What Record Global Debt Means for Investors

There are years when very little changes, and periods when several forces shift at once. We are living through the latter.

US Debt Tops $40 Trillion

The US government now owes more than $40 trillion. This year it will spend about $1 trillion just on interest, more than it spends on defence.

The United States is not alone. You may have seen some of these headlines in the last few weeks. “Global debt tops $365 trillion as economists sound alarm over ‘vicious cycle’,” CNBC reported on 24 September. The same day, it reported that a fresh budget battle in France threatens to topple another government. And another headline that week: “30-year Treasury yield hits highest level since 2004.”

$365.5 Trillion and Counting

Total global debt hit a record $365.5 trillion in the first half of 2026, about 310% of world GDP. The world has never owed this much, in absolute terms and as a share of what it earns.

Debt has three layers: what governments owe, what companies owe, and what households owe. Added together, the United States owes about 250% of its GDP, up from 231% in 2007. Other large economies carry more: Japan 349%, France 324% and China 305%. The burden is broad, not confined to one government.

Who owes it: governments, companies and households

India sits below the world average. The country’s total debt is 189% of GDP, almost exactly where it was in 2007. India has been more careful than most, but 189% of national income is still a heavy load.

Debt Is Fine. A Debt Crisis Is Not.

Countries have built railways, fought wars and grown rich on borrowed money. Borrowing is healthy when incomes grow faster than the cost of servicing it.

When debts grow faster than incomes, Ray Dalio, founder of Bridgewater Associates, writes that we should “think of it like plaque building up in the arteries.” Too much of it, for too long, ends in a heart attack.

A debt crisis begins when promises exceed the money available to meet them. That is when the question changes from whether debt is useful to who absorbs the loss.

The economist Adam Smith saw this pattern as early as 1776. “When national debts have once been accumulated to a certain degree, there is scarce, I believe, a single instance of their having been fairly and completely paid,” he wrote in The Wealth of Nations.

The promise may belong to the government, but the cost eventually reaches the people who trusted it.

The Bill Comes Due

Investors pay the bill in four broad ways: default, devaluation, inflation and taxation.

1 Default is the loud way. Greece borrows in euros, a currency it cannot print. In 2012, private holders of Greek government bonds accepted a 53.5% cut to the face value of what they were owed.

Promises that looked safe were halved overnight.

2 Devaluation is quieter. Japan shows how it works.

After its stock and property bubble burst at the end of 1989, Japan’s government borrowed heavily to support the economy. Its debt rose from about 55% of GDP in 1990 to more than 200% today. Japan has not defaulted since the years just after the Second World War. Instead, its central bank bought the debt, and by 2023 it owned more than half of all Japanese government bonds.

The cost showed up in the currency. The yen fell from about 87 to the US dollar at the end of 2012 to about 158 today.

A Japanese family that held the same yen since then now finds it worth about 45% less in dollars, and about 78% less in gold in 14 years.

No default. No crisis. The saver paid anyway.

Japan: no crisis, but the saver still paid

3 Inflation is the slowest way, and the one everyone feels.

The US dollar is the world’s reserve currency. Central banks hold about 57% of their foreign-currency reserves in dollars, far more than in any other currency. That gives America a privilege no other country has: it borrows in money it can print itself.

But printing has a cost.

Since 2008, the US Federal Reserve has created money on a large scale to buy bonds, known as quantitative easing, four times. The biggest round came with Covid.

The Fed’s balance sheet more than doubled in two years, from about $4.2 trillion to $9.0 trillion.

The US money supply grew 27% in the single year to February 2021.

And after a pause, the Fed began buying government debt again in December 2025, though it calls these purchases routine liquidity management, not stimulus.

Over time, the cost shows up in what a dollar buys. A dollar from 1966 buys about 10 cents’ worth of goods today. That is a 90% loss of purchasing power in 60 years.

Measured in gold, the fall is starker still. An ounce of gold cost $35 in 1966. Today it costs about $4,150.

The economist John Maynard Keynes saw it in 1919: “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

4 Taxation is what governments reach for when things go badly wrong.

Britain came out of the Second World War owing about 270% of its GDP.

Taxes on the highest earners stayed punishingly high for decades. During the war, the top rate on income from investments reached 99.25%. From 1941 to 1979, Britain’s top income-tax rate never fell below 75%.

In the late 1970s, a top earner kept 17 pence of every extra pound earned from work, and just 2 pence of every extra pound from savings and investments.

The Beatles wrote a song about it, “Taxman”. The Rolling Stones moved to France to escape it.

When Trust Breaks

Global debt has grown at an unprecedented pace, and it is not slowing.

Since 2007, the fastest-growing layer across advanced economies has been government debt, and the IMF expects government debt alone to pass 100% of world GDP by 2029, a level last seen just after the Second World War.

Debt is ultimately a promise about the future. Governments borrow against future tax receipts, future growth and future confidence in their currencies.

As promises pile up, trust becomes both more valuable and more fragile. The bill does not disappear when a government prints, inflates, devalues, taxes or defaults. It changes hands. It reaches the people who saved in that currency or bought that promise.