Right now, global financial debt is increasing every day. This is an alarming fact that many countries are shouldering the burden of this debt. Some of these countries have been affected by the economic recession in recent years. The effects of global debt greatly impact their economy, and most of them experience slow growth or even fall into deeper recession.
What is meant by the World’s financial debt?
It is a record of debt owed by many nations. Many countries have been borrowing money from many financial institutions to support the economic growth they have. The people who are lending to these countries expect these countries to get back their borrowed money and compensate them for the risks involved in lending them.
The interest rates have changed over time depending on how risky it is to lend certain countries money. When there are problems with the economy and financial status of a certain country, lenders will increase their interest rates to get compensated if they lose money because of the borrower’s situation.
Issues caused by World’s financial debt:
The World’s financial debt causes many issues, but two very common and serious are given below:
1. Economic Issue:
There will be fewer job opportunities since there are limited resources available. Most investors are putting their money into the capital market, which causes low-interest rates in financial sectors.
2. Health Issue:
Since there are too many expenses needed to be paid by families due to the increase of financial debts, which affects health, i.e. smoking, stress, depression, anxiety, and even suicidal rates are increasing.
Reasons for debt expansion
There are some reasons which lead to increase in world financial debt, including the following:
· The monetary policy:
With the expansionary monetary policies adopted by several central banks and the improvement of capital markets around the World, financial institutions were able to take advantage of these policies and made a huge amount of money through the issuance of bonds, which led to an increase in global debt levels.
· Oil prices:
The increase in oil prices is one of the main reasons for increasing global debt. Many countries have increased their spending on imports of goods and services, especially oil. This has led them to increase their external debts and internal debts, mainly due to increasing public expenditures.
· Low income:
Today the wage level has fallen to a 30% level of consumption, 40% of the population receive incomes below the poverty line, which is a serious problem for developing countries experiencing very high rates of population growth.
· Poor budgeting:
Most countries in the World have a huge budget deficit that makes it impossible to reduce their debt burden. The only solution is to increase the tax burden on their citizens, leading to social unrest and ultimately regression.
· Poverty:
Poverty makes it difficult for countries to repay debt obligations. Also, those countries keep building their debts because they don’t have enough resources to produce money and fulfil internal needs.
Conclusion:
The World has been under a serious financial debt crisis. At present, the global financial debt has reached a record of $226 trillion. This affects two main sectors and has many reasons, from which some are explained above.
