$250 Trillion in Debt: the World’s Post-Lehman Legacy

Brian Chappatta :

Now, 10 years after the collapse of Lehman Brothers, we’re seeing the results of the grandest central-bank experiment in history. On the surface, it looks like mission accomplished. In the U.S., the unemployment rate is near a 48-year low, the S&P 500 Index recently reached another all-time high and consumers are about as confident as they’ve been this millennium. But dig a little deeper, and you’ll find that this road has been paved with debt, debt and more debt — and that it’s a one-way street.

This isn’t a uniquely American problem. Across the globe, government debt has soared over the past decade, both in nominal amount and as a percentage of GDP. While individuals and financial institutions have been busy getting their houses in order after the crisis, many large governments leaned on their captive buyer base — central banks — to binge on debt and pull forward economic growth.

The fact that central banks suppressed interest rates also encouraged nonfinancial companies to tap the bond markets early and often. Across the world, their debt load now represents more than 90 percent of GDP, up from about 77 percent in 2008, according to data from the Institute of International Finance. Sometimes those proceeds were put to productive uses, but often the corporations merely purchased their own shares, boosting the stock value.