Here are two things we know about how debt affects the economy.
First,
in the abstract it doesn’t matter. For every debtor there is a
creditor, and in theory an economy should be able to hum along just fine
whether a country’s citizens have a great deal of debt or none. A
company’s ability to produce things depends on the workers and machines
it employs, not the composition of its balance sheet, and the same can
be said of nations.
Second, in practice this
is completely wrong, and debt plays an outsize role in creating
boom-bust cycles across the world and through history. High debt
increases the amplitude of economic swings. To think of it in terms of
the corporate metaphor, high reliance on borrowed money may not affect a
company’s level of output in theory, but makes it a great deal more
vulnerable to bankruptcy.
That’s what makes a new report
from McKinsey, the global consulting firm, sobering. Researchers
compiled data on the full range of debt that countries owe — not just
their governments, but corporations, banks and households as well. The
results: Since the start of the global financial crisis at the end of
2007, the total debt worldwide has risen by $57 trillion, rising to 286
percent of global economic output from 269 percent.
Read more here: http://mobile.nytimes.com/2015/02/06/upshot/global-debt-has-risen-by-57-trillion-since-the-financial-crisis-heres-why-that-is-scary.html?_r=1
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