The global debt balloon continues to inflate — with what consequences no one knows. Could the balloon soon become a “bubble” that pops, causing a new financial crisis? It hardly seems impossible.

The latest worldwide debt figures are not reassuring. In September, global debt of all varieties (government, business and consumer borrowing) totaled $253 trillion, up $9 trillion from the start of 2019. Government debt accounted for slightly more than a third of that ($3.5 trillion) and non-financial business debt represented slightly less of the gain ($3 trillion), with consumer debt contributing the remainder.

The new estimates come from the Institute of International Finance (IIF), a research and advocacy group for banks and other financial institutions. Several conclusions follow.

First, the numbers are so large that it's difficult to discuss them in terms that ordinary people can understand. Analysts try to provide perspective by comparing debt levels to the size of the relevant economy (gross domestic product, or GDP).

But this isn’t reassuring. The global-debt-to-global-GDP ratio is also a record 322 percent. All debts of “mature” nations such as the United States and Japan — including government, business and household borrowings — exceeded $180 trillion in September. That’s near a record 383 percent of all mature countries’ GDP. Similarly, debts of “emerging market” countries such as China and Brazil were $72 trillion, or a record 223 percent of GDP.

Second, to a considerable extent, the sluggish global recovery is being driven by low interest rates and easy credit policies of central banks — the Federal Reserve, the European Central Bank, the Bank of Japan and the like. For example, the Fed’s target interest rate on overnight fed funds is now 1.5 percent to 1.75 percent.

"In good economic times, governments would get their houses in order," says economist Sonja Gibbs of the IIF. "That's not being done now."

Is this good policy or bad? One view is that the global economy is so weak that the borrowing — while worrisome — is necessary to avert a further slowdown or an outright recession. The other interpretation is that high debts risk deeper trouble, though it’s hard to predict precisely what.

For example, the IIF estimates that $19 trillion of bonds and loans will mature in 2020. "Redemptions are high for China, India and Brazil within emerging markets and for the U.S., Japan and Germany within mature markets," the IIF report says. If any major borrower defaulted, because it couldn't refinance existing loans, there could be a wider fallout.

Some historical danger signals are flashing: high borrowing and lending; enthusiasm over a new technology (say, railroads in the 19th century, the Internet now); easy credit; high prices for stocks and bonds. Optimism is widespread — until it isn’t.

Opinion then changes abruptly. It soon becomes obvious that there was overinvestment in the new technology. Stock and bond prices fall, reversing previous speculation. If these reactions are mild, the economy enters a brief recession. But if they’re powerful, a broad-based financial crisis or serious recession might occur.

There’s no obvious red line signifying too much debt. The answer depends on a multitude of factors and circumstances that government can’t easily control. But there’s a red line out there somewhere, and we’re getting closer to it all the time.

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