By Judd Gregg - 04-18-16 06:00 AM EDT
Countries across the globe have added $25 trillion in sovereign debt since the 2008 financial crisis. Overall debt has risen by $57 trillion during that period, according to a new study by McKinsey & Company.
These are staggering numbers.
The sovereign debt is an incomprehensible amount.
Talk of a "debt bubble" understates matters. This is not a bubble. This is a Hindenburg-like gigantic, helium-filled blimp.
It is not contained to a few regions.
China has quadrupled its sovereign debt since 2007. Because its books - and especially its banks' balance sheets - are so opaque, it is difficult to assess the solvency of that nation's banking system. But it seems that China is headed towards some sort of economic dislocation.
At the root of the problem is Chinese government debt, which now exceeds U.S. debt as a percentage of GDP. There is considerable pressure to further expand this debt, in order to maintain the growth China needs to support its ever-growing population. Devaluation of the Yuan is likely in the cards.
Europe's debt expansion has been well documented. The struggle to deal with the debt issues of Greece, Spain, Portugal and Italy has consumed the continent for almost ten years. France looks set to join that inglorious list.
The debt problems now threaten the European single currency, the euro. They will also, over time, reduce the standard of living for large segments of the population. As that drop occurs - and continues for years - it will inevitably lead to social and political instability.
The problem for the Europeans? Almost all the paths out of this debt morass are unpleasant and destructive.
South America is once again seeing its leading economies go through disruption due to massive borrowing, and the accompanying collapse of productivity and economic growth.
All the major economies are faring badly as they struggle with the debt they have rung up. Brazil, Argentina and Venezuela are all headed towards various levels of crisis as their people find their governments have misled them into massive and unmanageable debt.
At home, the United States in the last eight years has more then doubled its debt, going from $8 trillion in 2007 to $18 trillion today. The numbers just keep going up.
If we keep on our current spending and deficit path, our debt will have tripled by the midpoint of the next decade. We will have a debt-to-GDP ratio by then that will be in the same ballpark as Greece, Spain and Iceland today.
What does this all mean? No one really knows because the world has never been here before.
In the past, a nation might find itself in dire straits with unmanageable debt. Its people would suffer dearly for this mismanagement, but their troubles were at least contained. This is not the case now.
The monetary leadership of the world - the central banks of various nations, and of the European Union - has attempted to enact policies that would slow the accumulation of debt by driving up economic activity.
In particular, they have essentially sought to create a worldwide zero interest rate policy. But this has masked the problem. It has only put off "paying the piper." But the piper is still out there. How he gets paid is the issue.
Each of the key nations has a different approach to that question.
In the U.S., for example, it is still possible to stabilize our debt at a sustainable level of about seventy percent of GDP - so long as we fix our fiscal policy. Specifically, we can do this if we reform our entitlement systems and our tax system. But that will take political leadership and courage, and neither quality is much in evidence.
Unfortunately, it does not seem that the other seriously indebted regions have clear or manageable paths out their entanglements. It is likely that there is going to be a massive effort to beggar thy neighbor through currency manipulation and devaluation.
But, because so many of the major economies have massive debt problems, this approach will not do much more then create trade confrontations - which, in turn, will lead to further contractions of growth.
The only real way to avoid the massive worldwide disruption that will occur when the Hindenburg blimp of debt explodes is economic growth across the key economies. This could then lift other, less robust economies in its wake.
The key economies are those of the United States, northern Europe, China and, to a lesser but still important extent, Russia and southeast Asia.
These regions have both the resources and cultural values necessary to generate growth. But in each one, governments are retarding that opportunity.
If these governments do not face up to problems and give their people the chance to be more productive, things will not turn out well. To put it another way, it is time for the people who govern in these "doer" economies to start promoting policies that generate growth through economic opportunity.
This is easily said but not easily done. Yet the alternative is stark. As these debt burdens become unbearable, paying the piper will become extremely painful.
Growth is the best answer. But it will not occur if the leading economic nations continue adding massively to their debt through excessive spending, misdirected tax policy and suffocating regulations.
Judd Gregg (R) is a former governor and three-term senator from New Hampshire who served as chairman and ranking member of the Senate Budget Committee, and as ranking member of the Senate Appropriations Foreign Operations subcommittee. He has endorsed Jeb Bush in this year's presidential race.