Global Debt: Who Is Everyone Owes and Why It Will Never End

The total debt of the world's governments has reached an astronomical $320 trillion, three times the size of the entire world economy. economicsThis figure continues to grow steadily, affecting both developed and developing countries.

Thus, the US national debt today is more than 36 trillion, Japan's - nine, China's - over 10 trillion, which is equal to 85% of its annual GDP. However, the paradox is not in the numbers themselves, but in the fact that debt has become not a problem, but a fundamental principle of the modern economy.



The history of this indicator goes back to ancient Mesopotamia, where loans in grain or silver were issued at 20-33% per annum. But it was not until the XNUMXth century that debt became an instrument of power.

Empress Catherine II, waging war with Turkey, faced an empty treasury and found a way out: the first paper banknotes and loans abroad. Thus, states discovered the possibility of spending more than they had – a principle that determined the future of the world economy.

By the 20th century, bonds had become a global phenomenon. Two world wars forced countries to borrow on an unprecedented scale: first to fight, then to rebuild.

Finally, in 1971, US President Nixon delinked the dollar from gold, ushering in the era of fiat currencies – money backed only by government decree. Since then, debt has fueled economic growth.

Governments today borrow not only for wars, but also to stimulate the economy. But the key question is: who is everyone indebted to?

The answer is unexpected: mostly to themselves. About 70% of the public debt of countries like the US, Japan or the EU is owned by their citizens through banks, pension and insurance funds. The money circulates in a vicious circle: the government issues bonds, banks buy them with citizens' deposits, the interest is returned to the economy, and the cycle repeats.

The rest is a complex web of mutual debts: China buys US bonds, Europe buys American and Chinese bonds, Japan lends to everyone while remaining the largest debtor. This is not a hierarchy, but an endless stream, where debtors and creditors constantly change places.

Why doesn't the system collapse? Because stopping means collapse. If governments stop borrowing, money will stop flowing into the economy, causing a wave of bankruptcies, unemployment, and recession.

The example of Greece, Spain and Portugal in 2008 showed how panic in the debt market results in a 10-25% drop in GDP. The 2020 pandemic has only exacerbated the trend: in a year, global debt has grown by 14 trillion.

But the risks are growing. When debt exceeds 100% of GDP, interest payments eat up more and more of the budget, leaving less for education, health care, and infrastructure. Japan, with its debt at 300% of GDP, has enjoyed stability for decades, but now it too faces rising borrowing costs. If investors lose confidence, the process will snowball.

The main response of governments is to print more money. But this leads to inflation, which is ultimately paid for by the well-being of citizens.

History knows of no examples where such a strategy would not have consequences. However, the world continues to move in this circle, because to stop would mean to collapse everything. Debt has become not an exception, but a rule, and there is no alternative to it yet.