The Bank for International Settlements (BIS) stated in a new report that the total amount of government debt has increased 40 percent to $100 trillion. In attempts to bail out financial institutions and private companies, stimulate the economy and borrow large sums of funds during the economic collapse, global government debt grew substantially.
It should be noted, however, that the $30 trillion increase occurred in only a six-year timespan between the years 2007 and 2013, according to the Basel, Switzerland-based BIS quarterly review. With benchmark interest rates established to record lows by central banks, governments took advantage of this and persisted in deficit spending and increasing debts.
“Given the significant expansion in government spending in recent years, governments (including central, state and local governments) have been the largest debt issuers,” said Branimir Gruic, an analyst, and Andreas Schrimpf, an economist at the BIS, in a statement.
Despite the heavy debt loads, bond returns have remained stable. Since 2007, the beginning of the Great Recession, bonds have yielded 31 percent – Treasury and agency debt gained 27 percent and corporate bonds returned more than 40 percent.
There have been downgrades in national credit ratings, though. “Total debt levels, the sum of household, government and corporate debt, haven’t declined at all in recent years,” said Ben Bennett, a credit strategist in London at Legal & General Investment Management. “Each time there’s a wobble, the central banks turn on the taps. Either that works by creating growth with asset prices eventually coming into line with fundamentals, or it doesn’t and we’re in for a massive fall.”
The United States, the United Kingdom, France and Japan have been some of the top countries to experience downgrades.
What should be noted, though, is that it’s quite likely that the report did not include unfunded liabilities and expenditures. In the U.S. alone, these figures amount to more than $120 trillion, larger than the entire world’s indebtedness. In addition, what happens to interest payments on a nation’s debt? When interest rates inevitably rise, how will policymakers pay for it?
Therefore, international government debt could very well transform into half a quadrillion dollars.