The fact that the world is awash with debt is hard to dispute (see data here and here), but it is quite commonly argued that the aggressive re-leveraging happening in the corporate and household sectors runs contrary to the austerity trends in the public debt segment of the total economic debt. The paradox of the austerity arguments is, of course, that whilst debt is rising, public investment is falling and public consumption remains either stagnant of rising slowly. This should see public debt either declining or remaining static. Of course, banks bailouts in a number of advanced economies would have resulted in an uplift in public debt during the early years of the Global Financial Crisis and the Great Recession, but these years behind us, we should have witnessed the austerity translating into moderating debt levels in the global economy when it comes to public debt.
Alas, this is not the case, as illustrated in the chart below:
Here's a tricky bit:
- In the 5 years 2012-2016 (post-onset of the recovery) Government debt around the world rose 11.4% in level terms (USD), and 14.51 percentage points as a share of GDP per capita. During the crisis years of 2007-2011, Government debt rose 72.7% in dollar terms and was down 4.39 percentage points as a share of GDP.
- In the advanced economies, Government debt rose 67.6% in dollar terms in 2007-2011 period, up 4.7 percentage points, before rising 5.44% in dollar terms over subsequent 5 years (up 26.65 percentage points in terms of debt to GDP ratio).
- In the euro area, Government debt was up 57.4% in dollar terms and up 0.51 percentage points in GDP ratio terms over the period of 2007-2011, before falling 6.9 percent in dollar terms but rising 24.8 percentage points relative to GDP in 2012-2016 period.
- And so on...
All in, global pile of Government debt is now USD27.84 trillion (or 78.7%) up on where it was at the end of 2007 and the start of the Global Financial Crisis.
So may be, just may be, the real economy woe is that most of the new debt accumulated by the Governments in recent years has flown into waste (supporting banks, financial markets valuations, doling out subsidies to politically favoured sectors etc), instead of going to fund productive public investments, including education, skills training, apprenticeships and so on. Who knows?..