Recently, the Institute of International Finance (IIF) released the "Global Debt Monitor" report, showing that in the environment of rising interest rates, the global debt stock increased by US$10 trillion in the first half of 2023, reaching a record high of US$307 trillion (about HK$2395 trillion).
More than 80 percent of the latest increase in debt came from developed countries, with the largest increases in the United States, Japan, the United Kingdom and France, the IIF said. The IIF said the current global debt-to-GDP ratio has risen to 336 percent, and it is expected to rise to 337 percent by the end of 2023.
Draft: Hong Kong Commercial Daily
The 10-year debt soared by $100 trillion
Global debt in dollar terms increased by $10 trillion in the first half of 2023 and $100 trillion over the past 10 years, according to the IIF; Before 2023, the proportion of debt has fallen for seven consecutive quarters.
The sudden surge in inflation has been the main factor in the sharp decline in the proportion of debt in the past two years, and as wage and price pressures ease, even if inflation does not fall back within the central bank's target, the proportion of debt is expected to exceed 337% by the end of the year, mainly driven by the large budget deficits of various governments.
On the 13th local time, the French supermarket chain Carrefour commodity shelf wrote: "The volume or net weight of this commodity is reduced, and the actual price charged by the supplier rises." Under high inflation, many commodities have shrunk inflation. Reuter
The cost of interest on debt continues to rise
More than 80 percent of new debt came from developed countries, with the United States, Japan, the United Kingdom and France seeing the largest increases, the IIF said. Among emerging countries, the biggest gains were in India and Brazil. The IIF pointed out that as interest rates and debt levels rise, government interest payments increase, and countries' debt pressures will intensify.
Federal Reserve. Reuter
The report notes that as more debt is refinanced and interest rates remain high in countries to fight inflation, interest costs on debt may continue to rise. At the same time, funding the climate transition is putting pressure on governments to spend more.
The IIF warns that government debt in many countries has reached alarming levels, and there is concern that the global financial architecture is not adequately prepared to manage the risks associated with tight domestic debt markets.
On August 15, local time, pedestrians passed the national debt bell in New York, United States. China News Agency
Tiftic, head of research at IIF, said the concern was that countries would have to allocate more and more money for interest payments, which would have long-term implications for countries' financing costs and debt dynamics.
Parker, managing director of credit rating agency Fitch, said rising interest expense is an important risk for public finances and sovereign ratings, especially in developed markets. Parker argues that interest expense is growing faster than debt or income.
Emerging markets are mired in debt
and the vicious circle of inflation
The IIF said it was particularly concerned about rising interest expense on local currency debt in emerging markets, which now accounts for more than 80 percent of total interest costs in emerging markets. As more emerging countries are forced to restructure their debts, high levels of domestic debt will put them in a vulnerable position, as the IMF's debt restructuring program targets more external creditors such as investment funds, other sovereigns, and foreign currency debt.
Source: Reuters
Tiftik said existing traditional tools are primarily designed to address the vulnerability of external debt, which has led emerging markets into a vicious cycle of debt and inflation at the expense of a sharp decline in potential growth rates.
The market generally believes that a sustained increase in debt will lead to higher interest rates. Mizuho Securities pointed out that the increase in debt can easily have a negative impact on market sentiment and easily bring upward pressure on interest rates. SMBC Nikko Securities said that the increase in debt may delay the timing of interest rate cuts, and interest rates are likely to remain high.
The U.S. Treasury debt broke $257 trillion for the first time
The government may shut down again
At the same time, the latest data released by the US Treasury Department showed that as of September 18, the US Treasury debt exceeded 33 trillion US dollars (about 257 trillion Hong Kong dollars). U.S. debt snowballed, taking only three months to reach a record high at an astonishing rate. At present, the two parties in the United States are still fighting over the budget, and if the appropriations bill is not agreed within days, the US government may shut down again by the end of the fiscal year on September 30.
There is a huge electronic display board in New York City, which records the current total amount of US debt and the amount of debt borne by each American family in real time. Reuter
In September 2017, the size of US debt exceeded $20 trillion; In February 2022, the size of US debt exceeded $30 trillion. On June 16, 2023, the federal government's debt exceeded $32 trillion, a figure nine years ahead of pre-pandemic forecasts.
According to the Peterson Foundation's calculations, spreading these huge debts to the American people is equivalent to $99,000 per person. Peterson, the foundation's chief executive, said U.S. finances were on an unsustainable path before the pandemic, which has rapidly exacerbated U.S. fiscal challenges.
Editor: Tongqu
Cover: Lotus
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