income has exploded.
China’s debt has quadrupled since 2007 to $28 trillion. This represents 282% of GDP. The McKinsey Institute expresses concern about China’s financial system thus:
“half of all loans are linked, directly or indirectly, to China’s overheated real-estate market; unregulated shadow banking accounts for nearly half of new lending; and the debt of many local governments is probably unsustainable.”
They believe the Chinese government could bail-out the financial system if necessary but suggest that debt be reined in.
The report offers its solutions to these three growing crises but fails to acknowledge the root cause of the problem – the policy response of governments and central banks in recent years and the debt based monetary system.
Not acknowledged in the report is the fact that governments and central banks opted to bail out banks, at the expense of taxpayers and engaged in quantitative easing which again aided banks and their balance sheets but further indebted taxpayers and sovereign nations.
In a world where currency comes into existence as a debt and the interest on that debt cannot be paid until new currency is created in the form of new debt, governments are left with a choice between continuous debt expansion and borrowing or deflation and possible depression and economic collapse.
Unless and until the debt based system is replaced there can only ever be an increasing debt load and an urgency for economic growth with the consequent degradation of our environment and a debt enslaved humanity.
The solutions offered by the McKinsey report, particularly with regard to dealing with government debt, instead focus on ever more government and corporate power and financial repression.
For example, in dealing with government debt the report suggests “more extensive asset sales, one-time taxes on wealth, and more efficient debt-restructuring programs.”
The summary of the report makes this conclusion:
“Debt undoubtedly remains an essential tool for financing economic growth. But how it is created, used, monitored, and (when necessary) discharged still needs improvement.”
It is not clear what “one-time tax on wealth” McKinsey have in mind and whether debt restructuring will involve “bail-ins.”
Another glaring omission in the McKinsey report is the dire fiscal position of the U.S. who now have a National Debt or Federal Debt of $18,44 trillion and a real national debt and “unfunded liabilities” alone of over $100 trillion.
The attempt to solve what was essentially a global debt crisis with mountains of more debt means we will have another global financial crisis – the question is when rather than if.
This will have an impact on our economic recovery and on asset prices and hence the importance of diversification – both in terms of asset diversification but also in terms of geography and where and how your assets are owned.
This article is brought to you courtesy of Goldcore which appeared on ZeroHedge.