Saturday , July 31 2021

Markets check for the largest global debt in history

The Fund stressed yesterday that, on average, world debt is higher than US $ 86,000 per capita, which is 2.5 times higher than the average per capita salary. No wonder some experts believe that excessive global debt is one of the major economic problems, especially if the world economy is entering a recession, and the problems are beginning to emerge with the huge debt that some countries have had, mainly in recent years. Another issue that concerns the markets is that there is a serious turbulence with a low quality of corporate debt (high risk), because in conditions of low growth, the deterioration is faster. For example, in the United States, one of the major problems cautioned by regulators is the increase in the number of borrowings (issued under the investment level) in the corporate sector.

However, the IMF notes that "the most indebted economies in the world are also the richest." The three largest lenders in the world, the United States, China and Japan, are also owing more because they account for more than half of the global debt, which exceeds their market share in global production of goods and services. . On the other hand, the Fund figures show that the private sector debt "has risen tripled since 1950" and continues to be a driver of global debt growth. In this regard, one of the most significant changes from the financial crisis in 2008 is "the increase in private debt in developed markets, led by China, which exceeded the developed economies." In the case of China, the data are: the total debt represents 245% of GDP, and the private is 81.5% of GDP, with a nominal GDP of more than $ 12 billion.

In terms of global public debt, which has been steadily declining by the mid-1970s, it can not be ignored, since since then it has not stopped growing, especially in developed economies. Compared to 2009, global debt increased by 11 percentage points in relation to GDP. In this way, the IMF concludes that "tightening the financial conditions in many countries", due to the increase in US interest rates. and at the end of the ECB's stimulus, along with high levels of private and public debt after several years of "cheap money", is a risk to be taken into account during 2019 and 2020. Just weeks ago, Former Federal Reserve President Janet Yellen expressed fears of another major financial crisis because, according to her, "there are big holes in the system". In this regard, one of the areas where the risks were monitored was the loan market, which has increased significantly in the last decade. It is worth remembering that credentials are granted to companies with a bad credit history so that they have a higher visibility risk and carry higher interest rates for those companies. Investors fear the huge mountain of corporate debt in the US Declines if companies begin to have problems refinancing their debts. Especially if the conditions of the loans are strengthened due to the increase of interests in the United States. Hence the concerns about these loans, because they can be the first link in the chain that can break, as well as mortgage mortgages in 2008. It is happening in 2017 already to have problems with credit loans that directly affected the so-called. investors in the CLO (Loan Loan Provided), the largest source of demand for these assets. Investors who deposit on secured loan commitments (CLOs) buy assets supported by one of these low credit rating loans, in exchange for assuming that the risk of non-performance of a company receives a higher return.

Regarding what happened in 2017, the Fund shows that:

In the case of developed economies, there was a reduction in the accumulation of debt. Private debt, although slightly increasing, is well below the maximum level. In addition, public debt in developed economies experienced a healthy fall of nearly 2.5% of GDP in 2017. To find a similar reduction in public debt, we must return a decade when global growth was approximately 1 percentage point higher than today.

In the case of emerging markets, these countries continued to take loans in 2017, albeit at a much slower pace. A major change occurred in China, where the pace of accumulation of private debt, albeit still high, slowed significantly.

While in low-income developing countries, public debt continued to rise in 2017 and in some cases reached levels close to those observed when countries sought debt relief.

The IMF warns that "with the intensification of the financial conditions in many countries (including interest rate rises), the prospect of debt reduction remains uncertain." The high levels of corporate and public debt accumulated for years on light global financial conditions are a possible failure, by closing the first decade after the global financial crisis, the inheritance of excessive debt continues to gain importance. "

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