The Global Risks From Rising Rates

There's a lot of debt out there. Here’s a guide to what could sour

The world is emerging from the cheap-money era with a mountain of debt that's now getting painfully expensive. Around the globe, the total owed by households, businesses and governments stands at $290 trillion, up by more than one-third from a decade ago, according to research by the Institute of International Finance.

Although the world's debt has declined from a pandemic-driven record early this year, the risks it poses to economies and financial markets are intensifying. That's because many borrowers face a relentless increase in their interest payments, as the Federal Reserve and other central banks raise rates at the fastest pace in decades to subdue inflation. Many loans were locked in when rates were low, so the bills won't all come due at once. Still, at a minimum, there will be a squeeze on economies already struggling with a cost-of-living crisis. At worst, something in the global financial system may break. Recent history is rich in examples of large debt piles that turned bad, from Japanese corporations in the 1990s to US homebuyers and European governments in the following decades.

As higher debt payments begin to strain personal, corporate and government budgets, investors are scanning the planet for potential weak links-from the balance sheets of Canadian households to Italy's public finances to private credit markets in the US.