The widely held claim that the world is in the latter stages of a prolonged debt crisis should be challenged on at least two counts. First, global debt levels are trending upwards rather than downwards. More fundamentally, it is misleading to characterise the economic problems of recent years as a debt crisis. It would be more accurate to see debt as a symptom of a more fundamental malaise.

These points run counter to mainstream thinking. Few contest the orthodoxy that the world has become addicted to debt and at some point levels should be reduced. The mainstream debate is essentially about whether the amount of debt should be brought down slightly faster or slightly slower.

It is a pity that two authoritative reports on rising global debt levels received relatively little attention. In September 2014 two respected research institutions published a report entitled Deleveraging? What Deleveraging?. As its title suggests it argued that: “Contrary to widely held beliefs, the world has not yet begun to delever and the global debt-to-GDP is still growing, breaking new highs.” Debt and (not much) Deleveraging, a report published by McKinsey in February 2015 reached a similar conclusion: “rather than reducing indebtedness, or deleveraging, all major economies today have higher levels of borrowing relative to GDP than they did in 2007.”

The striking development is, if anything, that the state has, in effect, nationalised a significant portion of debt. When the authorities bailed out troubled financial institutions some debt was, for practical purposes, transferred from the private to the public sector.

While many specialists realise that debt levels have risen, few appreciate that debt is not the cause of the crisis. Burgeoning debt levels are a symptom of decades of government attempts to sustain their economies rather than promote dynamic growth.

Since the 1970s, the West’s economic leaders have preferred to extend credit rather than create a framework for economic expansion. They have used a combination of high public spending and generally easy money in a desperate attempt to avoid economic collapse. They have focused on maintaining the economy as it is rather than letting weak sectors die while promoting new areas of development.

Such short-termism helps explain some huge gaps between rhetoric and reality. Most politicians say they favour markets, yet they support huge levels of state intervention. They periodically proclaim the need to cut public spending but it remains stubbornly high. They profess a determination to reduce debt but levels continue to rise.

None of this bodes well for the prospective increasing of interest rates or unwinding of quantitative easing. Most policymakers seem willing to keep on blowing up the credit bubble for as long as possible. However, the longer

the tackling of the economy’s underlying weaknesses is postponed the nastier the fallout is likely to be.

Pulled in two directions