This massive surge in borrowings was enabled primarily by falling interest rates. Interest rate is the price of money and falling rates mean debt becomes more affordable. In the US, yields on the benchmark 10-year Treasury fell from more than 4% in 2008 to barely above zero in 2020. The same trend was observed across the globe as central banks eased monetary policies in response to the two major crises (the pandemic and GFC).
The world is swimming (perhaps drowning) in debt because, well, who doesn’t like debt? Borrowing allows us to spend money we do not have — yet. According to the International Monetary Fund (IMF), global debt-to-GDP hit a high of 256% at end-2020, post-Covid 19 pandemic, up from 195% in 2007, on the eve of the global financial crisis (GFC) (see Chart 1). In absolute terms, debts totalled a record US$226 trillion, up from US$116 trillion over the same period, with government borrowings (public debt) rising at nearly double the pace of private debt.
