With $102 Trillion of Global Debt in 2024 … It’s time to worry about Bond Yields
In 2024, global public debt is forecast to have reached $102 trillion, with the U.S. and China largely contributing to rising levels of debt. This marks a $5 trillion increase since 2023 alone. Looking ahead, debt levels are projected to increase faster than previously expected as government policies fail to address debt risks amid aging populations and increasing healthcare costs. Going further, rising geopolitical tensions could lead to higher spending on defense, adding strain to government budgets. [What would happen if NATO really does increase defense spending to 5% of GDP?] This great graphic from Visual Capitalist, shows government debt by country in 2024, based on data from the IMF’s October 2024 World Economic Outlook. As the world’s largest economy, the U.S. debt pile continues to balloon, accounting for 34.6% of the world’s total government debt. With over $36 trillion of government debt, U.S. debt is more than double the next highest country. Overall, net interest payments on the national debt soared to $892 billion in the 2024 fiscal year. By 2034, these costs are forecast to reach $1.7 trillion, with total net interest costs amounting to $12.9 trillion over the next decade. A rising mountain of debt and higher interest rates are among the primary factors driving up net interest costs. China, ranking second globally, holds 16.1% of the world’s government debt. Over the next five years, China’s debt to GDP ratio is projected to hit 111.1% of GDP, up from 90.1% in 2024. Going further, Chinese officials recently stated they are prepared to deploy stimulus measures to support the economy if Trump imposes sweeping tariffs on goods imported from China. As a result, China’s debt to GDP could rise even faster than current projections. India, ranked seventh globally, has amassed $3.2 trillion in debt, an increase of 74% since 2019. However, thanks to its strong economic growth and fiscal policies that are increasing government revenues, debt as a percentage of GDP is projected to fall gradually from 83.1% in 2024 to 80.5% by 2028. In Europe, the UK has amassed the most debt, about $3.65 trillion, equal to 101.8% of GDP. This is far higher than the regional average, standing at 77.4% of GDP in 2024. Europe has a lower debt to GDP than North America and the Asia-Pacific, but European budgets likely face increasing pressures looking ahead, due to sluggish economic growth, trade wars, and aging populations. With governments increasingly using stimulus measures to boost the economy, it poses a greater threat to fiscal sustainability. In order to stabilize debts, the IMF stated that major spending cuts and tax hikes are needed over the next five to seven years. https://www.visualcapitalist.com/102-trillion-of-global-debt-in-2024/
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The bond vigilantes are back — and that’s no bad thing
Blaming Rachel Reeves’s budget for the rise in gilt yields does not fit the facts, but stronger productivity growth is vital as bond traders dog the government. David Smith : The Sunday Times 12th January 2025 The big economics story has been the increase in the cost of government borrowing, the yields on UK government bonds, or gilts. Ten-year gilt yields have risen to more than 4.8 per cent, their highest since early 2008, while 30-year yields have risen to 5.4 per cent, their highest since 1998. At the same time, the pound has weakened against a stronger dollar. Comparisons with the autumn of 2022, when Liz Truss was prime minister and there was a loss of control of fiscal policy, are silly. Although gilt yields are higher now than then, they are close to the level of short-term official interest rates, the 4.75 per cent Bank rate. We know what is driving the recent increase in gilt yields. It was thought that the biggest risk to the UK economy from Donald Trump’s election victory would be the direct effect of his decision to impose tariffs on imports from trading partners. Now it looks as though a bigger challenge is the indirect effect on the cost of government borrowing. The chancellor’s October 30 budget has a lot to answer for, but blaming it for the latest rise in gilt yields does not fit the facts. Market worries about the impact of the Trump presidency on US inflation have started to kick in, and UK yields have risen in lockstep with those in America. The other factor is the fear that faced with sticky inflation, the Bank of England, like the US Federal Reserve, will be slower to reduce interest rates. The sharp rise in UK government debt in recent years, from under £800 billion in 2009 to £2.8 trillion now occurred at a time of very low gilt yields. Quantitative easing (QE) by the Bank helped keep them low. Debt interest, which averaged less than £40 billion a year in the 2010s was not a worry. Now bond yields are up, QE has been replaced by quantitative tightening, pushing those gilts back into the market. Bond vigilantes are snapping at the heels of governments. Even before the latest rise in gilt yields, the OBR expected debt interest payments to average £112 billion a year between now and the end of the decade. Stronger productivity growth would transform the outlook for the public finances. Meeting the fiscal rules would be a breeze, not a close-run thing, and the relentless rise in debt, could be brought under control. https://www.thetimes.com/business-money/economics/article/the-bond-vigilantes-are-back-and-thats-no-bad-thing-cmcw2c20t [Bill Clinton’s chief strategist James Carville famously said: “If there was reincarnation, I would want to come back as the bond market. You can intimidate everybody.” The vigilantes are sending a warning to the incoming Trump administration and the Reeves Treasury at the same time. It’s a go slow on buying, not yet an outright strike]. Donald Trump is already recognising a dose of reality ...
Irwin Stelzer The Sunday Times 12th January 2025 Trump does make the transition knowing four things. First, that the recession some feared is unlikely. Friday’s jobs report showing the labour market added 256,000 jobs in December, and unemployment ticked down to 4.1 per cent. Second, shortly after taking the oath, it is more rather than less likely the Fed will announce a postponement of planned cuts in its benchmark interest rates. His reaction to that decision is likely to be volcanic. Third the bond vigilantes are saddled up. Fearing Trumpian deficits, they have been selling government bonds in such quantities that interest rates have risen to a level not seen since 2008. [Ten year treasury yields hit 4.76% at the end of last week.] Finally, he knows he will be facing doubts about the feasibility of his plans to cut deficits by raising revenue and cutting costs. He plans to renew his 2017 tax cut, expiring in 2026, and eliminate taxes on tips, pensions and overtime pay. He argues that a combination of new revenues from tariffs, and new cost-cutting efficiencies in operating the government, will offset revenue lost from the tax cuts. But few, if any, analysts believe that revenues from tariffs will offset revenues lost. Donald Trump is already recognising a dose of reality ... |
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