Is a sovereign debt crisis coming?
The world is looking at a debt crisis that will span the next 10 years, said economist Arthur Laffer Jr. Global debt hit a record of $307.4 trillion in the third quarter of 2023, with a substantial increase in both high-income countries and emerging markets.
Key Takeaways. We estimate sovereigns' long-term borrowing will reach $11.5 trillion in 2024, more than 50% above the pre-pandemic-levels, amid softer GDP growth, the heavy election schedule, elevated interest, and defense spending.
A sovereign default is a nation's failure to repay its debt obligations. It has serious economic consequences for the nation, making it expensive or impossible for it to borrow money in the future. It also causes domestic turmoil.
The US Department of Treasury building seen in March 2023. US government debt is nearing $35 trillion. The high and rising level of US government debt risks driving up borrowing costs around the world and undermining global financial stability, the International Monetary Fund has warned.
Managing sovereign debt risk is crucial to maintain economic stability. High levels of debt can lead to reduced investor confidence, higher borrowing costs, and potential default.
Our view on the economy holds steady as we step into Q2 2024. We expect the U.S. economy to realize a slow growth this year. Households accumulated a considerable amount of pandemic-related excess savings which helped them withstand the high inflationary environment of the last couple of years.
- Japan. Japan has the highest percentage of national debt in the world at 259.43% of its annual GDP. ...
- United States. ...
- China. ...
- Russia.
The public includes foreign investors and foreign governments. These two groups account for 30 percent of the debt. Individual investors and banks represent 15 percent of the debt. The Federal Reserve is holding 12 percent of the treasuries issued.
- GHANA. ...
- KENYA. ...
- LEBANON. ...
- PAKISTAN. ...
- SRI LANKA. ...
- TUNISIA. ...
- UKRAINE. ...
- ZAMBIA. The first African country to default during the COVID-19 pandemic, Zambia's years of restructuring delays made it a symbol of the problems with the Common Framework.
A country is in default when it can't pay its debts. This lowers its credit rating and decreases the cost of its debt. The country's entire economy can suffer and it may see less investment in the future as global investors become wary of buying that country's debt.
Why is the US so heavily in debt?
Costly wars proved to be a theme in our nation's history. The debt was at $49 billion right before the U.S. entered World War II. When the war ended, it was $260 billion. It began rising at a fast rate in the 1980's and was accelerated through events like the Iraq Wars and the 2008 Great Recession.
The federal government needs to borrow money to pay its bills when its ongoing spending activities and investments cannot be funded by federal revenues alone. Decreases in federal revenue are largely due to either a decrease in tax rates or individuals or corporations making less money.
Debt rises when the U.S. spends more than it earns from taxes and other revenue. The public debt results from tax and spending policies that commonly garner public support, but individuals often worry about how the national debt affects their lives and finances.
1) Switzerland
Switzerland is a country that, in practically all economic and social metrics, is an example to follow. With a population of almost 9 million people, Switzerland has no natural resources of its own, no access to the sea, and virtually no public debt.
Asset managers, such as pension funds, typically hold a large amount of government debt. They need relatively safe long-term assets to match their long-term liabilities. Banks also hold large amounts of sovereign debt, especially of governments in the countries where they are based.
The world is drowning in a record amount of debt concentrated in developing countries. Global debt has hit a record $307 trillion in 2023. That includes the amount of money owed by corporations, governments and individuals around the world. And it's equivalent to almost $40,000 for every single person on the planet.
According to Wang and Tyler, the economic data should "give more confidence that the US economy is recovering in additional sectors" and that "recession fears for 2024 are likely to be pushed into 2025."
US recession may have just been delayed to 2025, as per a recent note from JPMorgan's trading desk that highlighted the strength seen in ISM manufacturing activity in March that jumped over 50 for the first time since September 2022 which represents an expansion in manufacturing activity.
The Outlook projects global GDP growth of 2.9% in 2024 and a slight improvement to 3.0% in 2025, broadly in line with the previous OECD projections from November 2023. Asia is expected to continue to account for the bulk of global growth in 2024-25, as it did in 2023.
Among other countries, Japan and China have continued to be the top owners of US debt during the last two decades. Since the dollar is a strong currency that is accepted globally, holding a substantial amount of US debt can be beneficial.
Will the US ever get out of debt?
Why History Shows the United States Will Not Grow Out of Its Debt. The United States is approaching record levels of debt. Debt held by the public totaled 97 percent of gross domestic product (GDP) at the end of 2022 and is on track to exceed its previous all-time high, which occurred just after World II, by 2029.
Around 70% of Japanese government bonds are purchased by the Bank of Japan, and much of the remainder is purchased by Japanese banks and trust funds, which largely insulates the prices and yields of such bonds from the effects of the global bond market and reduces their sensitivity to credit rating changes.
If China (or any other nation that has a trade surplus with the U.S.) stops buying U.S. Treasuries or even starts dumping its U.S. forex reserves, its trade surplus would become a trade deficit—something which no export-oriented economy would want, as they would be worse off as a result.
The $34 trillion gross federal debt includes debt held by the public as well as debt held by federal trust funds and other government accounts. In very basic terms, this can be thought of as debt that the government owes to others plus debt that it owes to itself.
As a result, totals from January 2023 are lower than reported. As of January 2023, the five countries owning the most US debt are Japan ($1.1 trillion), China ($859 billion), the United Kingdom ($668 billion), Belgium ($331 billion), and Luxembourg ($318 billion).
