The Challenge to Investors

Challenge Overview

In this video, Inigo Fraser-Jenkins discusses why a growing government debt burden is one of the challenges identified in The Book 2025 Edition.

The growing level of debt among the world’s major nations isn’t a new issue.

In fact, public debt has been rising for decades—and debt burdens have historically reached high levels relative to the overall size of economies, as measured by gross domestic product. But there’s something different about the current surge.

In recent centuries, debt peaks have happened when the need arose to fund existential conflicts, such as World War II. Today, public debt among the G7 nations has reached the same share of GDP as at the end of that sprawling global war—but without the need to fund such a huge conflagration. In our view, it’s mainly the result of trying to keep consumers happy.

The scale of the current debt burden and a shift in the long-term path of interest rates is a sobering combination for politicians that raises eyebrows. That mix means that the cost of servicing public debt is likely to take on a growing share of what governments spend—and the issue will last for decades. Niall Ferguson, British historian,  asserted that “Any great power that spends more on debt … than on defense will not stay great for very long.”