Global debt is rising. How bad is that?

Debt isn’t necessarily a bad thing, most economies run on debt. Governments borrow money to get things done. But the tricky thing about that debt, is that it has a tendency to get away from itself.

According to the International Monetary Fund, global public debt — that's debt held by governments — is projected to exceed 100% of global gross domestic product by the end of the decade. Most of the recent debt growth is driven by developed economies, like the U.S. and China.

Tara Sinclair, a professor and chair of the economics department at George Washington University, spoke with “Marketplace” host Kai Ryssdal about the global debt problem. The following is an edited transcript of their conversation.

Kai Ryssdal: Let's deal with the facts on the ground, as we have them, global public debt, sovereign debt, is high. It is rising. Is that a bad thing? And if so, why?

Tara Sinclair: Well, so as I'm an economist, I have two hands, and so there's at least two perspectives on this. But let's break it down and kind of zoom in on, kind of both the pessimist side as well as the the optimist. So from the pessimist side, debt can't rise forever, and so when we see these public debts rising, that's a concern, if we don't see a clear pattern of future stabilization. But it's also the case that when people are looking at where public debt is today, really the question is, what is that money being spent on, and is it crowding out private sector spending that could otherwise be a better outcome for global society?

Ryssdal: Let me take the second half of that answer then, the crowding out thing. Is it crowding out? And what's the effect of, you know, some guy in Sheboygan trying to, you know, make interest payments on his car or his house or whatever, and this rising global public debt?

Sinclair: Yeah, well, I think the guy in Sheboygan might be really concerned about this, because it may explain some of the rise in interest rates that people have seen and the affordability of various large ticket items where they might be borrowing from banks. And one way to think about this is we've got these two big players, U.S. and China, and they're both looking to borrow heavily, and they're competing for that same pool of global savings, and that's going to affect interest rates around the world — even in Sheboygan.

Ryssdal: Even in Sheboygan, lovely a town as it is. Is it, do you suppose, too late — and I guess we have to frame this two ways. One is for the United States, which is, you know, obviously the world's biggest economy. But also we're paying a trillion dollars a year in interest on our debt. So is it too late for the United States to turn things around? And then globally, you know, are we at the tipping point of of the debt trap here?

Sinclair: Well, so I think this is where things get a little more interesting. Because on the one hand, we are facing massive demographic shifts, and that does point to some concerning patterns and a potential tipping point, because we're looking at a world where we're going to be trying to support a larger global population at a smaller workforce, and that's going to be difficult to do. But on the other hand, we may also be at a point where AI and other sources of productivity may help us and may be able to offset that.

Ryssdal: No pressure here, but you're doing a whole lot of on the one hand, on the other here.

Sinclair: Ah yes, the classic economist problem. But I think it's important to really keep in mind that we're looking at a world where we tend to have these really big doomsayers like, you know, “At any moment, we're going to have this giant fiscal crisis.” Whereas on the other side, then there are people who are like, “Oh, OK, it's actually fine, you know, if we look at it from the perspective, for example, of global wealth, rather than debt to wealth as compared to debt to GDP, things maybe don't look so bad.”

Ryssdal: Let me just pick up on that word you use: crisis. One of the things that that has boosted, certainly U.S. debt and global debt to some degree in the last decade-and-a-half or so, almost 20 years now, since the financial crisis, has been huge government expenditure in times of dire economic crisis. And one does imagine that there's a limit to how much a government can do as its debt load piles up, no matter how bad the situation gets.

Sinclair: For sure. I mean, I think that's really where — one of the key concerns that we have is that even if it's not a financial crisis that kicks off our next concern, it may be that we have some other economic shock that hits the economy, and then it's followed by another financial crisis, because there's limited room for additional borrowing on the part of governments, may make a follow-on crisis for any other impact on the economy.