The Bank for International Settlements estimates this figure at over $12 trillion. There is a lot of dollar-denominated debt held by institutions outside of the United States. This shortage becomes particularly acute during global economic slowdowns or recessions, such as in 2008, 2016, and 2020 when trade diminishes and commodity prices fall in dollar terms. money supply, which along with other factors has led to a global dollar shortage. However, the usage of the dollar has exceeded the growth of the U.S. dollar is used around the world for purchasing commodities, settling a large portion of international trade, and providing financing for companies between nations. We just re-arranged where the debt is concentrated, and pushed it up especially to the sovereign level. We have less mortgage debt relative to GDP, but most other types of debt, especially sovereign debt, are higher as a percentage of GDP in 2020 than in 2007. In the United States, our total debt (government, corporate, and household) is around 350% of GDP, which is the same ratio of debt that we had back in 2007 at the start of the previous financial crisis (although during the crisis, it ended up reaching as high as 380%): The sheer amount of debt in the world makes temporary income disruptions a lot more financially impactful than they would be in a system with less leverage.Īs of 2019, global debt surpassed $250 trillion, which is more than 250% of the world’s GDP. However, the sheer speed of the market’s crash, and the unprecedented actions by the Federal Reserve and other central banks around the world to support the credit market, point to an even larger issue: we’re likely in the later stages of a global debt supercycle. Job losses are likely to continue as well. Nearly 10 million jobless claims were filed in the United States in the past two weeks due to the shutdown of restaurants, travel businesses, casinos, physical retail, and parts of several other industries, and that can’t be understated. Many analysts are focused on the impact of the virus itself, which is indeed very large.

The short version is that most of what they are doing is ultimately to protect the U.S. This article takes a look specifically at some of the Fed’s international operations to help readers understand why the rest of the world is currently the Fed’s problem.

The Fed has expanded the monetary base to buy Treasuries and other securities at a record pace, has put in place various lending facilities, and has opened a record number of currency swap lines with other countries. Federal Reserve has announced an unprecedented number of operations to relieve or bail out various markets, as the lender of last resort.Įric Basmajian provided a solid breakdown of the operations in place as of a couple of weeks ago, and that article is certainly worth a read. Over the past several weeks in response to the COVID-19-induced global economic shutdown, the U.S.

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