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  • Total worldwide debt has never been higher.

  • And yet, there's little sign of this current wave

  • retreating any time soon.

  • Now with the coronavirus outbreak being declared

  • a pandemic, governments have announced hundreds

  • of billions of dollars in stimulus packages

  • that will send debt even higher.

  • So, just how worried should we be if it all

  • comes crashing down?

  • Global borrowing has been growing rapidly,

  • so rapidly that many are concerned it is quickly

  • becoming unsustainable.

  • The Institute of International Finance estimates

  • total worldwide debt, which is made up of

  • borrowings from households, companies and

  • government, surged to a staggering $253 trillion

  • at the end of September 2019.

  • That's a whole lot of debt, more than three times

  • the annual economic output of the entire world.

  • It works out to roughly $32,500 of debt

  • for each of the 7.7 billion people on the planet.

  • What's more, the group says this figure

  • is only going to increase.

  • The World Bank believes the speed

  • and scale of this debt wave

  • is something we should all be worried about.

  • So much so, the group has urged governments

  • around the world to make it a primary concern.

  • But let's take it a step back.

  • Put simply, debt is created when one party

  • borrows from another.

  • It allows individuals to buy something they

  • wouldn't normally be able to afford.

  • That has its benefits.

  • For example, you might take on debt when you

  • get a loan to buy a car or mortgage on a house.

  • This allows you to pay back the cost of those

  • investments over time instead of all at once.

  • The cost of this service is the interest rate.

  • At present, interest rates around the world

  • have fallen to historically low levels.

  • This has made it cheap to borrow from banks,

  • meaning businesses can make large investments

  • and homeowners don't need to spend as much

  • on their monthly mortgage payments.

  • There are drawbacks to a low-rate environment though.

  • Individuals aren't likely to see much of a

  • return on their savings, and both people and

  • businesses could load up on too much cheap

  • debt, something we're seeing now.

  • Governments take on debt too, which they can

  • use to stimulate the economy by funding infrastructure

  • projects, social programs and more.

  • How much a country's government owes is

  • known as sovereign debt.

  • Sovereign debt is very different to how we

  • might think about debt as an individual.

  • But, one thing they both have in common

  • is that problems tend to arise

  • when that borrowing becomes excessive.

  • Loans to countries with developed economies,

  • like Canada, Denmark or Singapore, are generally

  • seen as safe investments.

  • That's because even if governments spend

  • beyond their means, lawmakers can raise taxes

  • or print more money to ensure they

  • pay back what they owe.

  • But loans to governments in emerging markets

  • are generally seen as much riskier, which

  • is why these countries will sometimes issue

  • debt in a foreign, more stable, currency.

  • Although this allows them to attract more

  • investors from abroad looking for bigger returns,

  • an economic slump, weak home currency or a

  • high debt burden can make it difficult for

  • the government to pay them back.

  • Ultimately, the most important risk when it

  • comes to national borrowing is

  • that a country may fall behind on its debt

  • obligations and default.

  • This isn't common but it has happened.

  • Take Lebanon in 2020, Argentina in 2001

  • and Russia in 1998.

  • Over the last 50 years, there have been four

  • waves of debt accumulation.

  • We are currently in the midst of the fourth wave.

  • So, what can we learn from the first three?

  • Well for one, none of them had a happy ending.

  • Let's start with the first wave.

  • In the 1970s, many Latin American countries

  • began to borrow extensive amounts of money

  • from U.S. commercial banks and other creditors

  • to support their development.

  • It didn't seem like a problem at the time.

  • Interest rates were low, and Latin American

  • economies were flourishing.

  • But in the background, the debt wave was rising.

  • At the end of 1970, the region's total outstanding

  • debt from all sources added up to $29 billion.

  • By the end of 1978, that number had shot up

  • to $159 billion.

  • Four years later, it had more than doubled

  • to $327 billion.

  • In the 80s, major economies began

  • hiking up their interest rates as they battled inflation.

  • Oil prices were sliding, and the world economy

  • was entering a recession.

  • In 1982, the starting gun of the Latin American debt crisis

  • was effectively fired, when Mexico announced

  • it would not be able to service its debts.

  • This move quickly sparked a meltdown

  • across the region, with the fallout spreading to

  • dozens of emerging economies worldwide.

  • Many countries in Latin America were forced to devalue

  • their currencies to keep exporting industries competitive

  • in the face of a sharp economic downturn.

  • Between 1981 and 1983,

  • Argentina weakened its currency against the U.S. dollar

  • by 40%, Mexico by 33% and Brazil by 20%.

  • Ultimately, 27 countries had to restructure their debts.

  • Sixteen of them were in Latin America.

  • The second wave ran from 1990

  • through to the early 2000s.

  • It was unlike the first in that

  • debt accumulation in the private sector

  • played a much more prominent role.

  • In the late 80s and early 90s, many advanced

  • economies deregulated their financial markets.

  • The policy changes led to many banks consolidating,

  • and these bigger banks operations became

  • increasingly global.

  • This helped prompt a massive surge of capital

  • into emerging markets, with falling interest

  • rates and a slowdown in advanced economies

  • also fueling the surge.

  • Developing economies began to rack up a lot of debt,

  • most notably Indonesia, South Korea,

  • Malaysia, the Philippines and Thailand.

  • Yet this growing wave of debt went largely unnoticed.

  • You see, debt was growing rapidly, but so was GDP,

  • meaning the ratio between the two stayed consistent.

  • And most of the debt was hidden in the private sector.

  • A currency crisis in Mexico in 1994

  • thrust international investors back into panic-mode,

  • with the country's default a decade earlier

  • still fresh in people's minds.

  • Yet, while a $50 billion bailout from the U.S.

  • and the IMF meant Mexico was narrowly

  • able to avoid a default this time around,

  • it wasn't enough to stop panic spreading to

  • other countries.

  • It led to an abrupt stop and reversal

  • of capital flows in 1997.

  • By this point, Indonesia, South Korea, Malaysia,

  • the Philippines and Thailand had developed

  • a dependence on borrowing.

  • Coupled with several policy failings, this helped usher in

  • a crisis in East Asia's financial sector

  • and, ultimately, another global downturn.

  • While those impacted by the Asian financial crisis

  • recovered, international borrowing carried on

  • at a brisk pace.

  • Enter the third global debt wave,

  • which lasted from 2002-2009.

  • At the end of the previous century, the United States

  • removed barriers between commercial and investment banks,

  • while the European Union encouraged cross-border connections

  • between lenders.

  • This paved the way for the formation of

  • so-called 'mega-banks.'

  • These banks led the way in a sharp increase

  • in private sector borrowing, particularly

  • in Europe and Central Asia.

  • Defaults in the U.S. sub-prime mortgage system

  • piled more and more pressure on the country's

  • financial system, pushing it to the brink of collapse

  • in the second half of 2007 and 2008.

  • The shockwaves reverberated across the world,

  • with one economy after another falling into

  • a deep, albeit short-lived, recession.

  • In the U.S., the 2009 recession was so severe

  • that output from the world's largest economy

  • sank to its lowest level since the Great Depression.

  • The World Bank says we are currently in the midst

  • of the fourth wave of global debt.

  • And to avoid history repeating itself yet again,

  • governments must make debt management

  • and transparency a top priority.

  • This wave of global debt is thought to share many

  • of the same characteristics as the previous three,

  • including prolonged periods of low interest rates

  • and changing financial landscapes

  • which encourage more borrowing.

  • But the World Bank has called the current wave

  • the largest, fastest and most broad-based" of them all.

  • It involves a concurrent buildup of both public

  • and private debt, involves new types of creditors

  • and is much more global.

  • However, as the coronavirus pandemic

  • threatens to sink the world economy,

  • the moment for stemming the tide may have passed.

Total worldwide debt has never been higher.

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世界的な債務危機はやってくるのか?| CNBCが解説 (Is a global debt crisis coming? | CNBC Explains)

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    Summer に公開 2021 年 01 月 14 日
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