Road to 2030

Debt

The last four decades have seen an explosion in public and private debt growth around the world, facilitated by declining real and nominal interest rates and latterly by quantitative easing. Unexpected events like COVID-19 have merely accelerated the trend towards the debt build up.
The last four decades have seen an explosion in public and private debt growth around the world, facilitated by declining real and nominal interest rates and latterly by quantitative easing. Unexpected events like COVID-19 have merely accelerated the trend towards the debt build up.
The Road to 2030 project is an investment-led project designed to articulate possible visions of the future, and the key drivers behind those outcomes. We explore five key themes, one of these is debt.

Managing risk—that is to say, building strategies that are resilient to events like these—is not easy. So what can investors do?

In Road to 2030, we take a practitioner's perspective aided by both internal and external experts to ask the ‘what if’ questions and consider major changes to the status quo.

Forecasting is difficult, especially about the future, but one can prepare for “the future that has already happened”.

The project is laid out in five overarching themes followed by a scenario at the end. At the very least, the Road to 2030 is a horizon-scanning and risk management exercise. At its best, it provides a foundational understanding of the main drivers that will transform markets over the next decade.

Money invested in government debt is diverting resources from other more productive activities. Burgeoning levels of debt across the public and private sector will burden generations to come unless something is done.

How do we think about debt?

Debt has an important role to play in the financing of productive investment, with government borrowing also potentially helping to limit downswings in economic activity. But it comes with a requirement to pay interest and to repay maturing loans. Too much debt challenges both of these requirements, limiting the ability of borrowers to take on even more debt and in some cases forcing deleveraging or default.


In Road to 2030, we examine the toolset governments and central banks may employ and the scenarios investors need to consider.

What central banks have been able to do, however, is to lower the cost of debt, pushing interest rates down below the rates of nominal income growth and by using their balance sheets to underpin cheap government and corporate borrowing. This financial repression, unfortunately, interrupts the market’s ability to price risk efficiently. It also forces savers to reach for returns elsewhere, pushing up asset prices and reducing future returns. A series of events that are reinforcing. All of this suggests governments and central banks will continue to look for ways to limit the growth of debt burdens.

We use mindmaps to organise and articulate our thoughts about subjects that are conceptually complex, and below shows our theme debt.

Debt mindmap

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