Debt is on everyone’s minds as global borrowing continues to rise. How will this debt affect you and I? Does this increasing number really matter?
A Rising Tide
This phenomenon is the topic of a brief article released today by Forbes entitled, “Global Debt Has Increased By $57 Trillion Since 2007”. According to the piece, global debt has risen by $57 trillion over the past seven years.
Interestingly enough, the debt has risen across all sectors (household, corporate, government, and financial). The largest increase occurred in governments, with the smallest occurring in households. These numbers are from a study completed by the McKinsey and Global Institute.
How does this affect us?
In short, I don’t know. How’s that for honesty? There are a myriad of ways that global indebtedness could resolve.
Just looking at the large increases in government borrowing, I’d expect that those authorities would eventually demand more income from its citizens. The probable result? Higher taxes.
Does this number matter?
I remember in a college economics class once hearing a professor speak about how debt at a government level isn’t really a horrible concept. “It allows countries to progress”, he said.
He’s right, to a point. His conjecture is true only if at some time the country turns around and repays its loans with newfound wealth. That doesn’t seem to happen much in today’s world.
Debt can be transferred beneficially between countries, but it seems that so few countries are lending (an observation that is indicated in the above study).
The Good News
The good news is that although households are still increasing in debt, they’re rising at a slower pace than their counterpart sectors. Let’s stem that tide!
I’m confident that a continued change of mind toward finances at the household level will change corporations and governments too.
What’s your take on the global economy?