The World Debt Crisis Deepens
The world is currently mired in record-setting debt. Last year the combined borrowing of households, businesses, and governments across the globe eclipsed $315 trillion. And in Q1 of this year, global debt surged by another $7.5 trillion, reaching a new high of $324 trillion.
Heavy global debt loads lead to widespread economic instability, currency devaluation, reduced private and public investment, and an increased risk of a global fiscal crisis.
And one of the more dire consequences of mounting debt levels in today’s elevated rate environment, are the skyrocketing debt servicing costs — or the amount of money required to not only repay borrowed loans but also the interest that has accrued on those loans.
The impact on business is particularly pronounced as rising global debt can undermine consumer spending, trigger higher borrowing fees, suppress available capital, and result in corporate bankruptcies and/or insolvencies.
Global Debt-to-GDP Ratio
Every country in the world holds debt but some nations are more vulnerable than others in what is now considered to be a ‘High-Debt,’ Slow Growth’ era.
At over $36 trillion, the United States owes more money than any other country in the world and America’s debt burden is increasing on average by about $1 trillion dollars every three months. The U.S. is followed by China with a national debt of around $17 trillion and Japan with some $10 trillion of sovereign debt.
While high debt figures are worrisome for any economy, a nation’s debt-to-GDP ratio is a more critical measure of financial health since it indicates a country’s ability to repay its liabilities relative to the size of its economy. The higher the ratio, the less likely it is that a country possesses the economic output to pay back its loans.
Here are the countries with the highest Debt-to-GDP correlation:
- Sudan: 252% of GDP
- Japan: 234.9% of GDP
- Singapore: 174.9% of GDP
- Greece: 142.2% of GDP
- Bahrain: 141.4% of GDP
- Maldives: 140.8% of GDP
- Italy: 137.3% of GDP.
- United States: 122.5% of GDP
- France: 116.3% of GDP
- Canada: 112.5% of GDP
Each of these nations has a debt tally that exceeds their total economic output or the overall value of all of the goods and services produced within their respective borders. At almost 123% of GDP, America’s debt liability not only threatens the solvency of essential programs like Social Security, Medicaid, and Veteran’s Benefits — it also dramatically elevates the risk of a full-blown financial crisis.
The Precarious Value of Money
Global debt has been rising for well over a decade but Covid-19 and the resulting lockdowns, business closures, government assistance and relief programs — dramatically accelerated global debt accrual.The fallout of black swan events like wars and pandemicscantrigger higher interest rates, increase inflationary pressures, depress economic growth, erode investor confidence, and dramatically depreciate the value of money.
History provides an infamous example of debt-driven currency devaluation in the case of the German Papiermark, the official money of Germany between 1914 and 1923. Before the start of World War I, the German ‘mark’ went off the gold standard and voracious money printing ensued. Money was printed to pay off war debt, fund reparations, pay government workers, and finance massive deficits which led to crippling hyperinflation. The ‘mark’ became so worthless, that iconic photos of German citizens using banknotes as wall paper serve as a sobering reminder of how quickly and completely debt can destroy the value of ‘legal tender.’
The Global Safety Net
It is the instability of paper money that has driven central banks to acquire gold at record levels. Gold has long been recognized as a time-tested store of value — and the world’s banks are on a three-year buying spree in an effort to prop up their currencies, diversify their reserves, and protect their economies.
Gold is an inflation hedge and widely regarded as crisis insurance. It is highly liquid and globally accepted, but most of all, it is a safety net and a life line to governments plagued by the highest debt levels in history. Indeed, gold is now the world’s second largest reserve asset.
For business leaders, record-setting global debt presents a challenging economic climate. It reduces investment, increases uncertainty, undermines initiative and makes it difficult to plan, operate, and grow a business
At Thor Metals Group, we have been sounding the alarm on soaring world debt for years, addressing the growing risks to consumers, corporations, and the economy — from market instability and slower growth — to higher borrowing costs and a full-blown global recession.
Our industry leading gold reports, blogs, and precious metals experts can provide further insights into the advantages of acquiring and holding what is arguably the world’s most important physical asset, amid one of the most challenging economic periods in history.