When interest rates began to rise, it was too late for many. After years of virtually free liquidity, inflation returned and with it the realization that 300 trillion dollars of global debt is not an abstract figure, but a gigantic bet on the stability of tomorrow. For insurers, banks and governments, debt is not a marginal macroeconomic issue. It is the substance of their balance sheets and therefore a measure of confidence in a future that has yet to deliver on its promises.
As my current executive mandate draws to a close, I have been reflecting on one decision taken early in 2022. At the time, I urged the board to accelerate debt reduction. Inflationary pressures were already visible across Europe. Energy prices were surging, supply chains remained strained, and the fiscal expansion of the pandemic years had left a substantial monetary overhang. It seemed increasingly improbable that interest rates could remain near zero for much longer.
This view was not universally shared. Well into 2021 and early 2022, the European Central Bank continued to characterise inflation as largely temporary, emphasising base effects and supply disruptions. I took a different view and disagreed with that assessment, not without hesitation given the authority of the institution involved. The underlying drivers, including energy dependency, wage pressure, and expansive fiscal policy, suggested something more persistent.
When the ECB finally began tightening in July 2022, it did so rapidly, marking one of the sharpest policy reversals in its history. For highly leveraged organisations, the adjustment was abrupt and expensive.
Reducing debt ahead of that shift proved prudent. The episode illustrates a broader lesson. Macroeconomic conditions are not an external backdrop but a core strategic variable. For institutions whose obligations extend years or decades into the future, ignoring the economic environment is not neutrality. It is risk.
Insurance as a macro business
That perspective shaped a conversation I had last week at a Swiss InsurTech Hub (SIH) gathering. During a discussion about artificial intelligence, data and the future of insurance markets, Silvia Signoretti, the president of SIH, remarked with a smile that I seem to write constantly about the economy. The reason is straightforward. Insurance is not merely influenced by the economy. It is structurally embedded within it. Insurers underwrite economic activity and invest in the obligations that activity generates. Their balance sheets are essentially portfolios of claims on the future.
And that future now carries roughly $300 trillion of global debt.
Numbers of that magnitude quickly lose intuitive meaning. The total is about three times global annual output and roughly $37,000 for every person on Earth. But the importance of the figure lies not only in its scale, but in what it represents.
A claim on tomorrow
Debt is not wealth. It is not even money. It is a legally enforceable claim on future income.
Every government bond, mortgage or corporate loan embodies confidence that tomorrow will generate enough value to repay yesterday’s spending. Global debt is therefore best understood as a vast ledger of expectations about the future.
The world’s largest IOU
At its core, a debt instrument is simply an IOU, an acknowledgement that one party owes another something of value in the future. Modern financial systems have transformed this simple concept into highly complex securities, but the underlying logic remains unchanged.
Money itself once functioned explicitly as such an instrument. Under the Bretton Woods system, the US dollar was formally linked to gold, and paper currency ultimately represented a claim on a finite reserve. That link ended in 1971 when President Richard Nixon suspended convertibility, effectively closing the gold window and ushering in the modern fiat era.
Since then, currencies have no redemption value in commodities. Yet they still represent claims, not on gold, but on the economic capacity, legal authority, and taxation power of the issuing state. In that sense, IOUs did not disappear after the end of the gold peg. They evolved.
Much of the global financial system therefore rests on layered promises. Governments issue debt to finance expenditure. Banks create credit that becomes deposits. Insurers and pension funds hold long-term obligations backed by those assets. Confidence that these commitments will ultimately be honoured is what allows the system to function.
Banks originate, insurers hold
This also clarifies the fundamental difference between banks and insurers. Banks create credit. When they issue a loan, they simultaneously create a deposit, expanding purchasing power without requiring prior savings. Insurers do the opposite. They collect premiums first, pool risks, and invest those funds, largely in the debt instruments produced by banks and governments. Where banks manufacture credit, insurers hold it.
From metallic money to credibility
The conceptual foundations of this system date back at least to John Law, the Scottish financier who persuaded early eighteenth-century France that paper money backed by state obligations could substitute for precious metals. His experiment ended in collapse and bank runs, but the underlying principle endured. Modern economies operate on credit sustained by confidence rather than on metallic backing.
Today’s monetary order is therefore less fiat in the popular sense of arbitrary creation than credibility based. Money derives value from taxation power, institutional continuity, and the expectation of future production.
Some observers interpret the $300 trillion figure as evidence that this system is nearing its limits. The more relevant question is whether the conditions that make such debt sustainable are changing.
The end of an unusually benign era
Historically, high debt burdens have been manageable in environments of low interest rates, stable inflation, and credible institutions. The post-2008 period provided precisely such conditions. Central banks suppressed yields, growth was modest but steady, and ageing populations encouraged savings. Debt accumulated without triggering instability.
That environment now appears less secure.
Inflation volatility, geopolitical fragmentation, defence spending, energy transition costs, and demographic pressures all point toward structurally higher fiscal needs. If borrowing continues to expand while interest rates remain elevated relative to the past decade, debt sustainability becomes far more sensitive to growth and policy credibility.
Cycles, instability and creative destruction
Economists anticipated these dynamics long ago. Hyman Minsky argued that prolonged stability encourages risk-taking, gradually transforming prudent financing into fragile structures vulnerable to shocks. Joseph Schumpeter emphasised that credit expansion fuels innovation but inevitably produces cycles of boom and disruption, his creative destruction.
Even earlier observers attempted to detect recurring patterns. In the late nineteenth century, Samuel Benner published cyclical forecasts for panics and prosperity based on historical price movements. His work is not part of modern macroeconomics, but it reflects a persistent intuition. Financial excess and retrenchment tend to recur, even if timing remains elusive.
Taken together, these perspectives suggest that large debt stocks are not inherently catastrophic, but they do change how systems respond to stress. When leverage is high, relatively small shifts in interest rates or growth expectations can have disproportionate effects.
The global financial crisis provides a vivid illustration. In mid-2007, even as credit conditions deteriorated, senior banking figures acknowledged privately that institutions had little choice but to continue operating at high leverage while markets remained buoyant. Exiting early meant surrendering returns and market position. When the cycle turned, adjustment was swift and systemic.
Betting on very long futures
What is particularly striking today is not only the volume of debt but its maturity. Governments and corporations increasingly issue bonds with horizons measured in generations. Mexico has successfully sold 100-year sovereign bonds. Austria has done likewise. Several large corporations have issued century debt. Such instruments assume not merely that borrowers will survive, but that legal systems, currencies, and capital markets themselves will remain intact over very long periods.
For insurers and pension funds, these assets are not curiosities but necessities. Their liabilities often extend across lifetimes, making long-duration bonds valuable. Yet their existence also demonstrates how far financial markets are willing to project stability into the future.
A possible regime shift
Are we approaching a new debt regime? Possibly, though not necessarily a dramatic rupture. More likely is a transition from an era in which debt accumulated almost frictionlessly to one in which borrowing costs, fiscal choices, and growth constraints impose harder limits.
Debt itself will not disappear. Credit relationships predate fiat money and would persist under any conceivable successor system. Economies require mechanisms to shift resources across time. Debt is simply the formal expression of that need.
What may be ending is not debt, but the unusually forgiving environment in which it expanded.
For insurers, this distinction is decisive. Solvency, asset allocation, and pricing all depend on long-term assumptions about interest rates, inflation, and default risk, in other words, on whether the future income streams underlying today’s assets will materialise.
The shadow of the future
Global debt should therefore be viewed neither as an imminent catastrophe nor as an irrelevant statistic. It is a measure of how much of tomorrow has already been committed.
Or, more simply:
Debt is the shadow the future casts on the present.
If that shadow begins to shift, institutions whose business models depend on long-term stability will feel it first.
Which is why conversations about artificial intelligence or innovation in insurance inevitably return to the economy itself. Ultimately, both are concerned with the same question. Will the future be able to honour the promises embedded in today’s balance sheets?
Debt does not threaten stability by existing. It threatens stability by assuming a future that may not arrive.
Economists, of course, disagree profoundly on what this implies. Some traditions, particularly the Austrian school, warn that excessive credit creation inevitably distorts markets and leads to painful corrections, advocating monetary restraint and historically commodity-backed money. Others, following Keynesian reasoning, argue that active fiscal and monetary policy are essential to stabilise economies and prevent demand collapses.
I will leave it to the reader to decide which tradition they believe this column reflects.
Eric Lefebvre
Read also: The Infrastructure that Nobody Values – until it Breaks Down
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