Concerns about rising government debt are not strictly an American problem

After years of cheap money, the cost of borrowing for many governments is going up.

Sticky inflation, swelling deficits, and political instability have all driven bond yields higher — the market’s way of saying that investors need bigger returns to be comfortable lending to governments.

Earlier this month, long-term borrowing costs surged across the globe, with UK 30-year gilts jumping to late 1990s levels, German Bunds hitting their loftiest since 2011, and France’s 30-year bonds rising to a 14-year high. Even Japan — long synonymous with rock-bottom yields — saw its 20-year bonds climb to their highest point since 1999. In the US, 30-year Treasurys hovered near 5% last week, the highest since July and a threshold rarely touched in the 2010s, though they have since retreated.

Indeed, global public debt has continued to balloon to an almost comically large figure.

Global public debt is always something of a hard concept to get your head around. Planet Earth doesn’t owe that money to Mars or anything like that; instead, it’s the sum of government debt worldwide. And per data from the UN, it reached a record $102 trillion last year, rising more than 6x since 2000.

Roughly 70% of that is owed by developed countries, where debt levels have risen relative to the size of their economies.

The IMF projects global public debt will exceed 95% of world GDP this year and edge toward 100% by 2030.

Among the biggest contributors to the surge is China, where public debt has shot up from 23% of GDP in 2000 to 88% last year — fueled by the massive 2008 stimulus, years of debt-financed infrastructure investment (often off the books), and its recent move to bring some of those “hidden” local borrowings onto the official state’s balance sheet.

In the public’s (dis)interest?

Zooming out from Beijing, though, the stories are similar. Covid-era stimulus left debt piles much heavier across economies, while sluggish growth and trade wars have made it even harder for them to grow out of debt.

But what’s really ramped up the pressure is the sharp rise in interest rates — the fastest in four decades — which pushed benchmark rates in advanced economies to more than 5x their 2010s average as central banks fought inflation. The result? Higher borrowing costs everywhere, and a whole host of countries that are now spending more on the interest on their debt than on public services.

America is no exception: Uncle Sam’s interest bill came in at a cool $882 billion last year, more than it spent on defense or Medicare, which contributed to Moody’s stripping the country of its last AAA credit rating in May.

Still, the squeeze is being felt more acutely in developing economies, which have been borrowing at rates 2x to 4x higher than the US. Over the past 15 years, their debts have swelled by a “record-setting clip,” leaving them with roughly 50-50 odds of a financial crisis, according to analysis from World Bank Chief Economist Indermit Gill in June.