Another global debt crisis could well be on the way

Washington, DC

ECONOMIC growth is accelerating across most of the world. Yet the world's total gross debt-to-GDP ratio has reached nearly 250 per cent, up from 210 per cent before the global economic crisis nearly a decade ago, despite post-crisis efforts by regulators in many important economies to drive the banking sector to deleverage. This has raised doubts about the sustainability of the recovery, with some arguing that a rise in interest rates could trigger another global crisis. But how likely is that to happen?

To answer this question, one must recall that debt is both a liability and an asset. In a closed economy, overall debt and the corresponding assets necessarily cancel each other out. So what really matters is the composition of debts and liabilities - or, who owes what to whom.