The global economic balance sheet reached approximately 1.8 quadrillion (1,800 trillion) in 2025, rising from $1.7 quadrillion in 2024.

According to a report published by McKinsey, the world is wealthier than ever before. However, this wealth relies on increasingly inflated valuations of paper assets rather than real output. How this contradiction resolves itself will determine the future of the world’s leading economies, the report stated.

The report noted that several asset classes have further expanded their imbalance with the “underlying” economy. This dynamic heightens the probability of corrections occurring through inflation, asset valuation losses, or, in the best-case scenario, productivity gains.

Unlike growth in the capital stock that generates real output, the tendency to rely on elevated valuations fuels the risk of a painful correction—either through falling asset prices or prolonged inflation.

Nevertheless, a more optimistic scenario exists in which the world essentially grows into these high asset valuations, supported by an artificial intelligence-driven productivity boom.

Researchers found that global household wealth reached $570 trillion, representing a $40 trillion increase compared to 2025.

Yet only 20% of this increase stemmed from genuine capital accumulation—namely net new investments in machinery and equipment, housing and buildings, infrastructure, and intellectual property.

The remainder was driven by a combination of inflation and price appreciation in the market value of existing assets.

In the US and Canada, equity values served as the primary driver of wealth expansion. In China, France, and Germany, paper wealth declined under the weight of falling real estate prices. In the UK and Japan, inflation pushed asset values higher.

This marks a more extreme iteration of a long-standing trend: from 2000 to 2024, net investments accounted for 30% of global wealth growth.

Examining the structure from the baseline up, real assets encompass real estate, infrastructure, machinery and equipment, and intellectual property owned by households, governments, and corporations. These carry a combined value of $620 trillion and constitute global net assets across all sectors.

Financial assets held outside the financial sector include equities, bonds, loans, foreign currency and deposits, and pension funds. Every financial asset carries a corresponding liability, and these balance each other out on a global level.

This “financial layer” functions to separate wealth from asset ownership and stood close to the total value of real assets.

The financial sector, meanwhile, intermediates between these financial assets and liabilities. With a volume of $550 trillion, the financial sector has reached 90% of the value of real assets.

Wealth is ultimately the balancing item on balance sheets, equaling the difference between total assets and liabilities. This stood at $600 trillion in 2025.

In 2025, the growing detachment of balance sheets from the real economy was driven by the world’s two largest economies.

With the share of corporate profits in GDP doubling since 2000, US equity valuations rose to 2.4 times the net asset value of corporations.

In China, corporate debt reached 80% of real assets, compared to a global average of 50%.

US public debt is hovering near all-time highs, while the fastest increase was recorded in China.

On a global scale, a major share of corporate and household debt, as well as real estate assets, approached 25-year averages relative to GDP.

Inflation contributed to this normalization; however, values remain well above pre-2000 levels. Against a backdrop of flat investment, the ratio of productive assets to GDP remained stagnant.

Jan Mischke, a partner at the McKinsey Global Institute, told Axios: “We can now say that every asset on this planet has been financialized.”

There are several plausible paths through which these elevated asset valuations could uncoil. One is a simple “muddle through” approach: low growth leads to low interest rates, which allows high valuations to persist. This is roughly what occurred in major economies during the 2010s.

However, more dramatic possibilities exist—some positive, others alarming.

The best-case scenario for the global economy involves a productivity leap driven by AI or other sources that sparks a GDP boom, thereby justifying the high valuations of equities and other asset classes. This is essentially what occurred in the late 1990s.

A more pessimistic possibility is that sustained inflationary pressure erodes the real value of assets, forcing them back toward historical norms and leaving people poorer in real terms. This occurred, arguably, during 2021–2022.

The most concerning scenario is a global asset price reset of the kind witnessed in 2002 and 2008.

“Overstretched scenarios have a tendency to mean-revert, including in positive ways like productivity acceleration,” Mischke said. “But occasionally, you also get a major debt crisis or a market crash.”

Arvind Govindarajan, one of the co-authors of the report, posed the central question: “For us in the US, the real question is: Will productivity and GDP be higher—in which case we see a productivity boost—or will we slide into an inflationary scenario?”

Entering 2026, major economies followed diverging roadmaps, according to the report. The US operated under a “productivity acceleration” scenario, though high public debt and stretched equities keep the possibility of “persistent inflation” or a “balance sheet reset” on the table.

Europe drifted toward “secular stagnation,” as sluggish demand pulled down growth and interest rates.

In China, while a partial balance sheet reset unfolded amid falling real estate values, public spending and corporate investment continued to support balance sheet growth.

The relentless rise in US Treasury yields indicates that a significantly higher return is now required to convince investors to lend their capital.

According to Axios, this trend reflects a new global economic reality. Unlike previous bond sell-offs driven by inflation fears, the current environment stems from a world where governments and corporations are scrambling to secure vast sums of capital to finance expanding fiscal deficits, artificial intelligence infrastructure, and other major capital commitments.

This fierce competition for capital is forcing borrowers to offer higher returns. The positive takeaway, according to Axios, is that inflation expectations appear well-anchored, suggesting these developments will not trigger an emergency response from the Federal Reserve.

However, the trend implies that policy benchmark interest rates will need to remain at elevated levels for years to come to maintain economic equilibrium.

Furthermore, this shift significantly complicates fiscal planning in Washington by raising the financing costs of an already expanding national debt.

For prospective home buyers, it signals that mortgage rates are unlikely to decline in the near term.

Even as Treasury yields have climbed, long-term inflation pricing in the bond market has remained virtually unchanged.

The 10-year break-even inflation rate—a market-based metric reflecting future inflation expectations—rose to 2.28% following the renewed escalation of conflict in the Middle East since late June.

Nevertheless, this figure remains below its early May peak of 2.5% and stays within a range fully aligned with the Federal Reserve’s long-term 2% inflation target.

Despite the relatively stable inflation outlook, Treasury yields have continued their upward trajectory. The 10-year yield crossed 4.7% this morning, reaching its highest level since last January.

The surge in real yields is even more pronounced at the longer end of the curve: the yield on 30-year Treasury Inflation-Protected Securities (TIPS) currently stands at 2.97%.

This marks the highest yield recorded for the security since its reintroduction in 2010.

Taken together, these dynamics demonstrate that investors are not merely pricing in higher inflation; rather, they are demanding higher real compensation to commit funds over the long horizon.

For much of the past two decades, bond market movements were driven primarily by inflationary trends and central bank policy interventions.

At present, however, the interest rate environment is being shaped directly by the dynamics of lendable funds: a limited supply set against a seemingly unlimited demand.

During the 2010s, global markets were characterized by an excess of capital chasing a scarce set of productive investment opportunities, maintaining historical lows for the cost of capital.

Today, the situation has reversed. Corporations are embarking on their largest capital expenditure boom in decades while governments run expansive budget deficits—with both competing for the exact same pool of capital.

As Axios notes:

“Consider Alphabet’s announcement to investors last night: the company raised its capital expenditure plans for this year by an additional $15 billion, with Chief Financial Officer Anat Ashkenazi noting that demand for computing capacity ‘still outpaces this investment.’”

If these elevated interest rates persist, the debt servicing costs of the US government will become far less manageable than currently projected.

Estimates published by the Congressional Budget Office (CBO) in February assumed that 10-year Treasury yields would average 4.1% this year and 4.3% over the subsequent few years.

According to CBO projections, every persistent 0.1 percentage point increase in interest rates over the next decade will add $379 billion to the government’s net interest expenses over that period.

Rough calculations suggest that if the recent yield trend persists, taxpayers will face approximately $1.8 trillion in additional interest costs over the coming decade.

There remains a possibility that this movement in the multi-trillion-dollar global bond market represents a temporary summer fluctuation.

However, the persistent spikes in yield rates suggest that a fundamental structural shift is underway across global capital markets.

Amid growing pushback in the US Congress over the rapid expansion of artificial intelligence infrastructure, a bipartisan bill aimed at capping the impact of data centers on residential electricity bills is gaining momentum in the House of Representatives.

The Ratepayer Protection Act mandates that state utility regulators evaluate standards that would shift the burden of electricity costs from individual consumers onto technology companies.

The proposed legislation cleared the House Energy and Commerce Committee in a unanimous 52-0 vote—a result demonstrating that public and political resistance to data center construction has breached party lines.

Designed to codify commitments made by tech executives to the White House earlier this year, the text requires state regulatory bodies to hold formal proceedings on the issue.

The measure mandates the consideration of a standard under which large data centers would be required to absorb the expenses of new power generation or transmission capacity necessitated by their electricity consumption; however, it stops short of compelling states to ultimately adopt those standards.

In a statement following the vote, Representative Brett Guthrie, the Republican chairman of the House Energy and Commerce Committee, said: “When evaluating the industry as a whole, it has become clear that there is only one body capable of standing alongside the families and communities who pay electricity bills—and that is this committee, along with our colleagues in Congress.”

The legislation has also found traction in the upper chamber. Republican Senator Jon Husted introduced a companion measure in the Senate last week. A spokesperson for Husted noted that the senator was pleased with the House committee’s approval and its bipartisan support, adding that he would continue working to pass the bill through the Senate Energy and Natural Resources Committee toward final enactment.

Despite its accelerating legislative pace, whether the measure will ultimately become law remains uncertain.

Matt VanHyfte, a spokesperson for the Republicans on the House Energy and Commerce Committee, noted in an emailed statement that he remains confident the bill will continue its advance following its successful committee passage.

Clara Summers, director of the Consumers for a Better Grid campaign at the Citizens Utility Board, observed that while the bill does not impose direct mandatory standards on states, directive language from Congress serves a useful purpose.

“There are states that have not addressed this issue proactively. Therefore, a signal from Congress stating, ‘You must at least place this topic on your agenda within a specified timeframe,’ represents a constructive incentive,” Summers said.

Summers emphasized that the standards submitted for state evaluation under the bill would hold data centers accountable for generation, transmission, distribution, and other associated costs, though the final determination on whether to act rests entirely with state authorities.

While supporting the measure, several Democrats on the Energy and Commerce Committee characterized the legislation as merely an initial step rather than a comprehensive solution.

Democratic Representative Nannette Barragán noted that while the bill recognizes a critical principle, it falls short of what is required. “We must do more to protect families from soaring electricity costs while simultaneously addressing the attendant health and environmental impacts,” Barragán said.

Data centers—the backbone of artificial intelligence development—are encountering intensifying grassroots resistance as technology firms push to construct new server warehouses and expand their computing power.

Local communities are challenging projects over rising electricity rates, high water consumption, and potential environmental pollution. Certain analysts also link this opposition to broader public anxieties regarding AI, including job displacement.

Public enthusiasm for data center developments, which until last year were widely viewed by both Democrats and Republicans as prime economic investments, is visibly eroding.

According to a survey published by Politico, 41% of Americans now oppose the construction of a data center in their local area, compared to 24% who support it. In January, opposition stood at 28%, with support at 36%.

Democratic Representative Kathy Castor, a co-sponsor of the bill, argued that the legislative package before the committee does not go far enough to resolve the underlying crisis.

Pointing to the Republican majority in the House, Castor said: “I believe the majority must take more decisive action right now to lower household electricity bills. Bipartisan bills are a good first step, but they fall short in this period of energy inflation.”

Castor expressed regret that her own proposal, which would require federal regulators to accelerate the grid interconnection process for new power sources, was not brought up for consideration by the committee.

Nevertheless, Castor commended the bill for sending a clear message to developers: “If a company wants to build a data center, it must pay for the power and grid upgrades it requires.”

Camden Weber, a senior climate and energy policy specialist at the Center for Biological Diversity, told The Hill that congressional focus on affordability was welcome, though incomplete. “It is positive that Congress is addressing pricing issues. We are experiencing an affordability crisis; people are struggling to pay their bills, particularly energy bills. However, concerns surrounding data centers extend well beyond this. There are environmental issues, water scarcity, and air pollution. While this bill appears well-intentioned, it does not go far enough,” Weber said.

Weber further criticized the legislation for establishing an optional framework for states rather than a binding mandate.

Conversely, several lawmakers view this structural flexibility as a primary strength of the text.

Democratic Representative Troy Carter emphasized during the committee markup that the federal government should refrain from overreach. “The key point is that Washington is not dictating terms to Louisiana. This bill does not force state regulatory commissions to adopt a specific rate structure. It establishes a federal standard for state public utility commissions to evaluate, leaving the ultimate implementation strategy to their discretion,” Carter said.

Carter added that local regulators are best positioned to assess the specific requirements of their own jurisdictions.

Responding via email regarding the policy impact of the legislation, Republican committee spokesperson Ben Mullany stated that lawmakers are working in tandem with states and utility providers to ensure grid efficiency.

“The Ratepayer Protection Act sends a strong signal from Congress to the states. States need to examine these massive computing loads and work to ensure that residential customers do not bear the financial burden of generating and transmitting the power required for these data centers,” Mullany said.

The proposed legislation has drawn resistance from the technology sector. The Data Center Coalition, an industry group backed by major tech firms, voiced strong opposition to recent modifications that narrowed the scope of the bill exclusively to data centers.

Josh Levi, president and chief executive officer of the Data Center Coalition, stated that while the organization initially supported the original version and intent of the legislation, the latest revisions were counterproductive.

“The amendments introduced by the Energy and Commerce Committee narrow the scope of the bill to target the data center industry exclusively. This leaves consumers unprotected against the costs associated with substantial load additions driven by other expanding sectors across the United States,” Levi said.