Dear MEL Topic Readers,
The world is drowning in debt
The debt-to-GDP ratio compares a country's
sovereign debt to its total economic output for the year, gross domestic
product, GDP. This ratio allows investors, leaders, and economists to gauge a
country’s ability to pay off its debt. While a high ratio indicates that a
country isn't producing enough to pay off its debt, a low ratio means there is
plenty of economic output to make the payments. It’s like household debt and
income. Banks may give you more loans if you make more money.
Investors and lenders are happy to take on a
nation’s debt if it produces more. But when they start to worry about repayment,
they will demand more interest rate payment for the higher risk of default,
which will increase the cost of debt for the borrowers. This makes it more
expensive for the country to borrow money, which increases fiscal spending and creates more debt, like the Greece debt crisis.
According to the International Monetary Fund,
or IMF, Global debt, which comprises borrowings from households, governments, and companies, surpassed 250 trillion dollars last September and brought the global
debt-to-GDP ratio to 322%, breaking the historical record. Despite relatively
low-interest rates in most countries, the refinancing risk is growing as more
than $19 trillion of syndicated loans and bonds are going to need to be
refinanced or repaid this year. And there are countries whose financial
conditions are skeptical, such as Argentine and Greece.
Enjoy reading the article and learn what’s
going on in the global financial market.
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