Global debt has surged to a staggering $307 trillion, marking an increase of $10 trillion in just the first half of 2023. This soaring debt level is ringing alarm bells and has pushed liabilities to record highs, up by an astonishing $100 trillion over the past decade. It’s becoming increasingly clear that we are on the brink of a monumental debt crisis.
S&P Global’s recent revelation that global debt has breached the $300 trillion mark for the first time in history is nothing short of jaw-dropping. To put it in perspective, this debt load represents a mind-boggling 349% of the world’s GDP. If this debt were evenly distributed among the global population, every man, woman, and child would bear a debt burden exceeding $36,000.
In essence, this is an incomprehensibly massive debt bomb, and the fuse has been ignited by inflation. The dynamics are interconnected: bond yields, among other factors, are influenced by inflation. As inflation made its way into the financial system in 2021, it was only a matter of time before bond yields started to rise.
Higher bond yields translate to larger debt payments, making servicing the debt increasingly challenging. For instance, at a yield of 0.25%, servicing $1,000,000 in debt costs just $2,500. However, at a yield of 5%, that same $1,000,000 debt now demands $50,000 for servicing. The 10-year note yield has climbed as high as 4.37%, reaching levels last seen in 2007.
These escalating rates persist despite an anticipated Fed rate pause. The United States is issuing unprecedented volumes of Treasury Bonds to finance deficit spending, leading to an oversupply that drives down bond prices and pushes Treasury yields higher. Over the current and upcoming quarters, a staggering $1.9 trillion in US Treasury bonds will be issued.
The cost of deficit spending is manifesting in various ways, and higher interest rates are among them. Since the conclusion of the debt ceiling “crisis,” the US has accumulated an additional $33 billion in debt per day, with daily interest expenses nearing $3 billion. Debt service costs have surged to their highest point since 2009, amounting to an extra $150 billion in interest payments. The US deficit has surged by over $300 billion, and federal tax receipts have dipped by 8.4% over a 12-month period.
Trillions of dollars in debt are being issued at interest rates exceeding 5%, nearly double the recent lows. Interest expenses are swiftly becoming the largest item in the budget. The question looms: Is the debt ceiling “crisis” genuinely over, or are we on the precipice of a more profound and enduring financial challenge?
Sources:
“Liabilities clocked in at record $307 trillion, up a staggering $100 trillion over the past decade…”
Source: t.co/Sf161IM7Hq
— Gold Telegraph ⚡ (@GoldTelegraph_) September 19, 2023
The Great Debt Crisis of Our Lifetimes Is Just Around the Corner… Are You Ready?
BREAKING: 10-year note yield rises as high as 4.37%, the highest since 2007.
Rates continue to rise despite a Fed rate pause expected.
Why?
The US is issuing record levels of Treasury Bonds to fund deficit spending.
There is so much supply that it is driving bond prices lower… pic.twitter.com/EohegAuLEo
— The Kobeissi Letter (@KobeissiLetter) September 19, 2023
Even in real terms, interest on US debt is rising at its fastest pace in history.
As more debt is issued at higher rates, it's only getting worse.
All as spending is skyrocketing.
What's the game plan here?
Follow us @KobeissiLetter for real time analysis as this develops.
— The Kobeissi Letter (@KobeissiLetter) September 19, 2023