The Big Debt Binge

Government Debt Soars Into Stratosphere

We had a global financial crisis in 2008 that was widely acknowledged to be the result of an unmitigated credit bubble egged on by loose central bank policy after the  peak of the tech mania in 2000. Of course, central banks themselves did not acknowledge their responsibility. According to Ben Bernanke, it wasn’t the suppression of administered interest rates that set off the credit bubble that collapsed so spectacularly in 2008. Instead it was a ‘lack of regulation’. Right. We wonder if Mr. Bernanke would be interested in acquiring a certain bridge in Brooklyn?

So what did our vaunted policy makers decide to do to battle the effects of the expired credit bubble? Simple, they did what they always do: they replaced it with an even bigger one. How much bigger has recently been revealed by the quarterly BIS review.

As Bloomberg informs us: “Debt Exceeds $100 Trillion as Governments Binge”.

A few excerpts:

“The amount of debt globally has soared more than 40 percent to $100 trillion since the first signs of the financial crisis as governments borrowed to pull their economies out of recession and companies took advantage of record low interest rates.

The $30 trillion increase from $70 trillion between mid-2007 and mid-2013 compares with a $3.86 trillion decline in the value of equities to $53.8 trillion, according to the Bank for International Settlements and data compiled by Bloomberg. The jump in debt as measured by the Basel, Switzerland-based BIS in its quarterly review is almost twice the U.S. economy.

Borrowing has soared as central banks suppress benchmark interest rates to spur growth after the U.S. subprime mortgage market collapsed and Lehman Brothers Holdings Inc.’s bankruptcy sent the world into its worst financial crisis since the Great Depression. Yields on all types of bonds, from governments to corporates and mortgages, average about 2 percent, down from more than 4.8 percent in 2007, according to the Bank of America Merrill Lynch Global Broad Market Index.”

“Given the significant expansion in government spending in recent years, governments (including central, state and local governments) have been the largest debt issuers,” said Branimir Gruic, an analyst, and Andreas Schrimpf, an economist at the BIS. The organization is owned by central banks and hosts the Basel Committee on Banking Supervision, which sets global capital standards.

In the six-year period to mid-2007 global debt outstanding doubled from $35 trillion, according to data compiled by BIS.

Marketable U.S. government debt outstanding has soared to a record $12 trillion, from $4.5 trillion in 2007, according to U.S. Treasury data compiled by Bloomberg. Corporate bond sales globally surged during the period, with issuance totaling more than $21 trillion, Bloomberg data show.”