Below is an informative video by CNBC which covers the history of debt waves and brings us up to date with regard to government spending and Covid-19. The have been 3 previous debt waves since the 1970’s
- 1970s and 1980s, with borrowing by governments in Latin America and in low-income countries in sub-Saharan Africa. This wave saw a series of financial crises in the early 1980s.
- Ran from 1990 until the early 2000s as banks and corporations in East Asia and the Pacific and governments in Europe and Central Asia borrowed heavily, and ended with a series of crises in these regions in 1997-2001.
- Private sector borrowing in Europe and Central Asia, which ended when the global financial crisis disrupted bank financing in 2007-09 and tipped several economies into sharp recessions.
The latest wave of debt accumulation began in 2010 and has already seen the largest, fastest, and most broad-based increase in debt. Add in Covid-19 and these are very worrying times for government budgets. Global debt has topped $US250 trillion, or 322% of global GDP – a record level. But more debt has been used to acquire expensive assets, rather than on developing productive capacity with capital investment. Lower interest rates, have also made it possible to borrow more, leading to more debt and less equity being deployed to buy these assets. Furtermore Covid-19 will only increase this debt by a significant amount.