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Global debt up by $57 trillion since crisis: Report

Construction of an apartment complex in the Binhai New Area of Tianjin, China
Doug Kanter | Bloomberg | Getty Images
Construction of an apartment complex in the Binhai New Area of Tianjin, China

Despite widespread talk of "deleveraging" after a global credit bubble burst in 2008, the world continues to pile on more debt. According to a new study by McKinsey, the world ended last year some $57 trillion deeper in debt than it was in 2007.

The total tab—owed by governments, companies and households—is now more than twice the value of the world's total economic output.

The biggest chunk of new borrowing since 2007—some $25 trillion—has come from governments going deeper into hock. Of the nearly 50 countries included in the analysis, only five—Argentina, Egypt, Israel, Romania and Saudi Arabia—have paid down some of their debt.

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For the U.S., McKinsey figures the total outstanding debt of all households, non-financial corporations, and government comes to about 233 percent of gross domestic product—which ended last year at $17.7 trillion. That works out to a total U.S. debt of a little more than $41 trillion.

Government was the source of that added borrowing (up 35 percent since 2007), while corporations pared debt by two percent and households cut back by 18 percent. U.S. banks shrank their total debt by 24 percent.

Though it increased debt levels by a third, U.S. government borrowing was still relatively tame among the world's advanced economies, ranking 16 among the countries surveyed.

Borrowing in the rest of the world has come as households, corporations and governments have expanded rapidly. Japan, with debt four times GDP, increased its debt pile by two thirds. Among the biggest borrowers relative to the size of their economies are the struggling European economies of Portugal and Greece, which have doubled their debts in the last seven years. Ireland's debt grew by 172 percentage points during that period.

Debt is also piling up fast in countries with rapidly developing economies. In China, the rapid expansion of so-called "shadow banking," including loans to newly-formed private companies and property developers, created a surge in new debt. Combined with borrowing to support Beijing post-recession stimulus spending; China's debt roughly quadrupled to $28 trillion, or more than twice its GDP.

In contrast to heavy government borrowing, bankers, corporations and households have done a better job keeping their borrowing under control. Financial sector debt levels have fallen in the U.S., Ireland, and Germany, and debt levels in most other countries have held relatively flat. Household debt in the U.S., U.K., Ireland, and Germany have also come down.

The worry for governments is that it becomes increasingly difficult to slow the pace of borrowing—let alone repay it—as the global economy continues to slow down. Curbing spending or raising taxes to reduce public spending can further reduce growth, making it harder to keep up with interest payments.

"There are few indications that the current trajectory of rising leverage will change," the report says. "This calls into question basic assumptions about debt and deleveraging and the adequacy of tools available to manage debt and avoid future crises."