The Institute of International Finance (IIF), whose members include some 400 major banks and financial firms around the world, estimates total global debt will hit a record $277 trillion by the end of this month, up from $255 trillion at the end of 2019. $277T is 365% of global GDP!

This year alone, as of the end of September, the world added $15 trillion to the debt pile, with government borrowing accounting for half of the increase, the IIF says. The surge in 2020 has been the largest by far since records have been kept, with countries spending like crazy as a result of the global pandemic.

(Click on image to enlarge)

By 2030, the IIF estimates we could be looking at $360 trillion in total global debt, assuming the financial system doesn’t blow up in the meantime – which is a distinct possibility in my opinion.

Among advanced nations, debt surged above 432% of GDP in the 3Q — a 50 percentage points increase from 2019. The debt volume of developing countries is approaching 210% of their total GDP on average, up from 185% in 2019 and 140% a decade ago. The sharp decline in revenues has made debt servicing much more onerous for governments in developing countries, despite low borrowing costs.

The explosion in debt this year came after governments across the world stepped up support for companies and citizens in the face of a global pandemic that led to widespread stay-at-home orders. Businesses also had to look for alternative funding as activity for many came to a halt in the wake of Covid-19. Both events translated into higher borrowing and, therefore, more indebtedness.

The United States holds the largest amount of debt of any country, as I will discuss below. It is followed by the Euro Zone, the United Kingdom, France, and Germany as the world’s largest debtor nations. All have debt-to-GDP ratios in excess of 100%.

US National Debt Nears $27.5 Trillion, 129% of GDP

The US national debt topped a record $27 trillion in October and has risen another $443 billion since then. Given the COVID-19 pandemic, there is a general disregard for covering new spending with additional new taxes or spending cuts in Washington.

(Click on image to enlarge)

Due to unprecedented pandemic spending, the federal debt has increased by a record $4.8 trillion this year, by far the largest ever recorded in US history. And this amount does not include the latest $900+ billion stimulus package lawmakers are trying to pass before they go home for the holidays.

(Click on image to enlarge)

At the level of $27.44 trillion, our total national debt is now equal to nearly 129% of Gross Domestic Product, which is currently estimated at $21.34 trillion. Our debt-to-GDP ratio has never been this high. When confronted about this, most politicians point to Japan which has a debt-to-GDP ratio over 200%.

Clearly, the national debt is out of control. This raises many dangers, including a run against the US dollar. Investors, traders, multinational firms, insurance companies, and pensions may lose confidence in the dollar as a medium of exchange or a store of value. There is no law of nature prohibiting massive selling of dollars, which would trigger instability of interest rates, exchange rates, commodities, stocks, and bonds.

As you can see below, the US dollar has been trending sharply lower this year and is not far from testing the 2018 lows. If that level is violated, we could see another big move down.

(Click on image to enlarge)

Certainly, a strong case can be made for the unprecedented federal spending this year in light of the pandemic. Still, such decisions have market implications such as those seen above. Fortunately, inflation remains subdued for now.

Yet we all know, however, gold prices shot up to new record highs above $2,000 in late summer. While that run was largely due to the pandemic, it may also signal higher inflation next year – which is a discussion for another time.