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China's Monumental Debt Trap - Why It Will Rock The Global Economy

Bloomberg News finally did something useful this morning by publishing some startling graphs from McKinsey's latest update on the worldwide debt tsunami. If you don't mind a tad of rounding, the planetary debt total now stands at $200 trillion compared to world GDP of just $70 trillion.

(click to enlarge)
Source: McKinsey

The implied 2.9X global leverage ratio is daunting in itself. But now would be an excellent time to recall the lessons of Greece because the true implications are far more ominous.

Today's raging crisis in Greece was hidden from view for many years in the run-up to its first EU bailout in 2010 because the denominator of its reported leverage ratio-national income or GDP--was artificially inflated by the debt fueled boom underway in its economy.

In other words, it was caught in a feedback loop. The more it borrowed to finance government deficit spending and business investment, whether… Read More …