Many economists talk as if we have gone through a long period of austerity and that we have deleveraged the U.S. and the global economy. This is simply not true.
We added more debt globally from 2008 to 2014 (that’s a whopping $57 trillion) than we did from 2001 through 2007 ($55 trillion).
We’re not off our debt addiction at all! That monkey is still on our back. And not only ours… it’s hanging on the world over!
Here are the facts from the most recent (and even better) McKinsey Global Institute report on global debt entitled Debt and (Not Much) Deleveraging.
The tech bubble in stocks started in mid- to late 1994. But the debt bubble really accelerated back in 2000…
And it picked up speed alongside the real estate bubble.
Global debt has grown from $87 trillion in the fourth quarter of 2000 to $199 trillion in the second quarter of 2014, almost 130% in 13.5 years. It’s already well over $200 trillion by now.
Government debt has increased the most in a slowing global economy, and then corporate debt. But household and financial sector debt have grown even though they’ve deleveraged to some degree in countries like the U.S., Ireland and Spain.
The financial sector debt in 2008 to 2014 slowed the most with a measly 2.9% growth compared to 9.4% from 2000 to 2007. Household debt dropped all the way down to 2.8% from 8.5%.
Corporate debt grew a little faster at 5.9% versus 5.7%… not that companies were making major capital expenditures… they were way too busy buying up their own stock and doing leveraged buyouts with near free money. Government debt grew much faster at 9.3% in comparison to 5.8% as Keynesian deficits were exploding almost everywhere to offset the slowing private sector.
The countries with the highest total debt are: Netherlands 687%, Ireland 681%, Singapore 628%, Japan 517%, Denmark 537%, U.K. 435% and Spain 402%.
How do you like those numbers?
The countries with the highest financial sector debt, which by the way is the riskiest and deleverages the fastest, are: Netherlands 362%, Ireland 291%, Singapore 246%, Denmark 235% and U.K. 183%.
Most economists don’t see these countries as prone to fail, with the exception of Ireland. But frankly, it just doesn’t look that way to me!
The highest household debt countries are: Denmark 129%, Finland 124%, Netherlands 115%, Australia 113% and Canada 92%. These are the countries that report the highest happiness ratings… maybe they are just high on debt!
The truth is that these countries have some of the highest real estate prices and valuations and that in turn forces their consumers to take on more personal debt as mortgages are 74% of household debt globally.
Now let’s talk about corporate debt. The countries featured here are: Singapore 201%, Ireland 189%, Belgium 136%, Netherlands 127%, China 125% and France 121%. Despite appearing so sound, Singapore keeps featuring horribly when you look not only at its debt but its sky-high real estate.
As you can see, debt is running rampant globally. Let’s turn and look at government debt and the numbers are just staggering… but not surprising.
Japan comes in at 234%, Greece at 183%, Portugal has 148%, Belgium ranks in at 135%, Spain at 132% and Sweden at 129%.
There’s no way there can’t be a major financial crisis in the years ahead. Most major countries have slowing demographics, burdensome debt, sky-high real estate, high export exposure… or all of the above.
The more we look at all the facts and all the different angles there are… few countries will not see major economic downturns and financial crises. Canada and Australia face much higher risks from exports and real estate than they did the last time around.
Note that the U.S. holding 269% total debt to GDP did not come out in any of the extremes.
That simply means we are one of the best houses in a bad neighborhood.
That fact, as well as the massive amounts of dollars across the globe that’ll be destroyed when debt and financial asset bubbles burst, will keep the dollar king for years to come.
P.S. Follow me on Twitter @harrydentjr.