The Debt Bomb Cyclone of 2017

Global aggregate debt as reported by IIF grew to $230 trillion as of the last quarter, adding $16 trillion, or about $2,100 of borrowing for every single person on Earth, in the first 9 months of 2017. This will take a lot of shoveling to clear!

To put it in perspective, if we assume an average of 5% interest rate on that debt, the world has to pay $11.5 trillion every year, almost as much as China’s GDP. Or, equivalently, the GDPs of Japan, Germany, and France combined.

Most of this borrowing is corporate ($68 trillion), government ($62 trillion), and financials ($58 trillion). Households only comprise ~$44 trillion of the total. But, if we examined the average portion of the global economic balance sheet pro rata for every individual, it would look like the following:

Income of ~$10,000
Debt of ~$30,000
Interest Payments of ~$1,500 per year

Last year, as mentioned, aggregate debt increased approximately $2,100 for each person. Adding 20% of one’s income in debt every year soon leaves you snowed in—this is not sustainable.

Substantially increased winds of growth and inflation will be needed to get us out from under this debt. Otherwise, despite market complacency, defaults will pick up.