Vladimir Putin - The Link Between Uncontrolled Western Debt and the Risk of a Global Financial Crisis

In a recent speech given at this years Shanghai Cooperation Organization (SCO), Russian President Vladimir Putin made an astute observation as quoted here:

 

“Our organisation plays an increasingly important role in international affairs and brings a substantial contribution to maintaining peace and stability, ensuring sustainable economic growth of its member states and developing ties between peoples.

 

This is especially important today, when geopolitical discord grows bigger, the degradation of the international security system continues, risks of a new global economic and financial crisis increase against the backdrop of an uncontrolled debt accumulation by developed countries, social divide and growth of poverty all over the world, deterioration of food and environmental security. All these issues, with every one of them being complex and diverse in its own way, together lead to a significant increase in conflict potential. Russia is experiencing all of this right now.”

Let's look at one prime example of uncontrolled debt accumulation by the West, the United States of America.  Here is a graph showing the growth in Washington's total public debt:

 

 

Here is a graph showing the growth in all United States debt including federal, state, municipal and personal:

 

In both cases, you can very clearly see how the accumulation of debt has become asymptotic to the Y axis, that is, the growth in debt has become nearly vertical particularly in the post-pandemic period.

 

Governments love to tout the fact that they are still fiscally healthy because their economies are growing which allows for unfettered accumulation of debt without any additional risk.  That said, here is a graph comparing the growth in the economy to the accumulation of debt:

 

 

Back in 1985, the level of all debt in the U.S. economy was roughly equal to the size of the economy at approximately $4.4 trillion.  Since then, the two factors have diverged with total debt reaching $59.4 trillion in the first quarter of 2023 compared to GDP which reached $26.5 trillion which works out to be 225 percent of the size of the economy.  Clearly, this is continued overgrowth of the level of debt in the American economy is unsustainable over the long-term and perhaps even over the short- and medium-term when investors and holders of U.S. debt instruments wake up.

 

While we may not agree with Putin's outlook on many global issues, it is quite apparent that he is spot on when it comes to the risks of a new global and economic crisis based on the West's uncontrolled debt accumulation, a prime example of which can be seen in how the United States debt situation has become untenable.  Some day the ruling class will not be able to "kick the debt can any further down the road" and the world will suffer from a financial crisis that makes the crisis of 2008-2009 pale by comparison.