Debt: The Runaway Horse — When Borrowing Becomes the Economy's Greatest Threat

Debt. The word alone can make people uncomfortable. Yet the uncomfortable truth is that modern civilization runs on it. When you take a home loan from a bank, you are a borrower. When a government issues treasury bonds, it is a borrower. When your friend asks for $20 until payday — that is debt too.

At its simplest — Debt is money or resources borrowed from another party, which must be returned within an agreed timeframe along with interest.

Debt itself is neither good nor evil. It is a tool. Think of a shovel: you can use it to build a garden or to tear one apart. Debt works the same way — used wisely, it creates wealth; misused, it creates ruin.

But here is the catch: debt has a personality. It wants to grow. Interest on interest, payment on payment — if you do not keep debt on a tight leash, it becomes a runaway horse. It gallops faster than you can chase it, and it destroys everything in its path.

"Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it." — Albert Einstein (widely attributed)

That quote captures debt's most dangerous quality. Debt is not just fuel for the modern economy — it is a force that, once uncontrolled, becomes the economy's greatest threat.

Personal Debt (Consumer Debt)

Every dollar you personally owe falls into this category — mortgage, auto loan, student loan, credit card balance. This is the debt that affects kitchen table conversations and family budgets.

According to the Federal Reserve, total US consumer debt reached $17.5 trillion in 2023, with credit card debt crossing $1.08 trillion for the first time ever — the first time it has breached the $1 trillion mark. That is roughly $3,300 in credit card debt for every American adult.

In Bangladesh, personal debt is primarily home loans and consumer loans. Credit card usage is still relatively limited, but it is growing fast — and with it, the risk of the high-interest trap.

Corporate Debt

Companies borrow to expand operations, fund new projects, or simply keep the lights on. Bank loans, bond issuances, commercial paper — these are all forms of corporate debt.

According to McKinsey Global Institute, global corporate debt surpassed $93 trillion in 2023. Much of this debt has funded productive investment. But many companies have borrowed so aggressively that even a mild economic downturn could push them toward insolvency.

Sovereign Debt

When a government spends more than it collects in taxes, it plugs the gap with borrowing. Treasury bonds, IMF loans, bilateral loans from foreign governments — these make up sovereign debt.

According to the US Treasury Department, America's national debt crossed $34 trillion in 2024 — equal to 123% of GDP. The clock adds roughly $100,000 in new debt every single second.

Secured vs Unsecured Debt

Secured Debt:

Debt backed by collateral. Your mortgage is secured by your home; your car loan is secured by your car. If you default, the lender seizes the asset. Because the lender has a safety net, interest rates are generally lower.

Unsecured Debt:

Debt with no collateral backing it — credit cards, personal loans. The lender takes on more risk, so interest rates are dramatically higher. In Bangladesh, credit card interest rates run 20–24%. Miss a few payments and the math becomes brutal.

To truly understand debt, you must understand interest. Interest is the price you pay to borrow money — and it is also the mechanism that turns a manageable debt into a runaway horse.

Simple Interest

Formula: Simple Interest = Principal × Rate × Time

Example: You borrow 1 lakh taka (100,000) at 10% simple interest for 5 years.

Interest = 1,00,000 × 0.10 × 5 = 50,000 taka. Total repayment = 1,50,000 taka. Predictable. Manageable. Straightforward.

The problem? Almost no real-world debt works on simple interest. Banks, credit cards, and most lenders use compound interest.

Compound Interest — The Real Danger

Formula: A = P × (1 + r/n)^(n×t)

Where A = final amount, P = principal, r = annual interest rate, n = number of times interest compounds per year, t = time in years.

Same example: 1,00,000 taka at 10% compounded monthly for 5 years:

A = 1,00,000 × (1 + 0.10/12)^(12×5) = 1,64,531 taka. That is 14,531 taka more than simple interest — just from the compounding effect.

The credit card horror story:

Suppose you carry a 5 lakh taka balance on a credit card charging 24% annually (2% per month). If you only make the minimum payment each month, it will take 15 to 20 years to clear that debt — and you will repay 3 to 4 times the original principal in total interest. This is compound interest working against you.

1. Debt-to-Income Ratio (DTI) — For Individuals

Formula: DTI = Monthly Debt Payments ÷ Monthly Gross Income × 100

Example: Monthly income 50,000 taka, monthly debt payments 20,000. DTI = 40%. Below 36% is considered healthy; above 43% is dangerous territory. Mortgage lenders in most countries will reject applications above 43%.

2. Debt-to-GDP Ratio — For Countries

Formula: Debt-to-GDP = Total Government Debt ÷ GDP × 100

In their landmark book 'This Time Is Different,' economists Reinhart and Rogoff found that once a country's Debt-to-GDP ratio exceeds 90%, average economic growth falls by approximately 1% per year. Japan sits at 263%, the US at 123%, Bangladesh at roughly 40%.

3. Debt Service Ratio — For Governments

Formula: Debt Service Ratio = Annual Principal + Interest Payments ÷ Revenue

Bangladesh's government currently directs 25–30% of its revenue toward debt service — meaning for every 100 taka collected in taxes, 25 to 30 taka goes straight to paying off loans and interest before a single road is built or school is funded.

4. Interest Coverage Ratio (ICR) — For Companies

Formula: ICR = EBIT ÷ Interest Expense. Above 3x is considered safe. Below 1.5x is a danger signal — the company is struggling to cover its interest costs from operating earnings.

Debt isn't always dangerous. A home loan to buy property, a business loan to expand — these are normal and necessary. But under certain conditions, debt spirals out of control and becomes a runaway horse. Here are 10 detailed warning signs.

Sign 1: You're Taking New Debt to Pay Interest on Old Debt (Debt Spiral)

This is the most terrifying sign. When you need to borrow just to cover interest payments on existing debt, you've entered a Debt Spiral. It works like a snowball rolling downhill — each new loan makes the situation worse.

Personal example: Rahim borrowed BDT 5 lakh from a bank. Couldn't make payments, so he took a credit card cash advance. Couldn't pay the 24% credit card interest, so he took another personal loan. Original debt: 5 lakh. Current total: 12 lakh — and growing.

National example: Argentina's government issues new bonds to pay interest on old bonds — decade after decade. This is why they've defaulted on sovereign debt 9 times.

Sign 2: More Than 50% of Income Goes to Debt Payments

When over half your income is consumed by loan installments, there's nothing left for food, healthcare, children's education, or savings. The psychological pressure becomes unbearable.

At the national level it's even worse. Before Sri Lanka's 2022 collapse, approximately 70% of government revenue was going to debt service alone — leaving just 30% to run the entire country. It was mathematically impossible.

Sign 3: Interest Rate Exceeds Income Growth Rate

This is the most critical mathematical indicator. If your debt charges 12% interest but your income grows at 5%, your debt is growing faster than you are. The gap compounds over time — this is the runaway horse in its purest form.

National example: A country's GDP grows at 6%, but its foreign debt carries an average 8% interest rate. Every year, the debt burden increases by 2% relative to GDP. Over a decade, compounding turns this small gap into a crisis.

Sign 4: Debt Went to Unproductive Uses

The most important question about any debt: Is this debt generating income? A factory loan that produces goods and revenue is "good debt." A consumer loan for luxury cars, electronics, or vanity projects is "dead debt" — there's no income stream to repay it.

Bangladesh example: A large portion of the banking sector's BDT 1,55,395 crore in non-performing loans went to unproductive purposes. In many cases, loans were disbursed but no business was created — money was siphoned off or wasted.

Sign 5: Foreign Debt Creates Currency Mismatch

When a country borrows in dollars or euros but earns in local currency, a special risk emerges — Currency Mismatch. If the local currency depreciates, repaying foreign debt suddenly becomes far more expensive.

Bangladesh example: In 2022, the taka fell from BDT 85 to over 110 per dollar. Companies and government projects that borrowed in dollars saw their installments jump 30% overnight in taka terms — through no fault of their own.

Sign 6: Interest Rates Spike Suddenly (Interest Rate Shock)

Floating-rate loans become dangerous when central banks raise rates to fight inflation. Borrowers who planned their budgets around low rates suddenly face installments they can't afford.

US example: In 2022, the Federal Reserve raised rates from 0.25% to 5.5%. The 30-year mortgage rate jumped from 3% to 7.5%. Homebuyers who'd planned around 3% rates couldn't afford 7.5% — the US housing market seized up.

Sign 7: Credit Ratings Are Being Downgraded

When rating agencies (Moody's, S&P, Fitch) downgrade a country or company, they're signaling that repayment capacity is deteriorating. Downgrades trigger higher borrowing costs on new debt — creating a vicious cycle of worsening creditworthiness.

In 2023, Fitch downgraded the United States from AAA to AA+ — only the second time in history. The reason: rising national debt and political gridlock over the debt ceiling.

Sign 8: Growth Is Debt-Fueled — GDP Rises But So Does Debt

Some countries show impressive GDP growth, but only because the government is borrowing and spending. This isn't real growth — it's debt-fueled growth, a mirage that looks prosperous on the surface but has a crumbling foundation.

China example: China's GDP growth looks impressive, but total debt (government + corporate + household) stands at approximately 300% of GDP. The real estate sector has massive bubbles — Evergrande and Country Garden are collapsing. Chinese economists themselves acknowledge this debt-dependent model is unsustainable.

Sign 9: Moral Hazard — Borrowers Know Someone Else Will Pay

When borrowers know that failure won't hurt them — because the government will bail them out, or bankruptcy laws will protect them — they take reckless risks. This is Moral Hazard.

The "Too Big to Fail" concept in banking is exactly this. In 2008, major US banks knew the government wouldn't let them collapse — so they lent recklessly. Result? Crisis hit, the government provided a $700 billion bailout — funded by taxpayers. Bankers kept their bonuses; ordinary people lost their homes.

In Bangladesh, this is even more acute. State-owned bank officials know the government will recapitalize them — so loans are disbursed without proper due diligence.

Sign 10: Debt Is Creating Social Unrest

When debt pressure directly impacts ordinary people's lives — rising inflation, austerity measures, job cuts — social unrest follows.

Greece saw massive riots during 2010-12 austerity. In Sri Lanka in 2022, citizens stormed the presidential palace. The Arab Spring (2011) was partly driven by economic inequality and debt pressure.

Debt isn't just a numbers game — it's about people's lives. When citizens can't afford food or school fees because of national debt mismanagement, what starts as a financial crisis becomes a political revolution.

According to the Institute of International Finance (IIF), total global debt reached $313 trillion in 2023 — approximately 330% of world GDP. In other words, humanity owes 3.3 times more than everything it produces in a single year.

Debt-to-GDP by Country (IMF 2023):

Japan: 263% — the highest in the developed world, though mostly held domestically

United States: 123% — $34 trillion, paying $2.5 billion in interest every single day

China: ~80% government debt, but total debt (government + corporate + household) approaches 300% of GDP

India: 83%

Bangladesh: ~40% — comparatively low, but rising fast

Greece: 162% — still bearing the scars of the 2010 debt crisis

The most alarming trend: In 2000, total global debt stood at $87 trillion. By 2023 it had reached $313 trillion — a 3.6x increase in just 23 years. Over the same period, global GDP grew only 2.8x. Debt is growing faster than the economy it is supposed to serve. That is the definition of a runaway horse.

1. Greece (2010) — Europe's Debt Reckoning

For years, Greece spent far beyond its means — bloated public payrolls, generous pension schemes, widespread tax evasion. Debt-to-GDP surged past 180%. In 2010, Greece could no longer service its debts in international markets. The IMF and EU assembled a $289 billion bailout — with brutal austerity attached. Wages were cut, pensions slashed, taxes hiked. Unemployment hit 27%. A generation of Greeks paid the price for a debt horse that ran unchecked for decades.

2. Sri Lanka (2022) — The Most Dramatic Collapse in Recent Memory

Sri Lanka borrowed heavily from China and others to build mega-projects — Hambantota Port, Mattala Airport — that became textbook White Elephants. In 2022, Sri Lanka declared bankruptcy, unable to service $51 billion in foreign debt. The country ran out of fuel. Food shortages hit. Inflation crossed 70%. The president fled the country. Ordinary citizens queued for hours just to fill a gas tank.

3. Argentina — The World's Most Chronic Debt Crisis

Argentina has defaulted on its sovereign debt 9 times — a world record. Most recently in 2020. The country owes $44 billion to the IMF alone — the largest loan in the fund's history.

Argentina's problem is structural: spending cannot be controlled, tax collection is weak, and inflation has been in triple digits for years — hitting 211% in 2023. Each new government borrows to cover the previous government's debts, creating a permanent Debt Spiral. There is always a new horse to ride; it always runs away.

4. The United States — Is the Runaway Horse Still in Check?

America's national debt stands at $34 trillion. The Congressional Budget Office (CBO) projects it will exceed $50 trillion by 2033. In 2023 alone, the US paid $659 billion in interest on its debt — a figure that will soon surpass the entire defense budget.

Why has America not collapsed like Greece or Sri Lanka? Because the US dollar is the world's reserve currency — every country holds dollars and buys American bonds. But that trust is not guaranteed forever. The day global confidence in the dollar wavers is the day America's runaway horse becomes everyone's problem.

Pros:

1. Investment opportunity — Without debt, most people could never buy a home, start a business, or fund an education. Debt democratizes access to capital.

2. Tax benefits — In many countries, interest on mortgages and business loans is tax-deductible, reducing the effective cost of borrowing.

3. Inflation advantage — Long-term fixed-rate debt becomes cheaper in real terms as inflation rises, benefiting the borrower over time.

4. Growth engine — Government debt deployed into infrastructure, education, and healthcare generates long-term economic returns that far exceed the borrowing cost.

Cons:

1. Interest burden — Every rupee, taka, or dollar paid in interest is income that cannot be saved, invested, or spent on something more productive.

2. Risk amplification — Debt magnifies losses in a downturn. A heavily leveraged borrower goes bankrupt faster than one with no debt.

3. Mental stress — Numerous studies link personal debt to anxiety, depression, and deteriorating physical health. The psychological cost is real and underappreciated.

4. Sovereignty loss — Countries that over-borrow lose the right to make their own economic decisions. Sri Lanka had to hand over Hambantota Port to China on a 99-year lease. Debt can cost a nation its independence.

5. Debt Trap — Once you enter the spiral of borrowing to repay borrowing, escaping requires either extraordinary discipline or painful external intervention.

Personal Do's:

1. Keep your DTI below 36% — never let monthly debt payments consume more than a third of your gross income.

2. Pay off high-interest debt first — the Avalanche Method. Attack your most expensive debt (credit card at 20–24%) before everything else.

3. Build an emergency fund — 3 to 6 months of living expenses in a liquid account. Without this buffer, any unexpected event forces you back into debt.

4. Distinguish good debt from bad debt — a mortgage or business loan that generates income or appreciating assets is good debt. A credit card balance for a shopping spree is bad debt. Know the difference before you sign.

National Do's:

1. Keep Debt-to-GDP below 60% — this is the internationally recognized threshold for sustainable government debt.

2. Borrow only for productive investment — infrastructure, education, health, technology. These compound returns over time.

3. Expand the tax base — more revenue means less need to borrow. Plugging tax evasion and broadening coverage is the sustainable path.

Don'ts:

1. Never borrow new money to pay old interest — this is how the Debt Spiral begins.

2. Avoid unproductive mega-projects with no clear revenue model — the White Elephant graveyard is full of airports nobody flies into and ports nobody docks at.

3. Do not let credit card balances accumulate — at 20–24%, a small balance becomes a mountain in months.

4. Never borrow without fully understanding compound interest — model the total repayment before you sign, not just the monthly payment.

Government Debt:

Bangladesh's Debt-to-GDP ratio sits at approximately 40% — low by international standards. But the pace of increase matters as much as the level, and debt is rising fast while revenue growth lags behind.

A wave of mega-projects — Padma Bridge, Metro Rail, Karnaphuli Tunnel, Rooppur Nuclear Power Plant — has been financed with large loans, many of them from China and Russia. If these projects generate strong economic returns, the debt is manageable. If they underperform, Bangladesh risks following Sri Lanka's playbook with White Elephants that drain the treasury.

Banking Non-Performing Loans — The Real Problem:

According to Bangladesh Bank, NPLs in the banking sector reached 1,55,395 crore taka in 2023 — 9.4% of total loans. The international benchmark for a healthy banking system is below 3%. Bangladesh is running at more than three times that level.

A large share of these NPLs originated through political connections, fraudulent documentation, and lending without proper due diligence. The result: bank capital is eroding, lending capacity is shrinking, and the government must repeatedly recapitalize state-owned banks with taxpayer money — rewarding bad behavior with public funds.

Personal Debt:

Personal debt in Bangladesh is growing — home loans, consumer loans, and especially credit cards. Many young borrowers fall into the credit card trap: at 20–24% annual interest, making only minimum payments means the debt never disappears. What starts as a convenience becomes a permanent liability.

Debt built civilization and debt has destroyed nations. Rome financed its legions on credit. Medieval cathedrals were built with borrowed capital. The Industrial Revolution ran on bond markets. Every major infrastructure project in modern Bangladesh carries a loan attached.

But the same force that built the world has also brought it to its knees. Greece, Sri Lanka, Argentina — the stories are different but the ending is the same: a runaway horse that nobody stopped in time.

Why call it a runaway horse? Because debt is powerful, fast-moving, and intelligent — compound interest makes it smarter every day. Once you lose the reins, stopping it requires extraordinary pain.

"Debt is a wonderful servant but a terrible master."

Whether you are managing a household budget or running a national treasury, the principle is identical: keep debt in service of growth, never the other way around. Three numbers to carry in your wallet:

DTI below 36%. Debt-to-GDP below 60%. Interest Coverage Ratio above 3x. These are not arbitrary benchmarks — they are the difference between a horse you ride and a horse that rides you.

And remember the deepest truth about debt: it is not just about money. It is about freedom. The person — or the nation — that is truly debt-free is the one that is truly free.