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Global Debt Hits Record $233T
- neolefty 9y agoIn related news, Global Savings hits record $233 Trillion?
- nopriorarrests 9y agoUnder gold standard, debt = savings, correct. But with government fiat, I not sure thats the case. Fed bought what, billions of USG debt, without saving this money first, they just printed it. Its not like they earned that money and instead of consumption they invested it into federal debt.
- quadrangle 9y agoNo, one party's debt is still another's savings basically, even with a fiat currency. These caveats apply: * If we're talking private debt or debt from governments other than the fiat-issuer level then there's some risk of default which means the savings could be lost. * Without a gold standard, increase in fiat currency can diminish savings through inflation. But simply: savings in gold ≠ savings in fiat currency, but they are both savings still.
- dragonwriter 9y ago> Without a gold standard, increase in fiat currency can diminish savings through inflation. That's true with a gold standard as well, since all that means is that printed currency is backed by a peg to gold, usually with some form (perhaps not open to all currency holders, though) of redemption pledge. It's even true with non-debased gold currency, not just gold-backed representational currency, as demonstrated by the Spanish colonial experience.
- quadrangle 9y agoOh sure, inflation can happen with gold too, like when we find more gold…
- nerfhammer 9y agoThey don't just buy and print ad naseum. Remember, when the Fed buys a bond from the Treasury money gets printed, but the Treasury has to pay the bond back and as that happens slightly more money gets destroyed. The amount of debt the Fed owns changes over time, it doesn't increase continuously. It tends to just maintain a fixed amount of it. It's been going down slightly lately: https://fred.stlouisfed.org/series/TREAST https://fred.stlouisfed.org/series/TREAST
- jganetsk 9y agoFinacial liabilities of the Fed (physical currency and bank reserves) are financial assets in the private sector. Therefore, yes, debt = savings.
- fallingfrog 9y agoEducate me -why would that be the case? Don't banks lend out money on a fractional reserve basis- that is, money that nobody really has deposited in a savings account? Unless we are counting the value of the loan as "savings". Perhaps what I am missing here is that "savings" is really just another kind of debt with the arrow pointed the other way. ..If that's the case, it's interesting that we consider savings to be something solid and real but debt to be something which is speculative and can be cancelled, considering that they're really the same thing.
- cwkoss 9y agoPresumably would be $233T less the interest rate that the debt was lent at, right? So if the average debt is created with a 4% interest rate, there is ~ $9 Trillion more in debt than there is in savings. That's almost half the entire market cap of the S&P 500. Unsettling.
- igravious 9y agoWho owes all this money? And to whom do they owe it? I',m thinking this is never getting paid back?
- sliverstorm 9y agoEverybody & anybody. Governments, businesses, private individuals. At the same time, though, the ratio of debt-to-gross domestic product fell for the fourth consecutive quarter as economic growth accelerated. So, not all doom and gloom.
- quadrangle 9y agoIf all debts were paid back, fiat currencies would cease to exist. The only savings left would be in the form of physical wealth / commodities… Most of the economy would grind to a halt. Our current economy runs on debt fundamentally.
- wu-ikkyu 9y agoIs it theoretically even possible for all debts to be paid with the given supply of money vs. what is supposedly owed? For instance when interest is charged on a loan, the money needed to pay the interest fee is not created by the bank.
- quadrangle 9y agoMy understanding: bank credit isn't fiat currency. It can be paid back with other credit effectively. But at the end of the day, it's possible, of course, to have absurd debts and credits from banks that will be impossible to ever repay. If I loan you $1 at 1000% interest daily, then after a short time, you are just going to default on the loan, period. There's no way you'll pay it back. So, yeah… at some point, even if you got another loan to pay the loan and etc etc. the whole house of cards will crash at some point if it's too much credit based on nothing. That house of cards could be just me never getting paid back, oh well. But if I convinced tons of other people to give me products and services that I then had debt for based on the idea that I have this expectation of your payback… then the house of cards could reach through the whole economy eventually.
- seibelj 9y agoThe great thing about government debt is that they can print more to pay it back
- electic 9y agoRight. Correct me if I am wrong, but that causes inflation. The end result is we all pay for it either way.
- quadrangle 9y agoIt only causes inflation if (A) the currency distribution was already providing adequate aggregate buying power for existing supply, (B) growth in real wealth and productivity isn't happening along with the increase in currency, and (C) taxes aren't increased to offset the new money.
- digi_owl 9y agoIt depends. If the debt being repaid is in local (national) currency, perhaps but less likely than if it is in foreign currency. If it is all local, then it becomes a question of whether the nation has the production capacity and investment opportunities to absorb the additional currency in circulation. If it is all most mostly foreign, the exchange rate can go haywire leading to any imports exploding in price. And if the nation then is relying on imports for some stable or other, things can go very badly very quickly.
- zamalek 9y agoMarginal amounts of inflation are required for fiat currency to remain liquid. If currency were deflationary, people would be encouraged to hoard it. A deflationary spiral[1] is one example of what can happen in a deflationary market. Inflation is a feature; not a flaw. [1]: https://www.investopedia.com/terms/d/deflationary-spiral.asp https://www.investopedia.com/terms/d/deflationary-spiral.asp
- mfarris 9y agoMild to moderate inflation is usually considered useful in paying back debt, as the constant dollar value of the debt decreases. Even with the low inflation we've had over the last 20 years, if you borrowed $1000 in 1997 with 0% interest and wanted to pay it back now, the 1000 "2018 dollars" you'd pay would only be "worth" 655 "1997 dollars". The real danger is in deflation, which causes the constant dollar value of the debt to grow.
- Terr_ 9y agoWith two friends, I can quadruple that amount. Just stand in a circle, and each person passes a pretty pebble to their left, and an IOU for $223 trillion to their right...
- dang 9y agoPlease don't post unsubstantive comments here.
- Terr_ 9y ago"Please respond to the strongest plausible interpretation of what someone says, not a weaker one that's easier to criticize." The substance is this: The total value of "global debt" can be misleading -- or entirely meaningless -- when you don't consider all the cancellations in the graph. This is nontrivial when it comes to the network of "every economic entity that currently exists."
- quadrangle 9y agoIronic post, since yours has the less substance and the grandparent was on topic with a meaningful point.
- wu-ikkyu 9y agoI agree, OP was simply illustrating how much of this seemingly scary "debt" is really fancy financial maneuvering rather than something with a strong basis in physical reality/resources. Like when the stock market crashed in 1929 and suddenly (most) everyone lost everything, even though no real disaster had occurred, and all the factories and farms were still in the same condition they were before.
- dang 9y agoIf we take a closer look at your comment, it also seems to be to be problematically obvious. I mean by that a point so obvious that it partly refutes itself, since if it's correct, too much would follow. You appear to be hand-waving away the entire Great Depression. For a good HN comment, we need not to stop at the first reflexive response that comes up, but wait until we get past that, at least till the second. If you do that, you'll usually notice an obvious counterpoint to the obvious first point, and then you'll take a bit longer to sort through your thoughts before posting. That's when you're more likely to make a contribution that's useful to others.
- jdoliner 9y agoDoes anyone actually believe that this debt will at some point be payed off? It would be nice if we had different words for debts that actually might someday be resolved and those that clearly never will be.
- quadrangle 9y agoApparently, near-100% of politicians and voters believe that "National Debt" is actually something like personal debt and actually can or should be paid off… https://modernmoneybasics.com/ https://modernmoneybasics.com/ (simplistic but largely accurate intro)
- wu-ikkyu 9y agoPerhaps I misunderstand but are you implying governments being in perpetual debt is a good thing?
- quadrangle 9y agoYou're misunderstanding. The "National Debt" (this only applies at federal level for currency-issuing governments, not state, local etc) is the effective form of the currency itself. Eliminating the "debt" that a currency-issuing government has in its own currency is the same thing as eliminating the currency. The U.S. federal government "owes" dollars to creditors kind of like the way the the score-keeper in a game "owes" points to a basketball team.
- cwkoss 9y agoCurrency doesn't have to be backed by debt. Debt-backed currency has the fundamental flaw that, because debts charge interest, the total amount of debt will always exceed the money supply. Our currency is structured so that there are never enough dollars to pay off all debts at any given time. Fundamentally, a portion of all debts MUST default, creating a net effect where those who have enough capital to lend will, over time, acquire more and more real property. Our currency is built to transfer wealth from the have-nots to the haves.
- jdoliner 9y agoDebt is the American way, we've been in debt since well before the country was officially founded. And our founding fathers all had issues with personal debt. When George Washington was elected our first President he was flat broke and had to take out a loan to afford the trip from Mount Vernon to his own inauguration in New York City. (Washington DC didn't exist yet.)