In a world economy that’s still fighting to come to terms with itself, it seems the planet’s governments are slowly going bankrupt, as according to the Basel-based Bank for International Settlements, the global amount of outstanding debts already reached $100 trillion in mid-2013. The situation, according to the umbrella organization of 60 central banks, has largely been caused by mass issuance of bonds by businesses and governments to combat the global economic crisis.
According to the BIS, in 2007, the global amount of outstanding debts was $70 trillion, but currently it is more than $100 trillion. Especially hard hit are governments of nations, which currently have a total of $43 trillion outstanding in their domestic markets – an amount which is 80 percent higher than what it was in 2007.
The BIS, known as the central bank of central banks noted that markets and governments had withdrawn from globalization and cross border transactions since the economic recession, and this has led to over-dependence on domestic markets.
The global debt situation has been aggravated, the BIS noted by a shift in lending and borrowing patterns where financial capital is increasingly being sought through debt markets rather than through bank lending. With banks losing trust governments focused on regulations to curb lending in the financial sectors and issuing debt.
Andreas Shrimpf and Branimir Gruic, the analysts authoring the BIS report, said the trends in global money lending has been reversed and cross-border investments in global debt securities have declined from pre-recession years. Between 2007 and 2012, the share of debt securities held by cross-border investments fell by 3 percent.
The report observed, “This reversed the trend in the pre-crisis period, when it had risen by 8 percentage points from 2001 to a peak in 2007. It suggests that the process of international financial integration may have gone partly into reverse since the onset of the crisis.