There is an old saying that if I owe you £1,000, I have a problem; but if I owe you £1 million, the problem is yours. By this measure, there are today an unprecedented number of people facing problems on an unprecedented scale. Global debt rose to US$296 trillion in the middle of last year, amounting to around 350 per cent of the world’s gross domestic product. Government, corporate and household debt levels are at their highest in decades. The International Monetary Fund says 2020 saw the largest surge in debt since the second world war. Yet few economists, and few in power, seem concerned. Among leading US economists, Olivier Blanchard has said that “public debt may have no fiscal cost”, while Jason Furman and Lawrence Summers also said the “risks associated with high debt levels are small relative to the harm cutting deficits would do.” In Britain, Frank Van Lerven at the New Economics Foundation claims that: “Inflation and its implications for debt servicing costs shouldn’t be taken lightly. But for now, these issues are manageable, if not solvable [ … ] there are other more pressing issues to keep us up at night.” In Britain, that is probably true with Brexit, a bull-in-a-China-shop prime minister and Covid-19 to wrestle with. Setting aside whether inflation is today more transitory than structural, as statistics struggle to take proper account of the pandemic recession , and in spite of the undisputed intelligence and authority of so many international economists, such debt numbers fill me with angst. Along with World Bank economists M. Ayhan Kose, Franziska Ohnsorge and Naotaka Sugawara, I sense “history suggests caution”. Van Lerven rationalises well the current unconcern: even though UK government debt has doubled to 97 per cent of GDP between 1980 and 2020, the cost of servicing that debt has fallen fourfold (from 3.8 per cent of GDP to 0.9 per cent). In Britain’s most harmful debt crises, such as after the first and second world wars, when government debt rose to about twice its GDP, the governments of the day were paying interest rates of 5 per cent and 2-3 per cent respectively. Yet through the current debt boom, the Bank of England has exploited the quantitative easing regime in place since the 2008-09 global financial crash to pay interest rates of just 0.1 per cent. As US debt piles up, what happens if faith in Treasuries is shaken? Similar magical arithmetic has helped central banks worldwide (even those in developing economies with more limited access to capital markets) to arm-wrestle the pandemic recession with similar unprecedentedly negligible debt-service costs. And let’s not forget how many companies have, for over a decade, had access to cheap loans, and how home mortgage costs are at their lowest in our lifetime. But the nightmare question is what happens when the music stops. Recent inflation numbers , whether transitory or structural, remind us that this party must soon end. Present interest-rate levels are extraordinary and unsustainable – and so too are debt-service costs. As Stephen Grenville, former deputy governor of the Reserve Bank of Australia, wrote last February: “Someday, a successor Fed chair will have to make a […] brave decision to return interest rates to a normal level – say 2-3 per cent in inflation-adjusted terms. Until then, the rest of the world, including Australia, has to walk in lock-step with the Fed’s misguided monetary policy .” Economists at the World Bank tend to agree with Grenville. In their February report on the benefits and costs of debt, they echoed the 2019 anxieties of Ken Rogoff (who famously, but inaccurately, predicted a decade ago that debt levels above 90 per cent of GDP stunt economic growth) that “the notion that additional debt is a free lunch is foolish”. The same World Bank team warned in September that governments “need to prepare for the possibility of debt distress when financial market conditions turn less benign”. They also warned that: “History offers some lessons, but no easy solutions.” They noted that debts could only be reduced (and then only slowly) by strong growth, government spending cuts, privatisation of government assets, wealth taxes, inflation or simply debt defaults – and that “none of the options […] are attractive or easy”. Least easy of all is the awkward reality that none of the extraordinary spending pressures that underpin the present debt boom are likely to decline soon. Even after the vicious and sapping Covid-19 pandemic begins to subside, spending costs linked with building international pandemic preparedness and resiliency – whether in health care systems or supply chains – are likely to remain high for much of the coming decade. The “green restructuring” needed to contain global warming will cost trillions for decades. COP26: talk of US$130 trillion is cheap when we need a global carbon fund If this means that government spending and debt levels will stay high, then governments need to contain risks by ensuring new loans have as long a maturity as possible, carry fixed interest rates and are denominated in local currencies. Clearly, the least painful path to sustainable debt levels is to engineer strong growth. That was, after all, the main reason the United States and Europe were able to bring debt levels down steadily after the second world war (in Britain, for example, from 260 per cent of GDP in 1945 to 55 per cent in 1970. But this may be easier said than done as productivity rates have stagnated over the past decade, leaving inflation as the sneakiest but most likely means of gradual adjustment. If this proves true, then I fear for our future generation. As former US president Herbert Hoover said back in 1936: “Blessed are the young, for they shall inherit the national debt.” David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view