Post-pandemic world a frightening mix of financial bubbles and massive debt

Post-pandemic world a frightening mix of financial bubbles and massive debt

  • What will the world look like when the pandemic is eventually brought under control? It’ll have a lot more debt and a lot less income.

Life after the coronavirus is obviously going to be extremely challenging for governments, businesses and households and will create some diabolical dilemmas for central banks as they try to grapple with the balance between unsustainable levels of debt, the ambition of economic growth and the risk of financial bubbles that could ignite another financial crisis while the world remains vulnerable.

The biggest challenge and the biggest constraint on governments, businesses, households and the central bankers will be the legacy of debt.

Globally, but especially in the advanced economies – and most particularly in the US – debt levels were already at historically levels even before the coronavirus outbreak.

Ahead of the pandemic global debt was more than $US250 trillion ($360 trillion), or more than 320 per cent of global GDP. That was about $US75 trillion and 40 percentage points of GDP more than the levels ahead of the global financial crisis in 2008.

Once the pandemic established itself outside China, debt levels began soaring. They continue to soar.

Global public debt is now the highest in recorded history after government fiscal programs have added about $US11 trillion to bring the total to more than 100 per cent of global GDP. In advanced economies, according to the International Monetary Fund, public debt is forecast to grow nearly 19 per cent this year to reach about 130 per cent of global GDP. That may prove conservative.