Megathreats

Imagine standing at the edge of a vast financial precipice, with a mountain of debt towering behind you. This is not a tale of distant lands or ancient times but a story unfolding right now, across the globe. The world today carries a staggering burden of debt—public and private—that exceeds 350% of the global GDP, a level never before seen in history. This mountain grows taller each year, fueled by easy credit, government stimulus, and the aftermath of crises like the COVID-19 pandemic.

Take Argentina as a somber example. This nation has defaulted on its debt nine times, a record that underscores the peril of borrowing heavily in foreign currency while pegging the local currency to the dollar. When economic downturns hit, the peso’s value plunges, and the real cost of dollar-denominated debt balloons, choking the economy. Argentina’s experience warns us that currency mismatches and excessive borrowing can spiral into repeated financial disasters.

The United States, too, carries debt levels higher than those during the Great Depression or even after World War II. While America can print its own currency, the sheer scale of debt means that rising interest rates could make servicing this debt prohibitively expensive, triggering a cascade of defaults and financial instability.

What makes this situation more precarious is that debt is no longer just a government problem. Corporations and households have also piled on unprecedented amounts of debt, often fueled by low interest rates and lax lending standards. This creates a fragile system where a shock—be it a spike in interest rates, a geopolitical event, or another pandemic—could trigger a wave of bankruptcies and market crashes.

History has shown us this pattern time and again: exuberance inflates bubbles, debt piles up, and then the bubble bursts, leaving devastation in its wake. Yet, we seem doomed to repeat these mistakes, blinded by optimism and short memories. Understanding the dynamics of debt and the risks it poses is essential if we hope to navigate the treacherous waters ahead.

As we move forward, keep this mountain of debt in mind. It is the foundation upon which many other crises will build. But debt is only the beginning. Let us now turn to the broader failures—both private and public—that deepen this crisis and complicate our path to recovery.