It’s now $45 trillion higher than its pre-pandemic level and is expected to continue growing rapidly, a top trade body has warned

The global debt pile increased by $8.3 trillion in the first quarter of the year to a near-record high of $305 trillion amid an aggressive tightening of monetary policy by central banks, the Institute of International Finance (IIF) has revealed.

According to its Global Debt Monitor report on Wednesday, the reading is the highest since the first quarter of last year and the second-highest quarterly reading ever.

The IIF warned that the combination of such high debt levels and rising interest rates had pushed up the cost of servicing that debt, prompting concerns about leverage in the financial system.

“With financial conditions at their most restrictive levels since the 2008-09 financial crisis, a credit crunch would prompt higher default rates and result in more ‘zombie firms’ – already approaching an estimated 14% of US-listed firms,” the IIF said.

Despite concerns over a potential credit crunch following recent turmoil in the banking sectors of the United States and Switzerland, government borrowing needs to remain elevated, the finance industry body stressed.

According to the report, aging populations and rising healthcare costs continue putting strain on government balance sheets, while “heightened geopolitical tensions are also expected to drive further increases in national defense spending over the medium term,” which would potentially affect the credit profile of both governments and corporate borrowers.

“If this trend continues, it will have significant implications for international debt markets, particularly if interest rates remain higher for longer,” the IIF cautioned.

The report showed that total debt in emerging markets hit a new record high of more than $100 trillion, around 250% of GDP, up from $75 trillion in 2019. China, Mexico, Brazil, India and Türkiye were the biggest upward contributors, according to the IIF.

As for the developed markets, Japan, the US, France and the UK posted the sharpest increases over the quarter, it said.

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The current borrowing limit is a constraint on Washington’s ability to meet its obligations, Janet Yellen insists

America’s chances of paying its bills after June 1 are “quite low,” US Treasury Secretary Janet Yellen warned on Sunday in an interview with NBC’s ‘Meet the Press’.

According to Yellen, if Congress fails to reach an agreement on raising the country’s $31.4 trillion borrowing limit by that time, it will be forced to default on “some bills” shortly after.

“There’s always uncertainty about tax receipts and spending. And so it’s hard to be absolutely certain about this, but my assessment is that the odds of reaching June 15, while being able to pay all of our bills, is quite low… My assumption is that if the debt ceiling isn’t raised, there will be hard choices to make about what bills go unpaid,” Yellen said.

The treasury secretary did not say which ‘bills’ she had in mind, but noted that the government’s most immediate obligations range from paying interest on outstanding debt to “obligations to seniors who count on social security, military, contractors who’ve provided services to the government.”

She added that “there can be no acceptable outcomes if the debt ceiling isn’t raised.”

The administration of US President Joe Biden and Republicans led by House Speaker Kevin McCarthy have been at an impasse over raising the debt ceiling for several months, despite warnings that the US could face its first-ever default unless it is raised by June 1.

Republicans are refusing to agree to the move unless Biden agrees to government spending cuts and curbs on social programs.

Some lawmakers have called on Biden to invoke his powers under the 14th Amendment to the Constitution and bypass Congress and unilaterally raise the debt ceiling. However, Biden told reporters on Sunday that while he has considered doing so, there is likely not enough time before the deadline.

Biden and McCarthy are scheduled to meet again on Monday to discuss the matter.

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The American tech company has been accused of violating EU data privacy rules

US tech giant Meta has been hit with a record €1.2 billion ($1.3 billion) fine for transferring the personal data of European users to US servers.

According to the Irish Data Protection Commission, which overseas Meta’s operations in the EU, the company violated the bloc’s General Data Protection Regulation (GDPR) by continuing to send the personal data of EU citizens to the US despite a 2020 European court ruling against such a procedure.

The privacy watchdog stated on Monday that Meta’s use of a legal instrument known as standard contractual clauses (SCCs) to move data to the US “did not address the risks to the fundamental rights and freedoms” of Facebook’s European users raised by a landmark ruling from the EU’s top court.

In 2020, the European Court of Justice enacted an EU-US data flows agreement known as the Privacy Shield over fears of surveillance by American intelligence services. It also tightened the requirements for using SCCs, a practice widely employed by companies to transfer personal data to the US.

On Monday, the Irish Data Protection Commission told Meta to “suspend any future transfer of personal data to the US within the period of five months” of the decision.

Big Tech sued for deadly lack of censorship

The $1.3 billion fine is the largest ever imposed for violating the GDPR privacy law. E-commerce giant Amazon was previously fined €746 million for running afoul of data processing regulations in 2021.

Meta said it would appeal the decision and the fine.

“We are appealing these decisions and will immediately seek a stay with the courts who can pause the implementation deadlines, given the harm that these orders would cause, including to the millions of people who use Facebook every day,” Sir Nick Clegg, Meta’s president of global affairs, and Jennifer Newstead, chief legal officer at the company, stated on Monday.

The EU and US are reportedly finalizing a new data flow agreement that could come as early as July and as late as October. Meta has until October 12 to stop relying on SCCs to transfer data.

The tech giant has warned that if it is forced to stop using SCCs without a proper alternative data flow deal in place, it could close down services such as Facebook and Instagram in Europe.

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