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World Debt time bomb ticking

"Is the world sitting on a debt time bomb?A new global debt database launched by the International Monetary Fund here in Washington last week shows combined public and private debt has ballooned to at least $US164 trillion ($218 trillion). Adding in a broader range of debt instruments, including financial sector debt, world debt is at a record high of $US243 trillion, or about 320 per cent of GDP. "

'A decade of artificially low interest rates since the global financial crisis has encouraged governments, corporations and households to binge on cheap borrowing.The sharp rise in credit is ironic given that over-leveraged American consumers and banks were a root cause of the 2008 financial crisis. Memories appear to be in short supply. Global deleveraging barely happened. Tim Adams, president of the Institute of International Finance (IIF), recites an Ernest Hemingway quote to underline the perils of unsustainable debt."How did you go bankrupt?""Two ways. Gradually, then suddenly." '

"Internationally, the big drivers of the jump in debt over the past decade have been China, the US government and corporations around the world."

"US inflation is finally showing signs of firming. The 10-year US Treasury yield last week touched 3.1 per cent, the highest rate since July 2011. The Treasury curve is a global benchmark for borrowing costs. The big Republican fiscal stimulus worth 2 percentage points of GDP is hitting a US economy that is already around full-employment with a jobless rate below 4 per cent. An obvious risk is the US Federal Reserve and bond markets are forced to ratchet up interest rates more aggressively than expected. The consequences would be felt around the indebted world."

'US federal debt is projected to hit 100 per cent of GDP within a decade, with no plan to arrest it. National Intelligence Director Daniel Coats this year called rising debt a national security threat. "This situation is unsustainable, as I think we all know, and represents a dire threat to our economic and national security."'

"For many, leveraging up and riding the asset prices booms over the past decade has delivered fabulous returns. But the bills will ultimately need to be paid for the debt largesse. "

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