![]() Public debt was mounting in many advanced economies even before 2008, and it swelled even further as the Great Recession caused a drop in tax revenues and a rise in social-welfare payments. This puts China’s debt on par with that of advanced economies. Its debt has gone from 145 percent of GDP in 2007, in line with other developing countries, to 256 percent in 2017. ![]() Its total debt has increased by more than five times over the past decade to reach $29.6 trillion by mid-2017. China alone accounts for more than one-third of global debt growth since the crisis. Governments in advanced economies have borrowed heavily, as have nonfinancial companies around the world. Underneath that headline number are important differences in who has borrowed and the sources and types of debt outstanding. The increase is smaller but still pronounced when measured relative to GDP. Confounding expectations, the combined global debt of governments, nonfinancial corporations, and households has grown by $72 trillion since the end of 2007. Global debt continues to grow, fueled by new borrowersĪs the Great Recession receded, many expected to see a wave of deleveraging. The global financial system is less interconnected-and less vulnerable to contagion.Households have reduced debt, but many are far from financially well.Global debt continues to grow, fueled by new borrowers.In this article, we build on a decade of research on financial markets to look at how the landscape has changed. But some familiar risks are creeping back, and new ones have emerged. As a result, banks are more highly capitalized today, and less money is sloshing around the global financial system. The world economy has recently returned to robust growth, although the past decade of anemic and uneven growth speaks to the magnitude of the fallout.Ĭentral banks, regulators, and policy makers were forced to take extraordinary measures after the 2008 crisis. Historically, it has taken an average of eight years to recover from debt crises, a pattern that held true in this case. The road to recovery has been a long one since those white-knuckle days of September 2008. Millions of households lost their jobs, their homes, and their savings. The damage ultimately set off the first global recession since World War II and planted the seeds of a sovereign debt crisis in the eurozone. Yet as the summer of 2008 waned, few imagined that Lehman Brothers was about to go under-let alone that it would set off a global liquidity crisis. Cracks appeared in 2007 when US home prices began to decline, eventually causing the collapse of two large hedge funds loaded up with subprime mortgage securities. Exotic financial instruments designed to diffuse the risks instead magnified and obscured them as they attracted investors from around the globe. In the early 2000s, US real estate seemed irresistible, and a heady run-up in prices led consumers, banks, and investors alike to load up on debt.
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