by John Rubino on February 22, 2015 11 comments

Confounded Interest just posted a nice summary of a McKinsey report on the growth of global debt during what some persist in calling the great deleveraging. Turns out that since the crisis of 2008, debt has actually risen by $57 trillion, and the ratio of debt to GDP is up 17 percentage points to 286%. Meanwhile, central banks are monetizing 100% of newly-issued sovereign debt.

The obvious response to this is 1) wow, nothing has been fixed; in fact just the opposite, and 2) these stats, horrendous as they are, are incomplete because they dont include unfunded liabilities of governments and private pensions, which are just as real as any other kind of debt.

But unfunded liabilities must be getting better, what with the stocks and bonds in pension fund portfolios soaring lately. Right? Since thats an effortless Google search, thats what I did. And the results were both counterintuitive and scary. It seems that even with pension fund investment portfolios booming, obligations to future retirees are rising even faster, making these entities even more underfunded today than in 2007. Heres a sampling of the headlines just from February, in the order they appear in the search window:

Absent from this list is the US federal governments number, though thats also easy to find. From Forbes: You Think The Deficit Is Bad? Federal Unfunded Liabilities Exceed $127 Trillion. Thats about 6 times the reported federal debt.

Now, easy money advocates argue that the solution to this and all other unbalanced economic equations is to borrow and spend enough new cash to get asset prices up and put people back to work. But stocks and bonds are currently at record highs and the unemployment rate is below 6% (peak-of-the-cycle kinds of numbers that have historically preceded corrections in which investment returns and tax receipts both plunge, raising unfunded liabilities).

So it looks like weve thrown our best punch and the problem is still standing there, wondering if thats all weve got. Which leaves the US and the rest of the world where debt and unfunded liabilities also continue to rise with the question: If debt was the thing that nearly destroyed the global financial system in 2008 and debt both narrowly and broadly defined is way up since then, what happens in the next downturn? The answer is who knows, because this is uncharted territory both in terms of the size of the imbalances and governments policy responses.

The only thing thats certain is that there are more cities, states and related pension funds poised to blow up than ever before.