The World Is Drowning In Debt

Each of the world’s major economies has a serious debt problem caused by too many years of irresponsible budget policies and zero interest rates — and could make it all the more difficult to avoid a recession and renewed financial strain at home.

Take the United States, the world’s largest economy.

At a time of cyclical economic strength, when the country should be running a budget surplus, it’s managing to run a deficit of around 6% of gross domestic product.

Over the next two years, almost $1.5 trillion in commercial-property debt matures.

China, the world’s second-largest economy and until recently its main engine of economic growth, also has a major debt problem. With its property and credit market bubble burst, China could be well on the way to a lost economic decade of its own.

Both Italy and Spain have public-debt-to-GDP ratios considerably higher than at the 2010 eurozone sovereign-debt crisis.

As if this were not enough reason for concern, Japan, until recently the world’s third-largest economy, has a public-debt level exceeding 250% of GDP, around double that of the United States.

With so many major debt problems around the globe, it’s hard to see how we avoid a day of world economic reckoning.

If they don’t, we should brace ourselves for economic turbulence at home and renewed financial-market strains as economic trouble abroad spills over to our shores.