In the battle against COVID-19, governments around the globe are on the cusp of becoming more indebted than at any point in modern history, surpassing even World War II, Bloomberg News reported. From Germany to Japan, Canada to China, fiscal authorities have spent vast sums protecting their people and defending their economies from the colossal toll of the pandemic. At the same time corporations, emboldened by unprecedented government support for markets, are selling bonds like never before. The borrowing binge has come with a hefty price tag — $19.5 trillion last year alone, according to Institute of International Finance estimates. Still, compared to the alternative — a deep and lasting depression — that looks cheap. In a world where rock-bottom interest rates have kept debt costs manageable, it’s also affordable. But if rates rise faster and higher than expected, the end of the COVID-19 crisis could mark the beginning of a reckoning. Federal Reserve Chairman Jerome Powell said that huge borrowing by governments and corporations during the pandemic served as a “bridge” across the economic chasm of lockdowns, plunging consumer spending, idled cruise ships, vacant hotels, and millions of lost jobs. It allowed companies to pay the employees they didn’t fire and maintain assets in working condition. It funded jobless benefits for those who were fired, so they could pay rent and buy food. The bills run up in the fight against the coronavirus vary greatly from country to country. Developed nations, with easier access to capital markets, have spent more to shore up their economies, while emerging-market governments have had to do so with fewer resources. If government borrowing is a bridge to recovery, central banks are the supports. By slashing interest rates and buying more than $5 trillion of assets, they have allowed countries to borrow at a breakneck pace. The Fed alone has added about $3 trillion to its balance sheet over the past year, similar in magnitude to its total monetary expansion in the decade following the 2008 financial crisis.
