Debt runs the world – at least that’s what some economists seem to believe.
To some economists, debt has been a driver of economic growth. It has enabled the developed and undeveloped world to build bridges, roads, schools, and many other economically important assets.
The other end of the economic spectrum sees risks in the massive amount of debt we’ve accrued over the years. They see the risks associated with the heavy debt burden as a moral problem, pointing out that too much debt is stealing economic growth from future generations to the present by burdening future generations with unreasonable interest payments.
How much debt is there? According to the International Institute for Finance, total debt has reached $244 trillion. Huge, by almost any measure.
This is about $22 trillion more than it was in the first quarter of 2017.
Is debt a risk, or an instrument to global growth?
With global debt on the rise, the question is – Is debt a risk, or an instrument to global growth?
The answer, of course, is both.
Recently, though, a new milestone in the debt profligacy debate occurred. The issue is shown in the following figure. According to Bloomberg, negative-yielding debt makes up almost one-fifth of investment grade debt across the world.
(Negative-yielding debt is debt that trades at a sufficient enough premium to where the yield turns negative. This doesn’t actually mean that the buyer of a bond is paying the issuer of the debt instrument for the debt, but rather that demand for the bond is so high, that the yield turns negative. Remember, the yield on a bond is inversely related to the price of a bond.)
This is the highest level since August 2017. This is incredible.
But, could it indicate that we’re living in a debt bubble? We, of course, don’t know. We know it indicates that investors are concerned about the health of the global economy. We also know that it is in no way sustainable. At some point, the bubble will burst.
And such a bursting may be so terrible that only owners of hedging assets (such as gold) may be left with life.
Debt continues to rise across the globe. By the end of 2019, global debt may surpass $260 trillion. Massive, massive by any measure. No one knows when the straw will come that will break the camel’s back. It may not be in 2019.
One thing is for sure, though. Eventually, the debt bubble will burst, and when it does, heaven help us all.