Excessive debt was a key cause of the global financial crisis, but 11 years on world debt is much higher, leading many analysts to warn another crisis is on the way and Australia is far more vulnerable.

Key points: Global corporate and government debts now total almost $200 trillion

Global corporate and government debts now total almost $200 trillion Corporate debt backed collateralised loan obligations have replaced sub-prime mortgage backed collateralised debt obligations as a key financial risk

Corporate debt backed collateralised loan obligations have replaced sub-prime mortgage backed collateralised debt obligations as a key financial risk Australia's record levels of household debt around 120 per cent of GDP make the economy vulnerable to global financial turmoil

In 2008, the collapse of Lehman Brothers was the catalyst that froze global capital markets and caused the world's biggest financial catastrophe since the Great Depression.

In the United States unemployment hit 10 per cent as the country plunged into "the Great Recession".

Eurozone economies were decimated, led by Greece, which effectively went to the wall.

Global stock markets crashed and, in Australia, the Rudd government spent billions to keep the domestic economy afloat.

Advised by then Treasury secretary Dr Ken Henry, the Government's mantra was "go hard, go early and go households", with policies such as cash handouts.

At the heart of the GFC was debt — far too much of it. A decade later, though, global debt is 50 per cent higher.

"There's no doubt that is a concern," AMP Capital chief economist Shane Oliver told the ABC.

"If you go back through all recessions, crises, they tend to be associated with debt problems."

According to the OECD, government debt is now a record high $93 trillion and could become unsustainable.

Corporate debt, it noted, is even higher at $101 trillion.

That is a combined total of nearly $200 trillion owed by governments and companies.

It has left the OECD worried.

"Should global economic growth and credit conditions continue to deteriorate, a new bout of financial stress could erupt, and the financial markets could become more vulnerable to episodes of contagion," it warned in its latest global Business and Finance Outlook.

Exactly what happened during the global financial crisis.

"Aggregate debt, however you slice or dice it, is at new all-time highs, with rates at new all-time lows. But rates can't go much lower," pointed out former ABN AMRO and Morgan Stanley chief economist Gerard Minack.

"And if we were to get a recession, that extremely high level of debt would cause real problems for policymakers and I think intensify the downturn."

At the centre of the world's debt mountain is the United States, where total public and private sector borrowings now top $33 trillion and rising.

That is 17 per cent of global debt concentrated in just one country, albeit the world's biggest economy.

China's $1.6 trillion stake in the US Government could be a problem

A potential flashpoint is the $1.6 trillion in US Government bonds held by China.

As US President Donald Trump ramps up his trade war, China could hit back by selling those bonds.

Not that such a prospect appears to bother the President.

"If they didn't want to renew, or 're-up', as they say on Wall Street, that would be fine with us because we can re-finance that very easily," Mr Trump said last month.

"There's never been a time when more money has come into our country."

That is optimism you would expect from the US Government's salesman-in-chief, but others have a more cautious view.

"That would certainly be a problem because a huge sell down by a big owner of US Government bonds would put upwards pressure on US bond yields, making it more expensive for the US Government to service its debt," warned AMP Capital's Shane Oliver.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Watch Duration: 4 minutes 29 seconds 4 m 29 s The $200 Trillion debt bomb ( Andrew Robertson )

However, fellow economist Gerard Minack said the threat of a China sell-down of US Government bonds is not as bad as it may seem at face value.

"I think if they really did see that as a major threat to the ongoing expansion they would respond and print money to buy it, and that would reduce the impact on interest rates," he countered.

"It may weaken the US dollar, but I don't think US policy makers would mind that."

Trading CDOs for CLOs, but the debt is still risky

Of bigger concern is the surge in what is known as collateralised loan obligations (CLOs) — reviving memories of the collateralised debt obligations (CDOs) based on sub-prime home loans, which sparked the GFC.

Collateralised debt obligations were created by banks bundling up the home loans on their books and selling them as an investment vehicle.

When the sub-prime loans underpinning the CDOs went bad, so did the CDOs, but the debts were magnified.

Today, there are more than $900 billion of CLOs in the United States alone.

These are similar in structure to CDOs except that, instead of being based on high-risk home loans, they are based on high-risk corporate debt.

That high risk requires a high interest rate, and in a low interest rate environment that has made CLOs extremely popular.

"It's the old Hemingway thing — 'How'd you go broke? Slow and then very fast'," warned Mr Minack.

"We could just go straight to the very fast phase with corporate debt, given that we have so few conditions placed on most corporate debt instruments these days."

Australia vulnerable due to high household debts

In Australia the big concern is household debt, which now stands around 120 per cent of GDP and nearly 200 per cent of household incomes, and as the housing market has bounced back in the last few months, individual loans have become even bigger.

Add that to what is happening overseas, and many are wondering if the world is slowly inching back to conditions like those that led to the global financial crisis.

However, Shane Oliver is not yet unduly concerned.

"If you look at the overall picture I don't think we have anything like the degree of gearing on the sub-prime mortgage debts that we saw going into the GFC," he said.

"It's hard to see a sort of a bubble akin to the US housing bubble like we saw prior to the GFC."

Shane Oliver does think a good old-fashioned recession is coming, though.

A recession which a ticking debt bomb and the lowest interest rates in history will make worse.