The state of the global economy is in a precarious position: there is approximately three times as much debt in the world as the combined national GDP of every country. This leads one to wonder how such a situation even came to be, and how there can be a greater demand for money than supply. Shouldn't the sum of the parts be greater than the whole?
The answer is surprisingly complex. In fact, the global economy largely owes the money to itself. Every dollar of debt, which is a liability for a borrower (like a government), is simultaneously a financial asset for a lender (like a pension fund).
On a national level, this is readily apparent. The primary lenders are banks (using the savings of their customers), pension funds (which manage retirement assets), and insurance companies. These organizations buy government bonds, which are essentially IOUs that pay interest, because they are considered one of the safest investments available. This results in a vast, interconnected web where money flows in a cycle.
It wasn't always like this, though. Up until the 1970s, the global money supply was primarily indexed to tangible, real-world assets like gold and silver. This limited the amount of money that could circulate in the economy, since every dollar printed had to have a real counterpart: most often a sum of gold sitting somewhere safe in a central bank's reserves. The "gold standard" was removed by U.S. President Nixon, with the reasoning being that the economy was growing at a higher rate than gold could be acquired, and thus, not being able to inject the appropriate amount of cash to match annual growth would stagnate the economy. Many believe that this was more of an excuse than a reason, and that the real reason was to ramp up government spending for the Vietnam War. Whatever the reason may be, since many countries have chosen the U.S. Dollar as their reserve currency, the effect the decision has had is profound.
Debt has become a core engine of the modern economy. When the government borrows to build a school or a road, that money circulates. It pays workers, who then buy goods, which helps businesses, and so on. This borrowing and spending fuels economic growth and is also a critical tool for managing crises, as seen during the 2020 pandemic when governments stepped in to support shuttered economies.
This reliance creates a cycle. To pay back old debt, governments almost always borrow more by issuing new bonds. Stopping this cycle is not simple. A sudden halt in borrowing would mean a massive cut in spending, which could trigger a severe recession.
The current crisis of debt the global economy faces is not necessarily in the amount of debt, but in how it is used and the risks it creates. Not all debt is created equal. Good uses of debt generally utilize it to buy productive assets that generate cash flow. One of the primary risks today is that a growing portion of global debt is being used to invest in non-productive assets, particularly real estate. While this drives up property prices, it doesn't fundamentally create new economic output in the same way a new factory or research lab does.
While the 3-to-1 ratio of real money and debt globally is both mind-boggling and alarming at the same time, it's not automatically a sign that an apocalyptic collapse is coming. The world's total assets, including but not limited to property, stock, and other resources, are still valued at over 1 quadrillion dollars after all. From this perspective, the planet's "net worth" is still strongly positive. The challenge, therefore, lies not just in the quantity of debt but in ensuring it is used productively and managed to avoid the very real risks that can destabilize economies.