The world is sinking under a sea of debt, private as well as public, and it is increasingly hard to see how this might end, except in some form of mass default.
Greece we already know about, but the coming much wider outbreak of debt repudiation will not be confined to sovereign nations. Last week, there was another foretaste of what’s to come in developments at Austria’s failed Hypo Alpe-Adria-Bank International . Taxpayers have had enough of paying for the country’s increasingly crisis-ridden banking sector, and have determined to bail in private creditors to the remnants of this financial road crash instead - to the tune of $8.5bn in the specific case of Hypo Alpe-Adria. Finally, creditors are being made to pay for the consequences of their own folly.
You might have thought that a financial crisis as serious as that of the past seven years would have ended the world economy’s addiction to debt once and for all. It has not. If anything, the position has grown even worse since the collapse of Lehman Brothers.
According to recent analysis by McKinsey Global Institute, global debt has increased to the tune of $57 trillion, or 17pc, since 2007, with little sign of a slowdown in sight. Much of this growth has been in emerging markets, which were comparatively unaffected by the financial crisis. Yet even in the developed West, private sector deleveraging has been limited and, in any case, more than outweighed by growing public indebtedness. The combined public sector debt of the G7 economies has grown by 40pc to around 120pc of GDP since the crisis began. There has been no overall deleveraging to speak of.
Where the West left off, Asia has taken up the pace, with a credit-induced real estate bubble that makes its pre-crisis Western counterpart look tame by comparison, much of it fuelled, as in Western economies, by growth in the shadow banking sector.
China’s total indebtedness has quadrupled since 2007 to $28 trillion, according to estimates by McKinsey. At 282pc of GDP, the debt burden is now bigger, relative to output, that the US.
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