-1
$\begingroup$

In Jan 2020, the Institute of International Finance (IIF) came out with a report (read summary here) that the total global debt is expected to climb to a new all-time high of more than $257 trillion in the coming months. According to this report, this includes debt across the household, government, financial and non-financial corporate sectors.

As per my understanding, these are the only sectors in the world economy and whichever sector borrows, it must borrow from some other sector. Then how can total global debt be non-zero?

Also from an accounting perspective, a loan or a liability in the books of one entity (borrower) would get reported as an asset in the books of some another entity (lender), then how could the balance sheet of the world economy (which is an assimilation of all the balance sheets out there) end up in red?

$\endgroup$
  • 1
    $\begingroup$ Their report is paywalled. But I'm guessing they refer to total gross debt--so e.g. if the world consists of just two persons, one of whom owes the other \$100, they'd say that total global debt is \$100 (rather than $\$100+(-\$100)=\$0$). $\endgroup$ – Kenny LJ Mar 28 at 6:43
  • $\begingroup$ @KennyLJ I share the same intuition. The summary of the IIF report is available here: iif.com/Portals/0/Files/content/… $\endgroup$ – Akash Malhotra Mar 28 at 7:46
0
$\begingroup$

As noted in a comment, the difference is between gross and net debt.

If the only debt instrument in the world is A owing B \$100, the gross debt is \$100, and the net debt is possibly 0 - if we are willing to count B’s financial asset as a “negative debt.” (It’s not entirely clear that is reasonable, but that will depend on how one wants to define things.)

| improve this answer | |
$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.