By Richard Vague – In the years since the 2008 global crisis, when the world’s growth rates tumbled, the IMF has dutifully printed forecast after forecast predicting rebounding growth rates. But in reality, rates have fallen well short of these predictions.
One of the key and largely overlooked reasons for this disappointing growth is hiding in plain sight: the increasing global burden of private debt—the combination of business debt and household debt.
Even though government debt grabs all the headlines, private debt is larger than government debt and has more impact on economic outcomes.
In the United States, total nonfinancial private debt is $27 trillion and public debt is $19 trillion. More telling, since 1950, U.S. private debt has almost tripled from 55 percent of GDP to 150 percent of GDP, and most other major economies have shown a similar trend.
Private debt is a beneficial and essential part of any economy. However, as it increases, it can bring two problems. The first is dramatic. Very rapid or “runaway” private debt growth often brings financial crises. Runaway private debt growth brought the 2008 crisis in the United States, the 1991 crisis in Japan, and the 1997 crisis across Asia, to name just three.
When private debt is high, consumers and businesses have to divert an increased portion of their income to paying interest and principal on that debt—and they spend and invest less as a result. That’s a very real part of what’s weighing on economic growth. After private debt reaches these high levels, it suppresses demand. more> https://goo.gl/D77y4h