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The age of Leverage

The age of Leverage

The global development that concerns me the most, though, is rising debt. Global debt now totals around US$240 trillion—that’s US$100 trillion higher than just before the financial crisis, and more than three times current global gross domestic product (GDP).1 Here I’m referring to borrowing by governments, businesses and households. Whether you’re a homeowner or a businessperson, you know first-hand that high leverage can leave you in a vulnerable financial position.

It’s no different for economies. The world has learned this lesson the hard way on many occasions in my lifetime alone. The budget deficits that the United States incurred in the 1960s—and the excessively loose monetary policy that went along with them—laid the foundation for the “great inflation” of the 1970s and the breakdown of the Bretton Woods system of pegged exchange rates. The recession that followed destroyed many businesses and put many people out of work.[…]