Debt Levels In Various Countries During The

Last Decade And The Challenge Of

Deleveraging – Where Are We Today
 MADE BY-  SUBMITTED TO-
 PRANJAL MOITRA  PROF. R. A. CHOPRA
 SHIVAM ASTHANA
 KESHAV
 ISHAN SINGH
 SOURAJIT DAS
 UJJWAL PRATAP SINGH
 SUMIT BAHUGUNA
What is Debt and Deleveraging?
 Debt is an amount of money
borrowed by one party from
another. Debt is used by many
corporations and individuals as a
method of making large
purchases that they could not
afford under normal
circumstances.
 Deleveraging is when a company
or individual attempts to decrease
its total financial leverage. In other
words, it is the reduction of debt.
The most direct way for an entity
to deleverage is to immediately
pay off any existing debts and
obligations on its balance sheet.
Global Debt
 Global Debt: Pre 2008 Crisis
Global Debt in the years Compound annual growth rate
2000-2007 from 2000-2007

Total
Household
Corporate
Government
Financial
Year

Total debt as share of

world GDP
US DEBT SCENERIO
IN PRE-2008 PERIOD
Household
Sector
 The total Household debt
to GDP ratio hit an all time
high of 98%
 This coupled with only a
near 0% of savings rate led
to further distress
 Debt per capita was at
$53,000 in 2008
 Customers with credit
scores of 760 or greater
got 36 percent of all loans
in 2008.
 Dollar Amount
16,000,000,000,000.00

14,000,000,000,000.00
Government
12,000,000,000,000.00 Debt
10,000,000,000,000.00

 Th e u n e m p l o y m e n t
8,000,000,000,000.00
rate rose to10% during
the great depression.
6,000,000,000,000.00
Th e n g o v e r n m e n t
spending increased to
make more
4,000,000,000,000.00
employment.
2,000,000,000,000.00
 Th e d e b t o f US
government
increased by nearly
0.00
1/1/2005 1/1/2006 1/1/2007 1/1/2008 1/1/2009 1/1/2010 1/1/2011 $ 1 Tr i l li o n d u r i n g t h e
recession.
 The total Corporate debt
accounted for nearly 45% of
the US GDP
Corporate
Debt
The total Debt was at $6.5
Trillion in 2008
Impact of 2008 Recession

 US stock market was down by 54.7% in just 17 months.

 The International Monetary Fund estimated that large US lost more
than $1 trillion on toxic assets and from bad loans.
 Between June 2007 and November 2008, Americans lost an
estimated average of more than a quarter of their collective net
worth.
EU DEBT SCENERIO
IN PRE-2008
Causes for 2008 Recession

 Housing prices in US was increasing exponentially.

 Subprime lending was at its peak in 2007.
 Easy access to loans without proper verification of the economic
condition of the customers led to the downfall of the banking
industry
 Debt Before 2008

• We can see from the

graph that in every EU
nation the debt
increased from 2003 to
2008 and it further
increased from 2008 to
2012
 CHINA DEBT
SCENERIO IN
PRE-2008
DEBT IN CHINA :PRE 2008

 Stable gross debt between early

2004 and late 2008

 Rate of debt –between 170 and 180

percent of gross domestic product

 Remained higher than all emerging

countries but not by a high margin
GLOBAL DEBT IN
2019
Global
Debt In Q1
2019
v Global Debt Quickened in First
Quarter, Outpacing World
Economy.

v Debt increased to $246.5 trillion,

almost 320% of global economic
output.

v Emerging-market borrowing rose

to new record of $69 trillion.

v While debt in developed

countries increased by $1.6 trillion
in the quarter to $177 trillion.
 Global Debt Quickened in First Quarter,
Outpacing World Economy.

 Debt increased to $246.5 trillion, almost

320% of global economic output.

 Emerging-market borrowing rose to

Global Debt In Q1 2019
new record of $69 trillion.

 While debt in developed countries

increased by $1.6 trillion in the quarter
to $177 trillion.
 GLOBAL DEBT 2007-
2018

v The Bloomberg report concluded that total world debt increased by

approximately $100 trillion from 2007 to 2018.

v Global debt is now more than 3 times the size of the world economy.

v The corporate sector (ex-financials) and governments worldwide have

accounted for over 75% of the rise in global debt levels since 2008.
US DEBT IN 2019
Household
Debt
 Housing Debt:
Mortgage originations increased to $445
billion in 2018 about 8% increase from 2008
levels.
The home equity line of credit has
decreased by 33% from the 2008 levels
 Non-Housing Debt:
 Outstanding student loan debt stood
at $1.44 trillion which has doubled since
2008.
 Auto loan balances increased to $1.27
trillion in 2018Q3 a 61% increase from
2008.
 Credit card balances rose to $844
billion 14% up from 2008 levels.
Government
Debt

 Debt to GDP ratio is at
106%
 Fiscal deficit is 3.8 %
 The U.S. government's
public debt is now more
than $22 trillion
 The Congressional Budget
Office predicts federal
spending will rise from 20.8
percent of GDP in 2019 to
23 percent in 2029, with
programs such as Social
Security and Medicare
Non-Financial
Corporate Debt
 Debt outstanding for nonfinancial
businesses stood at a little over US$15 trillion
 Debt to GDP ratio stood at 48 %
 According to S&P Global Ratings, the
companies rated BBB+, BBB, or BBB-
corporates now outnumber all of the
companies with some level of A-rated debt
Financial
Debt
 The debt to equity ratio of
the US Financial
corporates has reduced to
less than 50% of the 2008
levels
 The debts of the biggest
U.S. financial companies
are smaller compared with
their equity than they were
even in the 1970s
 Financial Corporates used
low interest rates to put
their houses in order
EU DEBT IN 2018
 Household

• The debt to GDP the

ratio for households in
EU peaked near 2010.
It was around 64% it
started falling after
that.
• Around 2008 debt to
GDP ratio was 59% and
it rose after that
• In 2019 it is around 58%.
 Corporate

• The debt to GDP the

ratio for corporate in EU
peaked in 2016. It was
around 137% it started
falling after that.
• Around 2008 the
corporate debt to GDP
ratio was around 120%
and it rose after that.
• In 2017 it is around 120%.
 Government

• The total government

debt to GDP ratio in
2007 was 59%. It rose to
around 70% in 2009.
• From 2009 to 2010 the
debt ratio rose from
70% to 80%.
• Between 2010 to 2018
the debt to GDP ratio
remained constant
Total Country
Wise Debt of
Financial
Sector in EU
Financial sector of France and
Germany has the highest debt
which is around 5000000 euros.
CHINA DEBT IN
2019
 Household debt exploded with 89.68%
home ownership

Credit to GDP ratio more than 25%

DEBT IN
CHINA :POST
Generous off the book lending led to
2008 decreased asset quality increasing banking
debt

Non financial debt to cross 300% of GDP

 HOUSEHOLD
DEBTS

• Increased to 52.60 percent of

GDP in the fourth quarter of 2018
from 51.90 percent of GDP in the
third quarter of 2018.
• Households Debt To GDP in
China averaged 30.69 percent
of GDP from 2006 until 2018
• All time high - 52.60 percent
of GDP in the fourth quarter of
2018
• record low -10.80 percent of
GDP in the second quarter of
2006
NON
FINANCIAL
SECTOR DEBT

 China’s Credit to
Private Non-Financial
Sector was reported at
26,687.578 USD bn in
Dec 2018.
 The data reached an
all-time high of
27,749.448 USD bn in
Mar 2018
 A record low of 183.339
USD bn in Sep 1986
Started from second half of
2016

First sector deleveraged was

real estate

Later progressed into

financial sector
banks exposure to shadow Leverage in bond market
banking and off balance dropped
sheets wmp reduced

Interbank NCD market shrank

in issuance volume and macro
prudential measures imposed
on capital account activities
rein in capital account inflows
 Sharp sell off of bond market
from Q4 2016 into H1 of 2017

FINANCIAL CGB yield curve rose over by

DELEVARAGI 120bp and money market curve
rose by over 150 bp in 2017
NG
Done to purge out leveraging of
credit bond by banks ,securities
houses and investors
 Neutral monetary policy with Closing down large number Preventing state owned
some tightening biases; of zombie companies to enterprises (SOEs) and local

CORPORATE tackle "soft budget" problem government financing

vehicles (LGFVs) from over-
borrowing

DELEVERAGI
NG

Stopping banks from lending Tight check on China's

money to certain industries gigantic shadow banking
with serious overcapacity sector
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