Most Americans have heard that the National Debt in the United States is near or at $20 trillion, but very few realize that the debt problems are even worse when you calculate the total amount from all economies. And with global debt rising by $17 trillion in 2016 from its total of $200 at the end of 2015, this equates to a debt to gdp ratio of 3.25:1.
Or in easier terms to understand, 325% of the world’s total production for one year.
To relate this to just the United States, our debt to gdp is at 106%.
While we eagerly await the next installment of the McKinsey study on global releveraging, we noticed that in the latest report from the Institute for International Finance released on Wednesday, total debt as of Q3 2016 once again rose sharply, increasing by $11 trillion in the first 9 months of the year, hitting a new all time high of $217 trillion. As a result, late in 2016, global debt levels are now roughly 325% of the world’s gross domestic product. – Zerohedge
When a nation’s debt is greater than their annual GDP, that nation for all intents and purposes is insolvent. But on a more practical level, anytime a country spends more than they take in through tax and other revenues also is an indicator of an insolvency level that very likely never will be covered.
The ironic thing about the world’s current economic track that has replaced capital with credit, is that sustaining economic growth always requires the continuous creation of new debt simply to keep assets from losing value through deflation. But at a certain point, all debt based economies reach a point of diminishing returns, and this is one of the biggest reasons why the U.S. has not had an annual growth rate of 3% in more than a decade despite the country’s increase in debt of over $10 trillion in that time.
Kenneth Schortgen Jr is a writer for The Daily Economist, Secretsofthefed.com, Roguemoney.net, and Viral Liberty, and hosts the popular youtube podcast on Mondays, Wednesdays and Fridays. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.