World debt soars after global crisis

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The amount of debt worldwide has soared more than 40 percent to $100 trillion (R1.07 quadrillion) since the first signs of the financial crisis as governments borrowed to pull their economies out of recession and companies took advantage of low interest rates, according to the Bank for International Settlements (BIS).

The rise from $70 trillion between mid-2007 and mid-2013 compares with a $3.86 trillion decline in the value of equities to $53.8 trillion in the same period, Bloomberg data show.

Borrowing has soared as central banks have suppressed benchmark interest rates to spur growth after the US subprime mortgage market collapsed and Lehman Brothers’ bankruptcy. Yields on all types of bonds, from governments to corporates and mortgages, average about 2 percent, from more than 4.8 percent in 2007, according to the Bank of America Merrill Lynch Global Broad Market Index.

“Given the significant expansion in government spending in recent years, governments have been the largest debt issuers,” according to Branimir Gruic, an analyst, and Andreas Schrimpf, an economist, at the BIS. The group, based in Switzerland, is owned by 60 central banks.

Marketable US government debt outstanding has surged to a record $12 trillion, up from $4.5 trillion at the end of 2007, according to US Treasury data. Corporate bond sales globally have jumped, with issuance at more than $21 trillion.

Concerned that high debt loads would cause international investors to avoid their markets, many nations have resorted to austerity measures of reduced spending and increased taxes to restore the fiscal order they abandoned to fight the worldwide recession.

The unprecedented retrenchments between 2010 and 2013 amounted to 3.5 percent of US gross domestic product (GDP) and 3.3 percent of euro zone GDP, according to Julian Callow at Barclays in London.

Treasury and agency debt handed investors gains of 27 percent in the period, while corporate bonds worldwide returned more than 40 percent, according to Bank of America Merrill Lynch index data. - Bloomberg


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