Global Debt Levels Continue to Rise to 318% of World Output

Last week, the National Association of Realtors announced that U.S. existing home sells fell dramatically year-over-year in December and that home-price inflation is slowing down to a seven-year low. Also, the Equipment Leasing and Finance Association revealed that American companies are borrowing and leasing slightly less for capital investment purposes than one year ago. Lastly, worldwide credit levels continue to rise to great heights, equivalent to 318% of global output, as of September.

• The National Association of Realtors said in their monthly report Tuesday that U.S. existing home sales fell to a three-year low in December and house-price inflation slowed. Existing home sales fell 6.4% to a seasonally-adjusted 4.99 million units last month, the lowest since November 2015 and well below economists’ expectations of 5.25 million units. From one year ago, sales are down 10.3%. Furthermore, the median price for an existing home in December fell 2.9% from December 2017, the smallest increase since February 2012 and signaling falling demand for housing.

• According to the Equipment Leasing and Finance Association (ELFA), U.S. companies’ borrowing to spend on capital investment in December fell 1% from twelve months prior. These companies signed up for $12.7 billion in new loans, leases and lines of credit last month, down from $12.8 billion a year earlier. However, total borrowings increased 59% from November. The ELFA’s non-profit foundation said its leasing and finance confidence index for January is 53.4, down from 55.4 in December. Trade policy frictions and rising interest rates were cited as the largest headwinds for capital investment loans and leases in 2019.
  

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• Another credit boom is in our midst, as the Institute of International Finance revealed that in September, worldwide debt totaled $244 trillion dollars, nearly 318% of total world output. Government debt, since 2000, has been the fastest rising group, climbing from 55% of total world output to 87%. Non-financial corporate debt also experienced a significant increase, climbing from $24 trillion to $72 trillion. In detail, according to Axios, the two largest contributors to the growth in debt have been emerging market corporate entities and developed market governments. While there are no official rules on how much debt can or should be created, it is worth noting that lender confidence in repayment can be a self-fulfilling prophecy. However, slowing global growth and rising interest rates will make debt servicing much harder going forward.