While everyone fixates on the U.S. election, developments in the world economy threaten to create problems for the next president and, possibly, trigger a financial crisis. An IMF study delivers the bad news. It finds that global debt — including the debts of governments, households and nonfinancial businesses — reached a record $152 trillion in 2015, an amount much higher than before the 2008-2009 financial crisis.
What's worrisome about this is that the global economic recovery has assumed widespread "deleveraging" — the repayment of debt by businesses and households. Initially, the theory went, these repayments would slow the economy. To reduce their debts, households would cut consumption and companies would cut investment. But once debts had receded to manageable levels, consumer and business spending would bounce back. The economy would accelerate.
It hasn't happened. With a few exceptions, little deleveraging has taken place, the IMF shows. One exception is the United States, where there has been some deleveraging among households. But generally, just the opposite has occurred. Many countries have become more indebted. On a worldwide basis, the $152 trillion of debt is up from $112 trillion in 2007, before the financial crisis, and $67 trillion in 2002.