Such numbers do not easily excite financial markets, which are more sensitive to things like inflation and interest rates or business activity and corporate earnings trends. But they are macro indicators of where things are heading at the micro level, and on the question of debt, the answer is: very much in the wrong direction.

The latest figures from the Institute of International Finance (IIF) show that the global debt mountain has begun to grow again, after a modest shrinkage in earlier months.

In an environment of higher interest rates, the global debt stock rose by US$10 trillion over the first half of this year to hit a record high of US$307 trillion, the IIF said. After seven quarters of decline, the global debt-to-GDP ratio resumed its upward trajectory in early 2023 – and is now a “staggering US$100 trillion more than it was a decade ago”.

Over 80 per cent of the debt build-up in the first half of this year came from mature markets, with the United States, Japan, Britain and France showing the largest jumps. In emerging markets, the rise has been more pronounced in China, India and Brazil.

Meanwhile, the global debt-to-GDP ratio has reached 336 per cent, despite rising prices allowing debtors to inflate away some of their debt burden.

The particular reason for alarm in all this is that even though tighter lending standards have significantly curtailed bank credit creation and despite some increase in regulatory scrutiny, the expansion of private credit markets has continued in recent months.

11:04

Death and debt in China

Death and debt in China

Hence the alarm at the IMF and elsewhere. If financial markets have a way of overlooking adverse trends in trade and other vital economic statistics, they have also proved blind to looming debt crises in banking and financial systems until it is too late.

This is why the IMF is emphasising that: “Keeping banks safe and sound, and anchoring financial stability, hinges on good supervision as much as on effective risk management and governance in banks, robust regulation and vigilant markets.”

The warning is late but better late than never, perhaps.

How China can learn from mistakes in US banking oversight

Regulators have long shown more signs of being asleep at the wheel than of vigilance. Banking and financial regulation was tightened quite sharply after the destruction wrought by the 2008 global financial crisis but this has been eased significantly since, in response to financial sector lobbying.

After episodes of bank distress, the authorities tend to give a lot of attention to upgrading regulations but the “upgrading of supervisory effectiveness can be left bereft of corresponding attention”, the IMF observed. This needs more attention at the governmental level.

Financial sector supervisors, the IMF said, “need a clear mandate to ensure they are focused on the right trouble spots. And they need adequate legal powers to back their actions”. There is no denying the truth of this belated assertion, as history will attest.

03:38

10 year anniversary for the financial crisis

10 year anniversary for the financial crisis

The last global financial crisis “highlighted the importance of supervisors needing to be assertive and intrusive”, the IMF said. It noted that, “‘Light touch’ supervision, often invoked as part of efforts to encourage economic activity and foster competition, had proved unsuccessful.”

Warnings on the poor health of the global financial system are coming in far too thick and fast to be ignored. The Financial Stability Board, the sector’s leading watchdog, cautioned recently of the danger of “further challenges and shocks” in coming months as high interest rates undermine economic recovery and threaten key sectors, including real estate.

The ADB, in this month’s outlook report, noted that while most central banks in the region have put further interest rate increases on hold, rates remain elevated, increasing the risk of financial instability. In this environment, governments and central banks in the Asia-Pacific need to keep a close watch on interest rates, inflation and financial conditions.

So, too, do financial markets which often seem ready to party at every little relief rally in stock prices.

Anthony Rowley is a veteran journalist specialising in Asian economic and financial affairs