For decades, the world economy has been kept afloat by the life support of credit. For a time, it appeared as if there was no limit to what governments could borrow in order to stabilise the system. Problems were simply kicked down the road, as if there were no tomorrow. In this way, they have fed a monster, which now threatens to devour its master.
According to the OECD’s ‘Global Debt Report 2025’, combined government and corporate bond borrowing amounted to $25 trillion in 2024; nearly three times that of 2007. This takes total worldwide sovereign and corporate bond debt to over a staggering $100 trillion – almost equivalent to world GDP.
A large chunk of this debt was accumulated in response to the worldwide crisis of capitalism in 2008, and more recently during the COVID-19 pandemic.
Back in 2008, eye-watering sums were provided by governments in the West in order to bail out failing banks. Meanwhile, from 2009, the state in China embarked on the largest Keynesian stimulus programme in history, in an attempt to buy social peace.
Fast-forward to 2020, when governments in the advanced capitalist countries borrowed trillions in order to prevent a major collapse. Since then, borrowing has gone up and up. The only catch is that eventually this debt has to be paid back, plus interest.
The explosion of debt in the world economy is a graphic indication of a system which has reached its limits. Capitalism can only be sustained by storing up massive problems for the future.
The problem for the ruling class is that even this palliative of debt no longer serves to soothe the dying patient. In fact, it is accelerating its demise.
Drowning in debt
The problem of global debt would not be quite as bad if the world economy were rapidly growing. But growth is extremely low or even stagnant in most of the advanced capitalist countries, and has been for some time. The result is that the average debt-to-GDP ratio of the ‘advanced’ countries now stands at 110 percent; up from 71 percent in 2007.
The figures for the USA are particularly striking. For the past few years, US government debt has been increasing by about $1 trillion every 100 days. Consequently, its debt-to-GDP ratio is now at 123 percent and rising, bringing its total debt to over $36 trillion.
As a result, the federal government spent 13 percent of its budget in 2024 – amounting to $881 billion – simply on paying the interest on this debt. This is more than it spent on healthcare, education, childrens’ support, and even the military.
The US government’s Congressional Budget Office projects that the interest costs for 2025 will total $952 billion, rising to an incredible $1.8 trillion by 2035 (22 percent of federal revenue). This trajectory is, of course, completely unsustainable.
The only reason that the US has been able to get away with this level of borrowing for so long is that, since the end of the Second World War, it has been the world’s foremost imperialist power.
Positioned at the centre of the ‘liberal world order’ that emerged from the war, the dollar has played the role of the world’s reserve currency; the lubricant to grease the mechanisms of world trade. The dollar was literally treated ‘as good as gold’. But, as the fallout from Trump’s tariff policies has revealed, even this is now being called into question. Just recently, the credit ratings agency Moody’s stripped US government debt of its triple-A rating.
This economic backdrop helps explain why the Trump administration is so aggressively pursuing its ‘America First’ programme, its attempts to extricate itself from expensive foreign interventions, and the scale of its cuts to the federal bureaucracy. It is not, as the liberals think, that Trump is a ‘madman’. There is, in fact, a significant layer of the ruling class that realises that ‘business as usual’ simply cannot go on indefinitely.
Imperialism bleeds countries dry
Elsewhere, the amount of outstanding sovereign debt in the so-called ‘developing’ countries and ‘emerging markets’ has tripled from $4 trillion in 2007 to $12 trillion in 2024, according to the OECD. During the same period, the annual borrowing of such countries has also tripled from around $1 trillion to $3 trillion.
As a result, 54 so-called ‘developing’ nations spent at least 10 percent of their annual budgets on interest payments in 2023. An extreme example is Pakistan, where 52 percent of the government’s budget went to pay interest on foreign debt, whilst millions endure unbearable hardship. Meanwhile, approximately 3.3 billion people live in countries that spend more on servicing debt than on healthcare or education.
This is the real face of imperialism. Institutions such as the UN promote the myth of peaceful ‘development’, where we’re led to believe that it’s only a matter of time before all countries achieve the living standards enjoyed in the West. Instead, what we see is a handful of big imperialist powers bleeding the majority of the world dry through the mechanism of debt.
This situation is becoming unbearable for the millions of workers and poor who suffer as a result. Already, we have seen mass movements and even revolutions in a number of countries around the world which were directly linked to the bankruptcy of the state. These included the revolutions in Sri Lanka in 2022 and in Bangladesh in 2024, as well as the mass movement of the youth in Kenya last summer.
Many other countries are currently close to the edge of default, and within the clutches of the IMF, including Pakistan, Argentina, Zambia, and Ghana. For many others, it is only a matter of time before they go under.
The consequences of such a situation were revealed recently in Argentina. The government of Javier Milei came to power in December 2023. His programme included brutal austerity and privatisation in a desperate attempt to avoid the bankruptcy of the state. From almost day one, he was met with a series of mass demonstrations and strikes, which culminated in a limited general strike in April 2025. And yet nothing has been solved.
Trump’s tariffs
This was where things stood before the impact of Trump’s trade war. Although Trump has ‘paused’ the implementation of the upper rate of nearly all of his ‘liberation day’ tariffs, his 10 percent ‘blanket’ tariff remains in force for most countries. Whilst governments may feel relieved that their rate has been trimmed to 10 percent (from 44 percent in Sri Lanka’s case, for example), this ‘lower rate’ is still a disaster for their economies.
This is because a large chunk of debt in the countries dominated by imperialism is issued in dollars. These countries therefore rely on running large trade surpluses with the US in order to obtain the dollars to pay their debts. Yet it is precisely these trade surpluses that Trump’s tariffs will hit.
The impact of this was immediately revealed in Argentina, where the 10 percent tariff is estimated to have caused a loss of $1 billion of exports. As a result, market confidence in the ability of the government to support the exchange rate of the peso collapsed.
The Argentinian government was therefore obliged to turn to the IMF for a bailout. Of course, this came with heavy strings attached in the form of cuts to social spending. This will only pour petrol on the flames of the class struggle, as the workers and poor are forced to suffer the consequences.
Argentina is simply the tip of the iceberg. Dozens of countries are in a similar situation.
Added to this are the potential consequences of Trump’s tariffs with respect to inflation. In the USA itself, it is only a matter of time before the 10 percent tariffs on imports feed into price rises. Then there is the impact on global inflation, which will inevitably accompany the disruption to global supply chains as businesses are forced to adjust to the new regime.
As we saw with the previous spike in inflation in 2022-23, this will put enormous pressure on the US Federal Reserve and other central banks to raise their interest rates – or at least keep them high. This, however, would have devastating consequences for the growing mountain of government and corporate debt across the world.
Debt timebomb
Even if Trump’s tariffs result in no impact on inflation (which is unlikely), the fact that interest rates have risen dramatically over the past three years presents a ticking time bomb for all indebted countries. This is because the cost of borrowing has shot up enormously.
According to the OECD’s Global Debt Report, almost 45 percent of the sovereign debt of OECD member countries (38 of the most advanced capitalist countries) will mature by 2027. The equivalent amount in so-called ‘emerging countries’ is 40 percent; whereas for ‘low income and high risk countries’ it is 50 percent. Added to this, roughly one-third of all outstanding corporate bond debt will mature in the same period.
A large proportion of all this debt was issued in the previous decades, when interest rates were considered ‘ultra-low’. For example, borrowing costs on fixed-rate bonds were on average less than one percent in 2020-21, two percent in 2022, rising to four percent in 2024.
As a result, governments and corporations will be hit with a dramatic increase in borrowing costs when they are forced to refinance their debts over the coming years. This means governments, already straining under the weight of their existing debts, will face significant black holes in their budgets in the next period.
Indeed, most advanced capitalist countries are already running large budget deficits, as their spending commitments far outstrip their tax revenues. For example, according to the IMF, Germany’s net borrowing as a percentage of GDP is currently -3, Britain’s is -4.4, France’s is -5.5, and the USA’s is -6.5.
As has already been mentioned, the interest payments of these countries on their existing debts run into the tens or even hundreds of billions of dollars. These governments are therefore in effect borrowing money to pay the interest on their previous borrowing. When interest rates were close to zero, this wasn’t such a problem. But now, with interest rates rising, this setup is pregnant with crises.
Added to this mix is the fact that most European countries are planning on significantly increasing their ‘defence’ spending, as a result of pressure from Trump, and the breakdown of the post-war liberal world order. At the same time, they are facing increased pressure to raise social spending as a result of ageing populations and rising unemployment.
Death spiral
The cost of borrowing for governments is determined by the interplay of many different factors, including (but not limited to) the relative and absolute strength of various economies; central bank interest rates; the balance of demand for debt versus the supply of credit; and the ultimate risk of default.
For a very long time, it has almost been without question that – for the advanced capitalist countries at least – the risk of default was negligible. All that is now beginning to change.
With interest payments swallowing up a significant and increasing share of government budgets, and with interest rates rising, lenders are viewing government debt as increasingly risky. And, with demand for government borrowing rising every year, there is increasing competition between debtors seeking creditors. All this means that the costs of borrowing are being pushed higher and higher.
At a certain stage, this dynamic can become self-reinforcing, in what investors refer to as a ‘debt-death spiral’. The need to borrow more money makes your debt riskier. This makes it more costly to refinance, hence the need to borrow more and more money.
If this dynamic continues, it will inevitably reach a tipping point where the lenders consider it too risky to provide any more credit – at least at an interest rate that a cash-strapped government can afford. Hence, such a government will slide down the spiral into bankruptcy.
Many countries in history have suffered such a collapse. But now Ray Dalio, the billionaire founder of hedge-fund Bridgewater Associates, is warning that some of the richest countries in the world – including the USA and Britain – are themselves on the slippery slope of a debt death spiral. As Dalio told the Financial Times:
“It’s like a person who has a lot of plaque in their arteries that’s building up fast. Debt payments are building up and squeezing out other spending and creating the risk of a piece of the plaque breaking off. You can’t tell exactly when that is going to happen, but you can say that the risks are very high and rising.”
Of course, governments will do everything they can to avoid going bankrupt. This means massive attacks on the working class in the form of huge further austerity are on the cards everywhere – along with all the social instability that will flow from that.
This means that whatever governments are thrust into power in the coming period in such countries – whether on a liberal, a so-called right ‘populist’ or a left-reformist programme – will be forced to contend with the same objective crisis of world capitalism as their predecessors. It is therefore only a matter of time before any government attempting to manage this crisis on a capitalist basis will become just as discredited – if not more so – than those that came before.
Nevertheless, there will inevitably be countries that cannot avoid bankruptcy, no matter how much austerity they carry out. As the imperialist powers pick over their carcasses, all seeking their own pound of flesh, it will be the workers and poor of these countries that will ultimately pay the price.
Lack of investment
The only sustainable way out of this problem for world capitalism would be for a genuine growth of the world economy. Ultimately, this can only be achieved by the capitalists reinvesting part of the surplus value produced by the working class into developing the productive forces.
This, however, is more or less ruled out, given the enormous overproduction that already exists in the world economy. For example, global steel overproduction is estimated to have exceeded 560 million tonnes in 2024, quadruple the EU’s annual steel production. At the end of the day, capitalists only invest in order to make profits. With a lack of effective demand plaguing the world economy, why invest in increasing productive capacity?
This state of affairs was highlighted by the OECD in their recent Global Debt Report. According to them, corporate borrowing has massively increased since 2009, so that by 2023 it was $12.9 trillion above its pre-2008 trend. But over the same period, corporate investment was $8.4 trillion lower. The OECD lament that:
“Rather than productive investment, much debt in recent years has instead been used to fund financial operations like refinancings, […] and shareholder payouts. This suggests existing debt is unlikely to ‘pay itself off’ through returns on productive investment.”
In other words, there has been an explosion of debt by companies in order to keep themselves afloat, or simply to channel such money directly into the pockets of their shareholders. Meanwhile, productive investment has gone to the wall.
This situation is now further compounded by rising borrowing costs, both for governments and companies. This means that the pool of capital available for productive investment and social spending is increasingly restricted. Meanwhile, the increased costs of servicing debt threatens to tip many so-called ‘zombie companies’ – those only surviving by the lifeline of cheap credit – over the edge.
Revolutionary implications
All of this is symptomatic of a social system which has reached its limits. Due to the barriers of private ownership and the nation state, capitalism can clearly no longer develop the productive forces as it could in the past.
None of the bourgeois have any solutions to these problems. They can see that the rising debt worldwide is unsustainable. But the only option they have to tackle it is to make massive cuts to the living standards of the working class and poor. All their attempts to restore economic stability, however, will simply lead to further social and political instability.
It also means that when the next downturn hits the world economy, governments will have limited room for manoeuvre, since many have already effectively maxed out their credit.
The paradox is that the working class worldwide has never produced as much wealth as today. But an increasing amount of this wealth is being channelled into the pockets of the banks and billionaires, through the mechanism of debt, and private ownership.
Meanwhile, the workers who produce all this wealth are being forced to tighten their belts to stave off the bankruptcy of the system. This has revolutionary implications, which the most serious strategists of capital are fully aware of.
This doesn’t mean that capitalism is in some kind of ‘final crisis’, or that the system is about to automatically collapse in on itself into socialism. As Lenin explained, the capitalists will always find a way out, until the system is consciously overthrown by the working class. But although they will find a way out, it will come at a price.
It brings to mind what Marx and Engels explained in The Communist Manifesto. Namely, that the means that the ruling class employs to escape a crisis merely prepare the way for even deeper crises of the system in the future. The credit that was used to escape the crises of the past is now suffocating the system under its own weight.
We are currently in a deep crisis of capitalism, which is about to get much deeper. This has enormous implications for the class struggle in the coming period.
