And yet, there's little sign of this current wave

retreating any time soon.

Now with the coronavirus outbreak being declared

a pandemic, governments have announced hundreds

of billions of dollars in stimulus packages

that will send debt even higher.

So, just how worried should we be if it all

comes crashing down?

Global borrowing has been growing rapidly,

so rapidly that many are concerned it is quickly

becoming unsustainable.

The Institute of International Finance estimates

total worldwide debt, which is made up of

borrowings from households, companies and

government, surged to a staggering $253 trillion

at the end of September 2019.

That's a whole lot of debt, more than three times

the annual economic output of the entire world.

It works out to roughly $32,500 of debt

for each of the 7.7 billion people on the planet.

What's more, the group says this figure

is only going to increase.

The World Bank believes the speed

and scale of this debt wave

is something we should all be worried about.

So much so, the group has urged governments

around the world to make it a primary concern.

But let's take it a step back.

Put simply, debt is created when one party

borrows from another.

It allows individuals to buy something they

wouldn't normally be able to afford.

That has its benefits.

For example, you might take on debt when you

get a loan to buy a car or mortgage on a house.

This allows you to pay back the cost of those

investments over time instead of all at once.

The cost of this service is the interest rate.

At present, interest rates around the world

have fallen to historically low levels.

This has made it cheap to borrow from banks,

meaning businesses can make large investments

and homeowners don't need to spend as much

on their monthly mortgage payments.

There are drawbacks to a low-rate environment though.

Individuals aren't likely to see much of a

return on their savings, and both people and

businesses could load up on too much cheap

debt, something we're seeing now.

Governments take on debt too, which they can

use to stimulate the economy by funding infrastructure

projects, social programs and more.

How much a country's government owes is

known as sovereign debt.

Sovereign debt is very different to how we

might think about debt as an individual.

But, one thing they both have in common

is that problems tend to arise

when that borrowing becomes excessive.

Loans to countries with developed economies,

like Canada, Denmark or Singapore, are generally

seen as safe investments.

That's because even if governments spend

beyond their means, lawmakers can raise taxes

or print more money to ensure they

pay back what they owe.

But loans to governments in emerging markets

are generally seen as much riskier, which

is why these countries will sometimes issue

debt in a foreign, more stable, currency.

Although this allows them to attract more

investors from abroad looking for bigger returns,

an economic slump, weak home currency or a

high debt burden can make it difficult for

the government to pay them back.

Ultimately, the most important risk when it

comes to national borrowing is

that a country may fall behind on its debt

obligations and default.

This isn't common but it has happened.

Take Lebanon in 2020, Argentina in 2001

and Russia in 1998.

Over the last 50 years, there have been four

waves of debt accumulation.

We are currently in the midst of the fourth wave.

So, what can we learn from the first three?

Well for one, none of them had a happy ending.

Let's start with the first wave.

In the 1970s, many Latin American countries

began to borrow extensive amounts of money

from U.S. commercial banks and other creditors

to support their development.

It didn't seem like a problem at the time.

Interest rates were low, and Latin American

economies were flourishing.

But in the background, the debt wave was rising.

At the end of 1970, the region's total outstanding

debt from all sources added up to $29 billion.

By the end of 1978, that number had shot up

to $159 billion.

Four years later, it had more than doubled

to $327 billion.

In the 80s, major economies began

hiking up their interest rates as they battled inflation.

Oil prices were sliding, and the world economy

was entering a recession.

In 1982, the starting gun of the Latin American debt crisis

was effectively fired, when Mexico announced

it would not be able to service its debts.

This move quickly sparked a meltdown

across the region, with the fallout spreading to

dozens of emerging economies worldwide.

Many countries in Latin America were forced to devalue

their currencies to keep exporting industries competitive

in the face of a sharp economic downturn.

Between 1981 and 1983,

Argentina weakened its currency against the U.S. dollar

by 40%, Mexico by 33% and Brazil by 20%.

Ultimately, 27 countries had to restructure their debts.

Sixteen of them were in Latin America.

The second wave ran from 1990

through to the early 2000s.

It was unlike the first in that

debt accumulation in the private sector

played a much more prominent role.

In the late 80s and early 90s, many advanced

economies deregulated their financial markets.

The policy changes led to many banks consolidating,

and these bigger banks operations became

increasingly global.

This helped prompt a massive surge of capital

into emerging markets, with falling interest

rates and a slowdown in advanced economies

also fueling the surge.

Developing economies began to rack up a lot of debt,

most notably Indonesia, South Korea,

Malaysia, the Philippines and Thailand.

Yet this growing wave of debt went largely unnoticed.

You see, debt was growing rapidly, but so was GDP,

meaning the ratio between the two stayed consistent.

And most of the debt was hidden in the private sector.

A currency crisis in Mexico in 1994

thrust international investors back into panic-mode,

with the country's default a decade earlier

still fresh in people's minds.

Yet, while a $50 billion bailout from the U.S.

and the IMF meant Mexico was narrowly

able to avoid a default this time around,

it wasn't enough to stop panic spreading to

other countries.

It led to an abrupt stop and reversal

of capital flows in 1997.

By this point, Indonesia, South Korea, Malaysia,

the Philippines and Thailand had developed

a dependence on borrowing.

Coupled with several policy failings, this helped usher in

a crisis in East Asia's financial sector

and, ultimately, another global downturn.

While those impacted by the Asian financial crisis

recovered, international borrowing carried on

at a brisk pace.

Enter the third global debt wave,

which lasted from 2002-2009.

At the end of the previous century, the United States

removed barriers between commercial and investment banks,

while the European Union encouraged cross-border connections

between lenders.

This paved the way for the formation of

so-called 'mega-banks.'

These banks led the way in a sharp increase

in private sector borrowing, particularly

in Europe and Central Asia.

Defaults in the U.S. sub-prime mortgage system

piled more and more pressure on the country's

financial system, pushing it to the brink of collapse

in the second half of 2007 and 2008.

The shockwaves reverberated across the world,

with one economy after another falling into

a deep, albeit short-lived, recession.

In the U.S., the 2009 recession was so severe

that output from the world's largest economy

sank to its lowest level since the Great Depression.

The World Bank says we are currently in the midst

of the fourth wave of global debt.

And to avoid history repeating itself yet again,

governments must make debt management

and transparency a top priority.

This wave of global debt is thought to share many

of the same characteristics as the previous three,

including prolonged periods of low interest rates

and changing financial landscapes

which encourage more borrowing.

But the World Bank has called the current wave

“the largest, fastest and most broad-based" of them all.

It involves a concurrent buildup of both public

and private debt, involves new types of creditors

and is much more global.

However, as the coronavirus pandemic

threatens to sink the world economy,

the moment for stemming the tide may have passed.