Global Debt Growing Three Times Faster than Global Wealth

Global Debt Growing Three Times Faster than Global Wealth from Schiff Gold

Global wealth increased to a new record of $280 trillion in 2017, according to Credit Suisse Global Wealth Report 2017. That seems like pretty good news until you consider global debt is increasing nearly three times as fast.

According to the Wealth Report, total global wealth rose at a rate of 6.4%, the fastest pace since 2012 and reached USD 280 trillion, a gain of USD 16.7 trillion. This reflected widespread gains in equity markets matched by similar rises in non-financial assets, which moved above the pre-crisis year 2007’s level for the first time this year. Wealth growth also outpaced population growth, so that global mean wealth per adult grew by 4.9% and reached a new record high of USD 56,540 per adult.”

Increasing global wealth is one of the trends the World Gold Council identifiesas a positive for the gold market in the next year.

That’s all well and good. But we have to also look at the other side of the equation.

As ZeroHedge reported, the Institute of International Finance recently released its latest global debt analysis. It reported that global debt rose to a record $233 trillion at the end of Q3 2017. That is split up between $63 trillion in government debt, $58 trillion in financial sector corporate debt, $68 trillion in non-financial sector corporate debt, and $44 trillion in household indebtedness.

In just nine months, there was an increase of $16 trillion in worldwide debt.

According to the IIF, private non-financial sector debt hit all-time highs in Canada, France, Hong Kong, South Korea, Switzerland and Turkey.

Last summer, US Global Investors CEO Frank Holmes called global debt “the mother of all bubbles.” We also had a report from the Bank of International Settlements saying worldwide debt may actually be understated by $13 trillion.

Of course, all of this debt has ramifications. ZeroHedge put it this way.

Still, while global GDP has enjoyed a period of accelerating growth, this may soon come to an end even as debt levels continue to rise. Meanwhile, the debt pile could act as a brake on central banks trying to raise interest rates, given worries about the debt servicing capacity of highly indebted firms and government, the IIF analysts wrote.”

The mainstream loves to focus on assets and wealth growth, but it doesn’t talk much about debt. They should because they are both important factors in the equation.

Net wealth = Assets – Debt

So, you really can’t talk about wealth without talking about debt. SRSrocco took a look at both factors in the equation.

Even if global wealth surged in 2017, so did world debt.  According to the data, global wealth increased by $16.7 trillion in 2017 while global debt expanded $16 trillion… nearly one to one. However, this is only part of the story. If we look at the increase in total world debt and total global wealth over the past 20 years, we can see a troubling sign, indeed: Since 1997, total global debt increased from $50 trillion to $233 trillion compared to the rise in global wealth from $120 trillion to $280 trillion.

When you do the math, you find global debt has increased 366% vs. 133% increase in global wealth since 1997. That means net wealth was $70 trillion in 1997 versus $47 trillion in 2017.

Think of this in terms of an individual. Say I go out and borrow $75,000 to buy a sports car. Then I borrow $1 million to purchase a beautiful home. I put $60,000 on a credit card to furnish my new house. If you come visit, you will probably think I’m doing pretty well. You’ll see all of those assets and assume I’m sitting pretty.

But I’m not.

It’s a house of cards. I’m more than $1 million in debt. One small economic hiccup will ruin me. It’s a false prosperity built on credit. That’s where the world is right now. And it’s just a matter of time before that economic hiccup sends the whole thing tumbling down.

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Peter Schiff

Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkeley in 1987. A financial professional for more than twenty years, he joined Euro Pacific in 1996 and served as its President until December 2010, when he became CEO. An expert on money, economic theory, and international investing, he is a highly sought after speaker at conferences and symposia around the world. He served as an economic advisor to the 2008 Ron Paul presidential campaign and ran unsuccessfully for the U.S. Senate in Connecticut in 2010.