All the money in the world: global debt hits 300 trillion US dollars!

300 trillion US dollars, it's easy to say but hard to imagine. That's the cumulative amount of debt around the globe, according to data from the Institute of International Finance.

Global debt peaked in 2021 at 303 trillion US dollars and then took a dip in 2022 into 299 trillion US dollars, the first time for it to go down since 2005. Still, it's an unbelievable amount of money!

This estimate on global debts includes both public debt owned by governments and other public institutions and the private debt of firms and corporation. Public or private, the concern is the same.

Meanwhile, the International Monetary Fund (IMF) revealed a lower, but still concerning number in 2021: 235 trillion US dollars. The IMF does not factor in debt acquired in the financial sector, particularly banks.

What is true is that this amount of debt is far bigger than the global wealth. The GDP of all countries combined is still less than half than this estimated indebtedness.

Beyond the current numbers, the ever-growing debt and how it has gained momentum in the past decade is something that continues to concern financial experts.

The IMF punctuated that the global debt represented 100% of the worldwide GDP in 1970. It hit the 200% mark during the 2008 financial crisis, and it took another leap in 2020 to 256% as a consequence of COVID-19 pandemic.

The pandemic has largely contributed to the recent debt increase, particularly in the public sector. Governments engaged in massive spending to help businesses and keep the economy afloat, while losing high tax income to lockdown-related disruptions.

Public debt is particularly high in developed countries. Among the G7 nations (United States, Canada, United Kingdom, Germany, France, Italy, and Japan), only Germany currently has a level of public debt lower than the country's wealth. But for how long?

In the United States, the risk of default on debt is around the corner. The US government is at risk of hitting its debt ceiling of 31 trillion US dollars.

The issue is currently the subject of an intense political battle between Republicans and Democrats: President Joe Biden wants to raise the debt ceiling without conditions, while the Republican majority in the House of Representatives wants to cut public spending.

No agreement had yet been reached by early May 2023, which fuels fears of a recession in the United States and concerns in the financial markets.

As dire as the situation looks in the United States, Japan currently faces a debt that, according to Statista, is estimated around 266% of the nation's GDP in 2021.

Japan's national debt, however, is mostly domestic, meaning that there's little risk of default, unlike the cases involving international investors. This still takes a toll on private investments in the country, though.

France is one of the big European powerhouses and just before the global pandemic, the country's debt was close to reach 100% of the country's GDP. According to Statista, it managed to surpass it in 2021 by hitting 112.9%.

Restoring the credibility of the French government with the financial markets was one of the goals of President Emmanuel Macron's highly controversial pension reform. Still the rating agency Fitch downgraded France from AA to AA-, which is still pretty good.

Meanwhile, in Asia, one of the world's largest economies also worries about a mounting debt. IMF numbers reveal that China's public debt has gone from over 20% of GDP in 1995 to over 70% in 2019, hand in hand with the country's development.

Despite China's debt, the Asian superpower has become one of the biggest creditors of the developing countries, including Africa, in return to for access to new markets and local raw materials.

Beijing now competes against Western powers to become a financial powerhouse, arguing that Western-aligned institutions such as the World Bank and the IMF should not be worldwide preferred debtors.

Debt has therefore also become a new battleground between nations and blocs to pressure and influence the rest of the globe.

The recent interest rate increases adopted by national monetary institutions to fight back inflation have also raised the cost of credit.

For example, the new rate adopted by the US Federal Reserve, makes it harder for international debtors to meet their deadlines since most of the international debt that they have issued is in US dollars.

In fact, payment defaults are on the rise around the world. Five countries are currently experiencing particular difficulties: Belarus, Lebanon, Ghana, Sri Lanka and Zambia.

Private debt is lower than that in the public sector, but it still amounts to trillions. According to asset manager Janus Henderson, the combined debt of the world's largest non-financial corporations stood at 8.3 trillion US dollars in June 2022.

Households also make a high contribution to the total amount of debt. The US Federal Reserve recorded that personal debt in the fourth quarter of 2022 was of around 16.9 trillion US dollars.

Countries have taken a lot of heavy debt in recent years to deal with various crises, but the constant state of indebtedness reduces their leeway to deal with new challenges that might appear in the future.

Between worldwide conflicts and struggling with inflation, debt reduction does not seem to be among the priorities of government around the globe. Which raise the concern how prepared are our governments to deal with any upcoming crisis.