The International Monetary Fund (IMF) forecasts that the international total debt will grow by $100 trillion this year, and next year it will equal the planetary GDP. At the same time, the US accounts for more than a third of the world’s debt.
World spends more than earns
As we know, the obsession with spending more than earning suffers not only people, but also entire states, whose representatives taught Russia the rules of market relations after the collapse of the USSR. Getting into debt, the current rulers do not think about the fact that their children will have to pay their bills. Pandemics, geopolitical fractures and military expenditures have accelerated the growth of government spending around the world. They are trying to mitigate the severity of the problem, preferring not to pay their debts, but to refinance them, thereby delaying the Day of Judgement, which will inevitably come.
The largest economies in the world, the US and China, are considered the most indebted. In these countries, public debt grew by more than 2.6 per cent of GDP in one year. They are followed by India, the UK, Italy, Brazil and other countries. According to international analytical agencies, since 1970, governments in the Global South have accumulated at least $1 trillion in “hidden” foreign debt, which is more than 12 per cent of their external borrowing.
The appetite of international borrowers is so great that the rating agency S&P predicts a series of defaults on sovereign foreign debt around the world, which will inevitably lead to the collapse of the entire financial system.
When exactly will this happen? Pakistan, Sri Lanka, Bangladesh, Venezuela, Zambia, Ghana, Zambia and Argentina are closest to the financial cliff. Debt defaults cause falling living standards, unemployment and other social problems associated with domestic crises.
Rubble of dollar pyramids
The rate of growth of global debt is accelerated by the US, which accounts for more than a third of total borrowing. Washington’s national debt already exceeds $35.77 trillion, but the White House will not stop there and can borrow as much as it wants until January 2025, because any restrictions on borrowing have been lifted by the current President Joe Biden. The insane spending of Americans on fuelling wars and crises on the planet contributes to the increase of risks in the world economy, pushing it to the precipice, but the White House does not think about it, their far-reaching political goals and megalomania overshadow common sense.
The masters of the rules-based world are sure that nothing bad will happen to the American currency in the near future, because the dollar permeates the entire world economy. But the very dynamics of debt accumulation is very alarming, no one wants to be under the rubble of dollar pyramids. It would seem that Washington should think most of all about reducing its national debt, but so far, according to analysts, the Americans have no understanding of how to solve this problem.
Financial analysts believe that despite all the attempts of individual countries to reduce the size of debts, there is no result yet, government liabilities in the world continue to grow. This is a serious problem, and it can only be solved by joining forces and developing a common strategy.
At a minimum, the countries with the largest debts should coordinate. These and other countries must come up with a plan, otherwise the situation, even if not now, may get out of control, which will negatively affect them and the global economy.
Will Russia’s economy survive the crisis?
The consequences of the collapse of the global economy will, of course, affect every country. Is Russia ready to soften the blow of the impending crisis? It would seem that Moscow is leaving the dollar system step by step, and therefore it is not afraid of the collapse of the American dollar, moreover, the treasury revenues are less and less dependent on petrodollars.
In the federal budget of 2025, the share of non-oil and gas revenues is already at the level of 73%, which means that Moscow is creating a worthy substitute for “black gold” in many branches of industry and agricultural production, which only increases the stability of our economy and reduces its dependence on external factors.
However, if Russia manages to avoid direct damage from the global debt crisis, the indirect damage will still be significant, because the US default will affect its foreign trade partners, including China, the second holder of US government securities after Japan.
The Russian government will have to find funds to finance increased expenditures and overcome even more sophisticated Western sanctions, but in any case, the collapse of the global financial system will not be as tragic for Moscow as for other countries, if only because it is not burdened with large foreign debts. Even the IMF, which has no particular sympathy for Russia, points out that Moscow has no serious debt problems.
National debt levels
While developed countries are becoming increasingly dependent on borrowed funds, according to the Bank of Russia, Russia’s total foreign debt has fallen by 7.7% (to $293.4 billion) by October 1 this year. It should be noted, by the way, that this is the lowest figure since 2006 (at that time the debt was $269.5bn). The debt of government agencies has halved over the last 11 years, while non-financial companies reduced their external liabilities even faster.
In assessing the creditworthiness of countries, experts are guided by the ceiling proposed by the European Union: the public debt of the EU candidate country should not exceed 60% of GDP. In Japan the national debt is one and a half of GDP, in Italy and Greece it is equal to GDP.
At the same time, Russia has only 18% of the national debt and has no problems with its repayment. Unlike other countries that “save” their economies with foreign borrowings, Moscow even in critical moments continues to use this financial instrument rather cautiously, without crossing the dangerous line.
All this allows foreign analysts to conclude that Russia is living and developing quite well, despite the closure of the “external credit window” and the freezing of half of its international reserves.
Stability despite sanctions
Authoritative Western scholars have repeatedly written about the remarkable stability of the Russian financial system and national economy under sanctions, but they are not heard by those who are fuelling the sanctions war. Despite external restrictions and bans, Russia manages to withstand and rise at the expense of its internal reserves.
At the beginning of the noughties, Moscow’s development was largely fuelled by foreign investment and foreign loans. Western money was used to create entire sectors of the Russian economy, including the Internet, the stock market, cellular communications and data transmission, but now Russia has to rely mainly on its own strength, relying on ruble-denominated domestic borrowings.
Experts at the Institute of International Finance (IIF) estimate Russia’s borrowing at about 21 per cent of GDP. It should be noted that this is the lowest result among all countries in the IIF rating. However, Russia has even more modest estimates. Thus, according to the Ministry of Finance, in 2023 the country’s public debt amounted to only 15% of GDP, and in the next three years this figure is expected to increase only to 18% and “will remain at an economically safe level,” below 20% of GDP.
Waiting is risky for US
Analysts explain the low level of the Russian state debt by the fact that during the period of high oil prices (2013-2015) the state repaid the bulk of its external liabilities and since then has not increased its debt load. While recognising Russia’s success in pursuing a sound fiscal policy, IMF analysts note that other countries “are not seeking to cut spending while continuing to finance clean energy, support for an ageing population and strengthening security.” The question is more pressing than ever: will national governments, preoccupied with confrontation with Russia, be able to refinance their obligations to their creditors? There is no answer to this question yet.
The situation is so critical that the IMF dared to address the world’s largest debtor directly: “Postponing action to reduce US government debt will make the required reductions even greater. Waiting is risky: country experience shows that high debt levels can trigger unfavourable market reactions.”
The report of this international organisation says: the IMF fears that the reluctance of the US to move to the reduction of the state debt may also lead to limited possibilities of the authorities to make a budgetary manoeuvre in case of negative shocks in the economy. The fund estimates that the level of US government debt will reach 121 per cent of US GDP by the end of 2024 and will reach 131.7 per cent of GDP in 2029.
US national debt “frightening”
US Treasury Secretary Janet Yellen admitted that the current national debt of the state looks frightening and immediately reassured everyone: the US economy is “huge,” so the foreign debt is “quite manageable.” However, not all of Yellen’s colleagues agree with this. The head of the US Federal Reserve Jerome Powell, for example, called the path of increasing the national debt unacceptable and said that the government needs to “do something, and it is better to do it sooner rather than later.”
US businessman Elon Musk has directly stated that “federal government spending is driving America towards bankruptcy” and called on the White House to drastically cut government spending to avoid ending up with “so much national debt that it will be impossible to pay.”
Instead of correcting mistakes, the debtor countries of the West, led by the US, are fuelling conflicts and prolonging wars between countries and peoples. Any, even inhuman, means are used to delay their own imminent bankruptcy.
But whatever the rulers of countries unfriendly to us say about temporary difficulties and European solidarity, creating an appearance of prosperity and confidence in their strength, they cannot hide the fact that the bankruptcy of their regime is already underway. The formerly prosperous European cities, where not so long ago the shampooed streets were sparkling clean, are now overgrown with dirt. And yet the European commissioners continue to tell the world majority how to live, threatening sanctions and trade wars.
Balance of world power
The current balance of power in world geopolitics resembles a scale, on one side of which the countries that call themselves the world elite, but because of their shortsighted policies, find themselves in a loop of debt and loans, and on the other side – the states that are doing well with economic growth and finances.
The current situation is being compared to the growing debts and tensions that developed in the world in the thirties, when the US and Britain threw money at Europe’s main bankrupt Germany in order to pit Hitler against the Soviet Union, which was growing at an incredible rate.
Ahead of the annual IMF convention in the US, Bloomberg in its publication called the global government debt, which could exceed a record $100 trillion this year, a “ticking fiscal bomb.” Even before the world’s finance chiefs arrive in Washington, the International Monetary Fund is already urging them to tighten their belts… The IMF report offers a grim warning: your public finances are everyone’s problem, Bloomberg reports.
Uncertainty “remains high”
The IMF’s concerns are shared by European Central Bank President Christine Lagarde: “We are facing the worst pandemic since the 1920s, the worst conflict in Europe since the 1940s and the worst energy shock since the 1970s. Thus, several factors have coincided at once in today’s world that are leading to uncertainty in the economy.”
At the same time, Lagarde believes that today’s economists have experience that their predecessors did not have, and central banks have effective tools that have already proven their effectiveness in smoothing the situation. That said, uncertainty “remains high” and economists have work to do. Whether debtors will be able to unite and work hard to overcome the challenges of the times is a big question. After all, today’s leaders of the world’s leading powers are used to living large for their own political purposes, making it clear that they care little about tomorrow.
THE ARTICLE IS THE AUTHOR’S SPECULATION AND DOES NOT CLAIM TO BE TRUE. ALL INFORMATION IS TAKEN FROM OPEN SOURCES. THE AUTHOR DOES NOT IMPOSE ANY SUBJECTIVE CONCLUSIONS.
Albert Martin for Head-Post.com
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