Debt is rising. And it’s rising fast.
The world’s debt has reached the largest margin that it’s been at over the past two years. But that’s not even the shocking part. It reached this level within the first quarter of 2018 alone.
World Bank CEO Kristalina Georgieva said:
After a decade of low interest rates, the corporate and public debt in many places has ballooned to a staggering $164 trillion. With interest rates going up, that attention on debt sustainability has to be stronger.
Global debt is becoming a big hurdle. Central banks around the world are feeling the pressure to follow a Federal Reserve that continues to raise interest rates faster than predicted.
This type of pressure is causing immediate stress on emerging markets and developing economies.
According to the Institute for International Finance (IFF), world debt, which includes household debt, increased to $237 trillion in fourth-quarter 2017. That’s $70 trillion higher than where debt was 10 years ago.
This isn’t the pace that the world should be at, especially with debt. Georgieva has said countries need to begin taking a hard look at the affordability of the projects that they take on amid fairly low interest rates. And this includes infrastructure.
There was a standout comment from the World Bank CEO during her interview earlier this week. She said 55% of the world’s population is living in cities and there needs to be more attention toward jobs and social protection for the urban poor. The population is rising faster than “the ability of cities to absorb these people” in terms of infrastructure and employment.
If people aren’t employed, debt levels will increase. The majority of people are living beyond their means. And a huge reason for this is because of the lack of employment opportunities and pay that would enable these people to be in line with the standard cost of living…
Living Beyond Our Means
The Federal Reserve has recorded that the average American household carries $137,063 in debt. But the U.S. Census Bureau reported that the median household income was only $59,039 last year.
These numbers support the idea that most American households are living beyond their means. Some are worse off than others, but they all still carry debt year after year because they’re unable to pay off their debts entirely.
A survey by GOBankingRates concluded that 57% of Americans have less than $1,000 in their savings accounts. Americans aren’t saving. And it’s not because they don’t want to. It’s hard to save. To be honest, Americans aren’t able to save.
So, are we really surprised that the world debt has increased by $70 trillion over the past decade? I’m not.
And governments aren’t necessarily helping. Take a look at the U.S. government…
Sonja Gibbs, IIF’s senior director of the global capital markets department, commented on how the U.S.’ debt growth was very worrisome. That it’s grown to more than 100% of the gross domestic product (GDP). And with the increases in spending from President Donald Trump and Congress, the U.S. will have funding needs of 25% of its GDP.
Gibbs said, “The U.S. really stands out here because… a lot of that is the expanding budget deficit as well as maturing debt.”
Government and citizens continue spending. Recent data from the Federal Citizen Information Center (FCIC) records that overdue credit card debt has hit a seven-year high. And it’s not only credit card debt that’s affecting citizens. Mortgage debt is also up by 5.2% to $56.7 billion.
All these factors are adding onto each other and are creating an alarming about of world debt.
A solution is needed. We’ve recognized the problem, so it’s time to take control of the debt that’s been plaguing the world.
Until next time,
Jennifer Clark
Pro Trader Today