debt

You know that big financial crisis we just had? Prepare for round two.

The IMF says there’s too much debt in the world economy and another crisis is super likely.

What it means: The International Monetary Fund (IMF) is an organisation whose job is help out countries who have money troubles by giving them advice and lending them cash. It has just announced that it’s worried that we’re all about to have a repeat of the 2008 financial crash, mainly because we didn’t bother to fix the problems from last time.

One of the things the IMF is concerned about is global debt, which is currently £139 trillion. That’s higher than it has ever been before, and 60 percent bigger than it was in 2008. Debt is a really tricky subject for economists. Plenty think it can be a good thing if it allows companies and people to invest in things now that will have big payoffs later. A business that borrows money to build a new factory might then be able to make more stuff, earn more money and hire more staff, for example.

But debt also needs to be paid back, and sometimes borrowers don’t have the money to do so. This becomes even more of a problem because you almost always have to pay interest on your debt (interest is a percentage of the loan that you pay back on top of the amount you borrowed). Interest rates incentivize people with money to lend it to people without. But it also makes unpaid debts grow bigger and bigger, which makes them more and more difficult to pay back.

The IMF is worried that lots of companies and people that have borrowed money in the last decade won’t have the funds when it comes to repayment. That’s partly because the IMF thinks global economic growth (basically, the world getting richer by making more stuff) is slowing down. Lots of economists think lower economic growth will also mean lower wages for individuals and lower profits for companies, meaning less money with which to pay back their huge debts.

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