The recent growth in debt across the globe is an issue of enormous importance. Here is a look at what the joint collaboration between the IMF/World Bank/BIS gives as the growthin external debt since 2003.
The raw figures show external debt expanding quickly during the financial crisis. Debtlevels now stands at about 430% above where they stood in 2003 (bottom chart). The major concern among financial professionals is that debt is still growing, five years after the financial crisis ended (top chart).
The overall growth in debt is broken down further below by nation and geographic presentation below.
Unsurprisingly, debt is highest in the United States at $16.6 trillion (all numbers are Q4 2013; debt in the US, for example, has now passed $17 trillion). Luckily for the Americans, debt is denomimnated in their own currency. The second most burdened debtarea is the Euro area, with total debt at $16.0 trillion. Behind the Euro area are the UK ($9.4 trillion), France ($5.5 trillion), and Germany ($5.4 trillion).
Why does debt matter? Turning to Reinhart and Rogoff, debt matters because heavily indebted individuals and governments generally experience slower long-term growth than otherwise would be the case.
Precious metals investors know this the best, having been massive beneficiaries (in terms of price appreciation) from the enormous accumulation of debt in the past few years and the inability of governments to deal with the cost side of their balance sheets. With a few exceptions, the relationship between the price of gold and the accumulation of debt is nearly one-to-one.
Overall, debt accumulated quickly in the past few years. The debt overhang is likely to cause slower growth in the long-term for businesses and individuals living in the nations with governments that took the debt temptation. Given the inability of governments to reduce their balance sheets, precious metals may be due for prolonged strength because of this.
