According to the Institute of International Finance (IIF, Washington, USA), $ 281 trillion is the total amount of debt of states, companies and households of the planet at the end of 2020. Or 355% of world GDP. The same ratio is only for developing countries – 250%. In other words, the group of developed countries remains the main borrower.
You can afford a lot of debt if it’s cheap to service and refinancing is easy. With maintenance costs, maximum 1-1.5% and credit ratings that allow you to borrow any amount, developed countries continue to gallop the accumulation of public debt, extending it to the commercial and consumer sectors. The gallop is accompanied by a monetary issue that allows debt quotes to float.
There is a flaw in this almost indestructible logic. The excess money supply goes to the speculative capital market. And today it includes not only stock assets, but also commodity ones. Oil, metals, agricultural products. Commodities, in turn, begin to unwind an inflationary spiral. This will result in an increase in the price of consumer goods, mainly sold on cheap credit, in particular real estate.
Rising inflation raises lending rates. The rhetoric of the Russian Central Bank is an example of this (about the readiness to raise the key rate, which is now 4.25%, amid a surge in inflation (5.2%) and bond yields).
I don’t think that it was possible to somehow slip out of the credit loop, which has been created since the beginning of the 10s, even a couple of years ago. Even more so now. We are now seeing and will continue to see an acceleration in the accumulation of debt.
Large and growing debt is a problem that, moreover, cannot be solved painlessly. Since the main solutions are inflation or write-offs, perhaps inflation and write-offs, it is best to pretend there is no problem for now.
Russia, which is in tough opposition to most developed countries, has been disconnected from their credit mechanisms for the seventh year. And in this case, it is not at all offensive. The problem of global debt will affect us as well, but it is still not our problem.
Maybe the debt trend will survive in 2021. It is difficult to estimate the time of its breaking, but it is good to keep it in mind. In practice, when the scrapping does occur, in Russia we must face growth and ruble inflation, possibly to levels of 10% or slightly higher, apparently with another structural recession of the economy due to its export bias. Perhaps that’s all. This does not seem to surprise us.