The world is being drowned in debt

In 2024, the total global debt has exceeded 315 trillion US dollars

And for the whole year of 2024, the GDP of all countries is estimated to be about 109.5 trillion US dollars

The debt level has reached three times the GDP

According to the current global population of about 8 billion, if we distribute these debts evenly to everyone, each person will bear a debt of 39,000 US dollars

An unprecedented debt crisis is quietly approaching us

Who created these debts? What is the debt situation in China? What impact will it have on us?

How is such a huge debt constituted?

The composition of global debt is mainly divided into three major parts: residential debt, corporate debt, and government debt. You may be most familiar with residential debt, including mortgage loans, credit loans, and student loans. At the beginning of 2024, the total global residential debt was 59.1 trillion US dollars. The proportion is not very large.

Another is corporate debt, with a total of 164.5 trillion US dollars. The total government debt is 91.4 trillion US dollars.At first glance, in this pile of debt, corporate debt accounts for more than half, and the proportion of government debt is not very large.

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However, among these corporate debts, the debt of financial institutions accounts for 70.4 trillion US dollars. These financial institutions include banks, insurance companies, fund companies, and so on. The most common reason for financial institutions to borrow money is to add leverage in the investment process to amplify returns. But while amplifying returns, it also amplifies risks. Often, the fuse of each financial crisis is these financial institutions that get into trouble first. For example, Bear Stearns and Lehman in the 2008 subprime mortgage crisis.

Isn't debt necessarily a bad thing?

We often see some negative news about debt, this one explodes, that one explodes, all are due to debt problems. Debt is like a demon in the eyes of the public. But debt is not necessarily a bad thing. For example, borrowing can help individuals own a house in advance, obtain better education, enable enterprises to start businesses and expand their scale. It can also provide the government with necessary funds for economic construction, social public service expenditure, or to deal with some crises.

But government debt is the most controversial among all debts. Because it is the most difficult to be restricted.

Historically, government debt has existed for at least 2000 years. Governments issue debt mainly for urban and national construction... and to fund wars. Among them, the history of governments issuing debt for war is very long. And governments have accumulated a large amount of debt for a long time due to war funding, such as the Napoleonic Wars, the Franco-Prussian War, and the American Civil War in the 19th century. World War II was the most expensive war in history, triggering multiple debt crises. The United States provided huge loans to its allies during World War II through the "Lend-Lease Act". Therefore, after World War II, the United States became the world's largest creditor. And it established the international status of the US dollar at one stroke.

When will the next wave of debt crisis come?

Since the 1950s, we have experienced four major waves of debt.

The first wave of debt originated in Latin America in the 1980s. Latin American countries had high foreign debt and a strong dollar, leading to debt restructuring in 16 countries in the region.

The second wave was the 1997 Southeast Asian financial crisis, which has been explained in detail in previous videos.The third wave of the global debt crisis was the subprime mortgage crisis that erupted in the United States in 2008 and spread worldwide. This time, excessive borrowing and high-leverage financial instruments led to bank bankruptcies, triggering turmoil in the global financial market.

We are currently in the midst of the fourth wave of debt, which began in 2010. With the global economy in a slump, countries have resorted to borrowing to stimulate their economies. The scale of debt has been growing continuously, stimulating until 2020. Unexpectedly, the pandemic brought another shock, forcing governments to take on even more debt to help businesses and citizens weather the impact of the pandemic. In 2020, the global debt-to-GDP ratio rose to 256%, increasing by 28% in just one year—this is the largest increase in debt growth since World War II.

Although debt is necessary in some respects, too much debt can bring serious problems. When debt levels are too high, governments may be forced to cut spending in areas such as education or healthcare to maintain debt repayment. For example, Greece's debt problem during the European debt crisis is very typical. In 2010, Greece's debt crisis erupted, with debt exceeding 170% of GDP. To repay the debt, the Greek government had to adopt severe austerity measures.

These austerity measures include:

1. Cutting public spending: Including reducing spending on education, healthcare, and social welfare, leading to a decline in the quality of public services.

2. Increasing taxes: Raising various types of taxes, such as value-added tax, increasing the burden on businesses and individuals.

3. Large-scale layoffs of civil servants to reduce government spending.

So how do we measure whether a country's debt is normal or problematic?

It depends on the debt-to-GDP ratio.

The debt-to-GDP ratio is an important economic indicator. For example, there are two countries, each with $30 billion in debt, but Country A has an economic scale of $30 trillion, while Country B has an economic scale of only $3 trillion. Clearly, Country B has a heavier debt burden.Out of the global debt of $315 trillion, the top three countries are the United States, China, and Japan.

In 2024, the total debt of the United States has exceeded $62.2 trillion, with government debt at $34.4 trillion, personal and household debt at $17.7 trillion, and corporate debt at only $10.1 trillion. In addition to addressing necessary public expenditures, a significant difference in U.S. debt compared to other countries is military spending. The United States' annual defense budget exceeds $800 billion, far higher than other countries.

Regarding China's debt situation, I took a look at the latest social financing data released by the People's Bank of China. As of April 2024, China's social financing stock is 389.93 trillion yuan, which is approximately $53.8 trillion when converted to U.S. dollars. The social financing data basically covers the explicit debt situation of residents, enterprises, and the government. I won't say more about it. China's debt situation is also at a relatively high level.

Japan is the world's fourth-largest economy and also one of the most debt-ridden countries in the world, with government debt exceeding 263% of GDP. Due to the rapid aging of Japan's population, social security and medical expenditures have increased significantly. These expenditures need to be supported by borrowing. As a result, the level of Japanese government debt remains high.

Now, we are in the fourth wave of debt, which is the largest, fastest-growing, and widest-ranging debt since World War II.

Although countries have better coping policies and financial regulations based on the experience of previous debt crises, and no large-scale debt crisis has erupted, as this huge debt figure continues to grow, a strong dollar and the intensification of trade wars will push one country after another to the brink of default.