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$250 Trillion in Debt: The World’s Post-Lehman Legacy

222 points by rayvy 8y ago

bbcbasic 8y ago
Think of all the reward points though!
apo 8y ago
After all, how can officials from the Federal Reserve to the Bank of Japan even pretend to know how to reverse what they’ve done over the past decade? As I understand the US Fed plan, treasuries bought under QE would be allowed to mature without buying replacements. These assets were purchased with a variety of maturity dates. In other words, the bonds simply disappear on their own - not all at once but gradually. The problem in Japan is much worse because the central bank has bought ETFs directly and is now a major holder. https://asia.nikkei.com/Economy/BOJ-is-top-10-shareholder-in-40-of-Japan-s-listed-companies https://asia.nikkei.com/Economy/BOJ-is-top-10-shareholder-in... Any unwinding of the BOJ position would lead to major disruptions.
- NTDF9 8y ago
  > Any unwinding of the BOJ position would lead to major disruptions. That's just pushing the inevitable. A lot of stocks went up because of debt. Those stocks needed to come down. In a real capitalist system, the companies with declining stocks would be replaced by new ones. But BOJ intervened (for good reason) and now they are in a painful slow decline. Pull a bandaid quick vs pull it over time!
joefranklinsrs 8y ago
If there's one single life-encompassing economic event this decade, it will be the emerging market financial crisis. The chart in the article clearly shows emerging market ex China going from 16 trillion to 29 trillion in 10 years. And China has incredibly gone from 7 trillion to 40 trillion debt in 10 years - 300% debt to GDP (not even counting another 20 trillion shadow debt, which would make it incredibly 450% debt to GDP!!) ((and if you take into account fake GDP that Chinese provinces have reported, and that authoritarian governments typically fake their economic growth, and reduce the reported GDP by 20%, it's a jaw dropping 600% debt to GDP !!!)) The emerging market crisis will accelerate pretty quickly, as soon as one or two more fed rate hike occurs, or as soon as more tariffs get levied on China from US, or any of the other black swan event that may occur (hyperinflation in other emerging markets, internal politics struggle or death of Xi Jing Ping in China, etc) . Interesting times we live in. Stay safe.
- AznHisoka 8y ago
  So, should I be in 100% cash right now?
  - joefranklinsrs 8y ago
    My opinions are not of financial advice :) You can make money on a downturn as well as an upturn
  - coltonv 8y ago
    Don't try to time the market unless you dont have any cash savings. Have enough cash to last 6-12 months without a job and invest the rest. You'll do better that way than trying to time the market.
    - toomuchtodo 8y ago
      12 months. 6 months is not enough in an extended recession. Disclaimer: 2008 GFC experience (company folded, had to walk away from primary residence, etc, took 8+ months to find another job while burning through mortgage payments, medical/living expenses). Experience described in this comment and those below are so others can make more informed decisions than I did.
      - cm2187 8y ago
        If the assets are liquid enough, 6 months may be enough to sell them.
        toomuchtodo 8y ago
        My money market fund withdrawals were halted temporarily when the NAV broke the buck. I have 1 month cash on hand in a safe, the rest of it is in an FDIC high yield savings account I have access to immediately with a debit card. Liquidity is a sliding scale when the economy is melting down. Fool me once.
      - badloginagain 8y ago
PowerfulWizard 8y ago
I'm sure I've complained about this before, I'd love to read a similar article to this that compares two quantities that share the same unit. Debt is in dollars and GDP is in dollars per year. Those are different units. For example, tax revenue versus debt service payments -- or where are the debt service payments actually going? Or future debt service vs future tax revenue under different scenarios. Or for that matter, what are the actual constraints to borrowing and how can they change.
- nabla9 8y ago
  Really good point. In the US you can compare federal debt and debt payments easily if if you use "percent of GDP" as a unit. (a) Federal Outlays: Interest as Percent of Gross Domestic Product, Percent of GDP, Not Seasonally Adjusted (FYOIGDA188S) (b) Federal Debt: Total Public Debt as Percent of Gross Domestic Product, Percent of GDP, Seasonally Adjusted (GFDEGDQ188S) Formula: a/b The result: https://fred.stlouisfed.org/graph/?g=lcpR https://fred.stlouisfed.org/graph/?g=lcpR --- ADDEDUM: Part of those interest payments is paid for the Federal Reserve who then pays them back to Treasury. In 2017 Treasury paid something like $262 billion interest and Fed pays $80 billion back to Treasury. Debt from government institution to another is not really worrying or 'real' debt. It's just accounting trick.
- AnimalMuppet 8y ago
  Yes, you've complained about it before - more than once. (At least, someone has - I don't specifically remember if it was you.) And it's a valid point. The units are wrong for them to be compared. And yet, it's only half of a valid point, because the only thing people are doing with that ratio is comparing it to the same ratio for other years or other countries. The number can be dimensionally wrong and still be useful to use in that way. Why would the number be useful to use in that way? Well, it seems intuitively reasonable to say that the bigger an economy is, the more debt it can carry without the debt burden being any more of a strain. The US can carry more debt than Vanuatu can, and not because the US government is more credit-worthy. So scaling the debt by GDP makes some sense. And, in fact, dimensional analysis can make sense of this. Let's say the GDP is $10 Trillion. Well, it's not really $10 Trillion, it's $10 Trillion/year. If the debt is $30 Trillion, then the ratio is $32 Trillion / ($10 Trillion/year), which equals 3.2 years. That's how long it would take to pay off the debt using 100% of the GDP (which of course never happens, but it's still a measure of how much of a load the debt is). So when you see them report that debt is 320% of GDP, what they're really saying is that the debt load is 3.2 years.
Sileni 8y ago
I don't even really understand how to hedge my bets anymore. It's not like there's an industry that will be left unaffected by the current economic climate and... well, the climate. What exactly am I supposed to be working on/towards if the system itself seems broken? I'm down to "Hope the problems don't really precipitate in my lifetime, and don't have kids". I don't feel like that's a solution.
- garmaine 8y ago
  > What exactly am I supposed to be working on/towards if the system itself seems broken? Replacing the current system with something better.
  - plussed_reader 8y ago
    Any tips for the death and despair in the interim as 'something better' comes online?
    - PebblesRox 8y ago
      If you want tips, I recommend the Granola Shotgun blog: https://granolashotgun.com/2018/05/08/the-mangiapocalypse/ https://granolashotgun.com/2018/05/08/the-mangiapocalypse/ https://granolashotgun.com/2018/07/08/little-experiments-on-the-cheap/ https://granolashotgun.com/2018/07/08/little-experiments-on-...
      - tjr225 8y ago
        That blog is great...it sheds a lot of light on how Americans are /really/ living these days. Thanks for sharing.
    - zanny 8y ago
      Its also a bit optimistic to think the death and despair will even lead to something better. Romes fall was the Churches rise, the poor beheaded the monarchy in France to replace them with Emperor Napoleon. I for one think that the systemic and intentional divisiveness separating peoples and pushing them to war with one another than their opressors will also spur any attempt at improvement in the aftermath of coming disasters. We won't unite for the better, we will tear ourselves apart with blame and ire.
roymurdock 8y ago
this is a bad article it harps incessantly on debt, throwing out scary, big numbers ($250T! $40T in china!) but doesn't explain why increasing government debt is an issue there is a reason to worry if the interest rate on the government debt is larger than the growth rate of the economy currently that average interest rate is below 3 percent [1], so for any countries with >3% economic growth, it really doesn't matter - they'll be able to make their interest payments to one another (most big holders of gov debt are other govs themselves) financial and household debt is down across developed economies, and corporate debt is about the same as it was in 2008 furthermore there is no discussion of what could trigger a debt collection death spiral/meltdown, other than "the world's second largest economy is now coming to terms with rising corporate defaults", backed up by 0 context or data the real worry would be continued slowdown in GDP growth ala "secular stagnation" that many prominent economists are exploring - if you're not growing your income, you can't pay down your debt, and you have to start cutting costs (healthcare, education, defense) debt has a bad connotation and is easy to sensationalize, so articles like this get attention, but there's no news, argument, or takeaway to be had from reading it [1] https://www.nytimes.com/2018/09/11/opinion/on-the-debt-non-spiral.html https://www.nytimes.com/2018/09/11/opinion/on-the-debt-non-s...
- pas 8y ago
  re. stagnation: https://www.project-syndicate.org/commentary/secular-stagnation-excuse-for-flawed-policies-by-joseph-e-stiglitz-2018-08 https://www.project-syndicate.org/commentary/secular-stagnat...
- jdkuepper 8y ago
  Dollar-denominated debt in emerging markets is the big exception. If the dollar rises, those debts become more expensive to repay, regardless of the emerging market's underlying economy. That's why Ukraine, Argentina, Turkey and Brazil have seen the recent volatility. The question is whether these problems are limited to those countries with high dollar debt or whether it could cause a regional capital outflow that reduces economic growth in neighboring countries or trade partners.
- jondubois 8y ago
  >> currently that average interest rate is below 3 percent [1], so for any countries with >3% economic growth, it really doesn't matter - they'll be able to make their interest payments to one another What does 3% economic growth mean? Is it measured in terms of that country's own currency? But isn't that currency's value inversely proportional to the amount of money which was borrowed from the Fed? So the higher the interest rate is, the more new money the government has to borrow from the Fed in order to pay back its old debt, the less the currency becomes worth, the less meaningful this 'economic growth' percentage becomes (because that growth is measured in this fast-deflating currency). This seems to be mind-numbingly complex.
pjc50 8y ago
Reminder: $250t debt is $250t assets on someone else's balance sheet. The money is not owed to aliens but to other humans. Finding who is is owed to is harder. A big chunk is pension funds, insurers and so on, where one person's debt is another person's retirement savings. Which must increase overall as life past retirement does. But a large chunk is assets of financial industries and the super wealthy, and in order for it to be net paid down they have to get poorer - or at least be forced to reallocate to equities. (Note also that as interest rates drive ever lower debt naturally expands too. If they can be driven negative it becomes an advantage.)
- swingline-747 8y ago
  True. It's important to remember debt isn't a perfectly liquid asset because one or more countries may decide it's not worth repaying, then it becomes tantamount to a pyramid scheme of borrowing. If/when that happens, the power of the West may fall into slightly different hands of mafia-types as did the Soviet Union. Greece also comes to mind.
  - solotronics 8y ago
    One interesting thing to consider is that countries holding larger and larger amounts of each others debt could be stabilizing in geopolitics. If your neighbor owes you $100 you aren't going to punch him because you would never get the money back.
    - pjc50 8y ago
      Oh, debts survive wars. They can often outlive countries. France is still paying a single annuity from 1738, although countries have learned not to issue eternal debts since then.
      - orf 8y ago
        https://www.cbsnews.com/news/a-government-pension-thats-lasted-271-years/ https://www.cbsnews.com/news/a-government-pension-thats-last... if anyone else is interested
everdev 8y ago
I remember the national being a huge issue in the 80s (and probably before). This send like important and scary reporting but I'm not sure how this time is different from all the other alarm bells over the past 40+ years. Is this a case of people calling wolf or is this a real crisis just decades in the making?
- opportune 8y ago
  This isn’t about national debt but global debt. The US national debt at present is not much of an issue because the dollar is strong and interest rates are still quite low. The risk is for less economically strong countries who are susceptible to changing foreign interest rates / exchange ratios.
  - everdev 8y ago
    > no one is quite sure what happens when a global superpower like Japan reaches a debt-to-GDP ratio of 224 percent. The U.S., U.K. and France have all surpassed the 100 percent level It sounds like the author is nervous about the rise of US debt as well.
cs702 8y ago
This is an alarmist article that ignores lots of important details and vastly oversimplifies things. For example, few people realize that one of the largest owners of US Treasuries and US government sponsored enterprise (i.e., Fannie, Freddie, and Ginnie Mac, or collectively the GSEs) debt holdings is... the US government itself, via the Federal Reserve. As of yesterday, the Fed owns and is earning interest income on $2.3 trillion of treasuries and $1.9 trillion of GSE debt.[a] In other words, the US federal government and GSE-guaranteed borrowers owe $4.2 trillion to... the US federal government itself. Among other things, this means the US treasury is currently paying annual interest on $2.3 trillion of US treasuries to the Fed, and at the end of the year the Fed hands over all that earned interest to the US treasury, in perfectly circular fashion. This startling fact is just one of many -- many! -- important details about modern monetary systems that are generally poorly understood by the public and which are utterly ignored by this article. Don't waste time reading it. [a] https://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab1 https://www.federalreserve.gov/releases/h41/current/h41.htm#...
- mastermojo 8y ago
  It was hard for me to gauge what percentage of total debt that is, so a quick search indicates that by end of year 2018 the US government debt is going to be 21.4 trillion. Roughly 20% of US government debt is held by itself.
  - mikeash 8y ago
    I believe it's more than that. The Social Security trust fund holds another ~$3 trillion in federal debt.
  - stonemetal 8y ago
    According to the national debt's Wikipedia page 5.7 trillion is owned by the government. That ends up being about a forth of it.
- rwc 8y ago
  Do you have suggestions on books or other sources that would enlighten me on these details?
daddyofive 8y ago
What a wonderful article. I think that there are two sides to this coin: the nature of the debt and the nature of the repayment. Even the smallest and most well mannered debt is a problem if there is no path to repayment. And even large, nasty debt is ok as long as the people borrowing have done their homework and have a solid plan to repay. So this article did a great job of profiling the debt but it didn’t go into enough detail about the borrowers. If interest rates have been so low, and the borrowers have been somewhat lucid, even this large debt can be paid off without any crisis?
megaman8 8y ago
I see no intention from governments of ever paying off that debt. All I see, worldwide and US is more and more spending. At one point in the future we won't be able to pay for it anymore. So, what happens if everyone finds out they're not getting their money back? i hope we never find out. 30% of US debt is owned by intergovernmental agencies: like Social security/medicare/military retirement funds - so that might go down the tubes. The other 70% of US debt is public debt, of which almost half is owned by foreign governments and investors. https://www.thebalance.com/who-owns-the-u-s-national-debt-3306124 https://www.thebalance.com/who-owns-the-u-s-national-debt-33...
- zanny 8y ago
  Its turtles all the way down. US debt isn't just money the US owes some guy sitting on a pile of money. The debtors owe debtors owe debtors - nobody has a Scrooge style money pit sitting around. It is a house of cards, but it isn't one with a clear winner and loser. A loss of faith in international credit destroys all economies.
- mempko 8y ago
  If governments paid off their debt, there would be no money. Money IS debt.
  - appleflaxen 8y ago
    you keep posting this all over the thread, but it's not true. money requires no interest payment. debt does.
    - saganus 8y ago
      There's a very interesting explanation on why you can consider money as being debt by Paul Grignon [0]. Of course, there are critics of this view and it's not necessarily 100% correct, but it does seem plausible. [0] https://en.wikipedia.org/wiki/Money_as_Debt https://en.wikipedia.org/wiki/Money_as_Debt
jondubois 8y ago
The current system seems extremely fragile to me; it's as if the tiniest miscalculation in terms of government debt versus economic growth could set a country on an irreversible course to hyperinflation (with respect to other countries' currencies). It seems ridiculous that governments have the power to seal the financial fate of their citizens in this way; irrespective of the actual economic output of those citizens. I think this makes a strong case for cryptocurrencies; citizens should be allowed to choose a currency which reflects their own level of financial discipline (and not that of their government).
thomasmarriott 8y ago
"The system is insolvent. No one knows what to do next — except repeat the insanity till the next bubble blows. That'll be the one. The big one." — Gekko, Wall Street 2, 2010 #thewayoutisup
ArtWomb 8y ago
Wow. I assumed global deficits were approx $50T in the QE-era. With Global World Product (GWP) ballpark $75-100T. And annual global growth rates averaging 3-4% in good times. Even with old numbers. And the assumption interest rates will remain below historical means. There is the possibility creditors can never be paid back. But with these new estimates of 3X leverage? Time has come to think seriously about debt relief and cancellation. Not top down this time, but bottom up. Starting with direct injection into student loans, home mortgages, medical, small business loans, etc.
paulpauper 8y ago
Debt relative to GDP according to the chart shown in the article went up 14% in a decade from 280 to 380 trillion, which does not seem that bad imho. Relative debt is more important than nominal debt.
techie128 8y ago
Why is there no mention of India?
DesiLurker 8y ago
This is a bit older but good background presentation by Richard Duncan: https://vimeo.com/101487179 https://vimeo.com/101487179 PS: Ignore the title
mirimir 8y ago
> Because of that, the fretting about the Fed’s current balance-sheet runoff plan is almost comical. There’s simply too much debt in the system and no clear path to truly paying it off. Not even central bank officials are pretending they’ll shed all their holdings — estimates fluctuate around ending at $2.5 trillion. I thought that the plan was to eventually inflate the debt away. But maybe that's just cynical conspiracy theory.
dr_win 8y ago
To truly understand how bad it is, we would have to analyse the 250T figure in more detail. There is a "free debt" component to it which was generated via seigniorage[1] and "real debt" to people, companies and other economic actors. It seems to me that many commenters here see only one part of it. To illustrate it, let me give you an example how "free debt" can be generated by a government. Imagine for a second that we have one world government (WG) and one world currency. And assume that we are in a peace time when collective world productivity grows 3% every year. World's central bank (WCB) targets 2% inflation. Also assume that velocity of money[2] is constant and in general people's behave the same in time. This effectively means WCB can "freely print" 5% of new money without causing any real problem. But who should get the new money? Instead of simply printing it and directly giving it to someone, they have pretty sophisticated/obfuscated mechanisms how to introduce the new money to the system. Typically part of that new money is given to the WG in exchange for WG's bonds. The new money is effectively introduced as an interest-bearing debt. But please note that this debt is "free" for WG. WCB will never want to repay the debt (by allowing WG's debt to always roll over). And also note that WCB is part of WG. That means the collected interest WG formally paid to WCB is then given back to WG. Of course WG can also sell bonds to people, companies and other actors. This debt is the "real debt" which must be paid back. But let's assume WG is prudent and does not do that. You can observe that WG can continue this as long the world productivity is growing better than -2% The problem with "free debt" comes when the growth is even worse (e.g. in war times) or when velocity of money gets faster suddenly (or there are other inflation pressures or shocks). WCB should reverse this mechanism in this bad case. It has to "pump excess currency out of the system" by selling its bonds and destroying the currency to hit the 2% inflation target (technically it would do it by not allowing complete rotation of WG's debt). Of course real world scenario is much more complex than that. And real governments additionally take "real debt" where usual rules apply. The question for us is how big part of those 250T is the "real debt". [1] https://en.wikipedia.org/wiki/Seigniorage https://en.wikipedia.org/wiki/Seigniorage [2] https://en.wikipedia.org/wiki/Velocity_of_money https://en.wikipedia.org/wiki/Velocity_of_money
williesleg 8y ago
Everybody can just pay me.
williesleg 8y ago
Oh, right, it's Bloomberg. They love interest rates and crap like that. Nothing innovative, just debt and debt servicing.
HIPisTheAnswer 8y ago
Using 150k tonnes of above ground gold, if all of it was minted into currency, would equal +- 100M dollars. Probably not more than 10% is minted currency coins - .999 isn't for currency use. So there is about 10M dollars in existence.
- CompelTechnic 8y ago
  1200 USD per ounce x 16 oz per lb x 2000 lb per ton x 150,000 =5.76E12 USD 5,760,000,000,000 USD, except for the fact that Troy ounces are slightly different than normal ounces. Too lazy to look up.
  - HIPisTheAnswer 8y ago
    a dollar is 24 3/4 grains of gold. edit:typo
    - CompelTechnic 8y ago
      Ah I see.
stretchwithme 8y ago
Isn't that $35K for every man, woman and child alive? How can that be?
EGreg 8y ago
The difference between debt-money and value-money is that debt-money is supposed to originally be backed by cashflows of value-money but is really paid back by an ever expanding amount of debt-money. In other words, things are getting more and more leveraged. The amount of money to actual goods and services is exponentially increasing. So the value of money steadily decreases and we get inflation. The danger is that this money evaporates as people default on loans. As long as interest rates are low, people don’t default very much, but as they rise, the defaults happen. Why do central banks need to raise interest rates at all? It just leads to a bloodbath as some loans get renegotiated. Why not just have one predictable interest rate like Milton Friedman spoke about? It seems to me that the central banks fix the next crisis by QA and low base interest rates. Why not just keep them low and let people default for actual reasons, instead of having a terrible time taking out a loan during high interest rate season? If our money supply is going to be so debt based, why raise base interest rates? To “reload” so you can swoop in and save people from a money supply crunch you induced?
mempko 8y ago
Before you read the article, keep one thing in mind, Money IS debt. If there is no debt, there is no money. Another way of looking at government debt is private sector savings.
deleted 8y ago
[deleted]
axilmar 8y ago
Would it work if all debts on Earth were simultaneously erased by creating the relevant amounts of money?

222 points by rayvy 8y ago

Think of all the reward points though!

apo 8y ago

After all, how can officials from the Federal Reserve to the Bank of Japan even pretend to know how to reverse what they’ve done over the past decade? As I understand the US Fed plan, treasuries bought under QE would be allowed to mature without buying replacements. These assets were purchased with a variety of maturity dates. In other words, the bonds simply disappear on their own - not all at once but gradually. The problem in Japan is much worse because the central bank has bought ETFs directly and is now a major holder. https://asia.nikkei.com/Economy/BOJ-is-top-10-shareholder-in-40-of-Japan-s-listed-companies https://asia.nikkei.com/Economy/BOJ-is-top-10-shareholder-in... Any unwinding of the BOJ position would lead to major disruptions.

NTDF9 8y ago
> Any unwinding of the BOJ position would lead to major disruptions. That's just pushing the inevitable. A lot of stocks went up because of debt. Those stocks needed to come down. In a real capitalist system, the companies with declining stocks would be replaced by new ones. But BOJ intervened (for good reason) and now they are in a painful slow decline. Pull a bandaid quick vs pull it over time!

joefranklinsrs 8y ago

If there's one single life-encompassing economic event this decade, it will be the emerging market financial crisis. The chart in the article clearly shows emerging market ex China going from 16 trillion to 29 trillion in 10 years. And China has incredibly gone from 7 trillion to 40 trillion debt in 10 years - 300% debt to GDP (not even counting another 20 trillion shadow debt, which would make it incredibly 450% debt to GDP!!) ((and if you take into account fake GDP that Chinese provinces have reported, and that authoritarian governments typically fake their economic growth, and reduce the reported GDP by 20%, it's a jaw dropping 600% debt to GDP !!!)) The emerging market crisis will accelerate pretty quickly, as soon as one or two more fed rate hike occurs, or as soon as more tariffs get levied on China from US, or any of the other black swan event that may occur (hyperinflation in other emerging markets, internal politics struggle or death of Xi Jing Ping in China, etc) . Interesting times we live in. Stay safe.

AznHisoka 8y ago
So, should I be in 100% cash right now?
- joefranklinsrs 8y ago
  My opinions are not of financial advice :) You can make money on a downturn as well as an upturn
- coltonv 8y ago
  Don't try to time the market unless you dont have any cash savings. Have enough cash to last 6-12 months without a job and invest the rest. You'll do better that way than trying to time the market.
  - toomuchtodo 8y ago
    12 months. 6 months is not enough in an extended recession. Disclaimer: 2008 GFC experience (company folded, had to walk away from primary residence, etc, took 8+ months to find another job while burning through mortgage payments, medical/living expenses). Experience described in this comment and those below are so others can make more informed decisions than I did.
    - cm2187 8y ago
      If the assets are liquid enough, 6 months may be enough to sell them.
      - toomuchtodo 8y ago
        My money market fund withdrawals were halted temporarily when the NAV broke the buck. I have 1 month cash on hand in a safe, the rest of it is in an FDIC high yield savings account I have access to immediately with a debit card. Liquidity is a sliding scale when the economy is melting down. Fool me once.
    - badloginagain 8y ago

PowerfulWizard 8y ago

I'm sure I've complained about this before, I'd love to read a similar article to this that compares two quantities that share the same unit. Debt is in dollars and GDP is in dollars per year. Those are different units. For example, tax revenue versus debt service payments -- or where are the debt service payments actually going? Or future debt service vs future tax revenue under different scenarios. Or for that matter, what are the actual constraints to borrowing and how can they change.

nabla9 8y ago
Really good point. In the US you can compare federal debt and debt payments easily if if you use "percent of GDP" as a unit. (a) Federal Outlays: Interest as Percent of Gross Domestic Product, Percent of GDP, Not Seasonally Adjusted (FYOIGDA188S) (b) Federal Debt: Total Public Debt as Percent of Gross Domestic Product, Percent of GDP, Seasonally Adjusted (GFDEGDQ188S) Formula: a/b The result: https://fred.stlouisfed.org/graph/?g=lcpR https://fred.stlouisfed.org/graph/?g=lcpR --- ADDEDUM: Part of those interest payments is paid for the Federal Reserve who then pays them back to Treasury. In 2017 Treasury paid something like $262 billion interest and Fed pays $80 billion back to Treasury. Debt from government institution to another is not really worrying or 'real' debt. It's just accounting trick.
AnimalMuppet 8y ago
Yes, you've complained about it before - more than once. (At least, someone has - I don't specifically remember if it was you.) And it's a valid point. The units are wrong for them to be compared. And yet, it's only half of a valid point, because the only thing people are doing with that ratio is comparing it to the same ratio for other years or other countries. The number can be dimensionally wrong and still be useful to use in that way. Why would the number be useful to use in that way? Well, it seems intuitively reasonable to say that the bigger an economy is, the more debt it can carry without the debt burden being any more of a strain. The US can carry more debt than Vanuatu can, and not because the US government is more credit-worthy. So scaling the debt by GDP makes some sense. And, in fact, dimensional analysis can make sense of this. Let's say the GDP is $10 Trillion. Well, it's not really $10 Trillion, it's $10 Trillion/year. If the debt is $30 Trillion, then the ratio is $32 Trillion / ($10 Trillion/year), which equals 3.2 years. That's how long it would take to pay off the debt using 100% of the GDP (which of course never happens, but it's still a measure of how much of a load the debt is). So when you see them report that debt is 320% of GDP, what they're really saying is that the debt load is 3.2 years.

Sileni 8y ago

I don't even really understand how to hedge my bets anymore. It's not like there's an industry that will be left unaffected by the current economic climate and... well, the climate. What exactly am I supposed to be working on/towards if the system itself seems broken? I'm down to "Hope the problems don't really precipitate in my lifetime, and don't have kids". I don't feel like that's a solution.

garmaine 8y ago
> What exactly am I supposed to be working on/towards if the system itself seems broken? Replacing the current system with something better.
- plussed_reader 8y ago
  Any tips for the death and despair in the interim as 'something better' comes online?
  - PebblesRox 8y ago
    If you want tips, I recommend the Granola Shotgun blog: https://granolashotgun.com/2018/05/08/the-mangiapocalypse/ https://granolashotgun.com/2018/05/08/the-mangiapocalypse/ https://granolashotgun.com/2018/07/08/little-experiments-on-the-cheap/ https://granolashotgun.com/2018/07/08/little-experiments-on-...
    - tjr225 8y ago
      That blog is great...it sheds a lot of light on how Americans are /really/ living these days. Thanks for sharing.
  - zanny 8y ago
    Its also a bit optimistic to think the death and despair will even lead to something better. Romes fall was the Churches rise, the poor beheaded the monarchy in France to replace them with Emperor Napoleon. I for one think that the systemic and intentional divisiveness separating peoples and pushing them to war with one another than their opressors will also spur any attempt at improvement in the aftermath of coming disasters. We won't unite for the better, we will tear ourselves apart with blame and ire.

roymurdock 8y ago

this is a bad article it harps incessantly on debt, throwing out scary, big numbers ($250T! $40T in china!) but doesn't explain why increasing government debt is an issue there is a reason to worry if the interest rate on the government debt is larger than the growth rate of the economy currently that average interest rate is below 3 percent [1], so for any countries with >3% economic growth, it really doesn't matter - they'll be able to make their interest payments to one another (most big holders of gov debt are other govs themselves) financial and household debt is down across developed economies, and corporate debt is about the same as it was in 2008 furthermore there is no discussion of what could trigger a debt collection death spiral/meltdown, other than "the world's second largest economy is now coming to terms with rising corporate defaults", backed up by 0 context or data the real worry would be continued slowdown in GDP growth ala "secular stagnation" that many prominent economists are exploring - if you're not growing your income, you can't pay down your debt, and you have to start cutting costs (healthcare, education, defense) debt has a bad connotation and is easy to sensationalize, so articles like this get attention, but there's no news, argument, or takeaway to be had from reading it [1] https://www.nytimes.com/2018/09/11/opinion/on-the-debt-non-spiral.html https://www.nytimes.com/2018/09/11/opinion/on-the-debt-non-s...

pas 8y ago
re. stagnation: https://www.project-syndicate.org/commentary/secular-stagnation-excuse-for-flawed-policies-by-joseph-e-stiglitz-2018-08 https://www.project-syndicate.org/commentary/secular-stagnat...
jdkuepper 8y ago
Dollar-denominated debt in emerging markets is the big exception. If the dollar rises, those debts become more expensive to repay, regardless of the emerging market's underlying economy. That's why Ukraine, Argentina, Turkey and Brazil have seen the recent volatility. The question is whether these problems are limited to those countries with high dollar debt or whether it could cause a regional capital outflow that reduces economic growth in neighboring countries or trade partners.
jondubois 8y ago
>> currently that average interest rate is below 3 percent [1], so for any countries with >3% economic growth, it really doesn't matter - they'll be able to make their interest payments to one another What does 3% economic growth mean? Is it measured in terms of that country's own currency? But isn't that currency's value inversely proportional to the amount of money which was borrowed from the Fed? So the higher the interest rate is, the more new money the government has to borrow from the Fed in order to pay back its old debt, the less the currency becomes worth, the less meaningful this 'economic growth' percentage becomes (because that growth is measured in this fast-deflating currency). This seems to be mind-numbingly complex.

pjc50 8y ago

Reminder: $250t debt is $250t assets on someone else's balance sheet. The money is not owed to aliens but to other humans. Finding who is is owed to is harder. A big chunk is pension funds, insurers and so on, where one person's debt is another person's retirement savings. Which must increase overall as life past retirement does. But a large chunk is assets of financial industries and the super wealthy, and in order for it to be net paid down they have to get poorer - or at least be forced to reallocate to equities. (Note also that as interest rates drive ever lower debt naturally expands too. If they can be driven negative it becomes an advantage.)

swingline-747 8y ago
True. It's important to remember debt isn't a perfectly liquid asset because one or more countries may decide it's not worth repaying, then it becomes tantamount to a pyramid scheme of borrowing. If/when that happens, the power of the West may fall into slightly different hands of mafia-types as did the Soviet Union. Greece also comes to mind.
- solotronics 8y ago
  One interesting thing to consider is that countries holding larger and larger amounts of each others debt could be stabilizing in geopolitics. If your neighbor owes you $100 you aren't going to punch him because you would never get the money back.
  - pjc50 8y ago
    Oh, debts survive wars. They can often outlive countries. France is still paying a single annuity from 1738, although countries have learned not to issue eternal debts since then.
    - orf 8y ago
      https://www.cbsnews.com/news/a-government-pension-thats-lasted-271-years/ https://www.cbsnews.com/news/a-government-pension-thats-last... if anyone else is interested

everdev 8y ago

I remember the national being a huge issue in the 80s (and probably before). This send like important and scary reporting but I'm not sure how this time is different from all the other alarm bells over the past 40+ years. Is this a case of people calling wolf or is this a real crisis just decades in the making?

opportune 8y ago
This isn’t about national debt but global debt. The US national debt at present is not much of an issue because the dollar is strong and interest rates are still quite low. The risk is for less economically strong countries who are susceptible to changing foreign interest rates / exchange ratios.
- everdev 8y ago
  > no one is quite sure what happens when a global superpower like Japan reaches a debt-to-GDP ratio of 224 percent. The U.S., U.K. and France have all surpassed the 100 percent level It sounds like the author is nervous about the rise of US debt as well.

cs702 8y ago

This is an alarmist article that ignores lots of important details and vastly oversimplifies things. For example, few people realize that one of the largest owners of US Treasuries and US government sponsored enterprise (i.e., Fannie, Freddie, and Ginnie Mac, or collectively the GSEs) debt holdings is... the US government itself, via the Federal Reserve. As of yesterday, the Fed owns and is earning interest income on $2.3 trillion of treasuries and $1.9 trillion of GSE debt.[a] In other words, the US federal government and GSE-guaranteed borrowers owe $4.2 trillion to... the US federal government itself. Among other things, this means the US treasury is currently paying annual interest on $2.3 trillion of US treasuries to the Fed, and at the end of the year the Fed hands over all that earned interest to the US treasury, in perfectly circular fashion. This startling fact is just one of many -- many! -- important details about modern monetary systems that are generally poorly understood by the public and which are utterly ignored by this article. Don't waste time reading it. [a] https://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab1 https://www.federalreserve.gov/releases/h41/current/h41.htm#...

mastermojo 8y ago
It was hard for me to gauge what percentage of total debt that is, so a quick search indicates that by end of year 2018 the US government debt is going to be 21.4 trillion. Roughly 20% of US government debt is held by itself.
- mikeash 8y ago
  I believe it's more than that. The Social Security trust fund holds another ~$3 trillion in federal debt.
- stonemetal 8y ago
  According to the national debt's Wikipedia page 5.7 trillion is owned by the government. That ends up being about a forth of it.
rwc 8y ago
Do you have suggestions on books or other sources that would enlighten me on these details?

daddyofive 8y ago

What a wonderful article. I think that there are two sides to this coin: the nature of the debt and the nature of the repayment. Even the smallest and most well mannered debt is a problem if there is no path to repayment. And even large, nasty debt is ok as long as the people borrowing have done their homework and have a solid plan to repay. So this article did a great job of profiling the debt but it didn’t go into enough detail about the borrowers. If interest rates have been so low, and the borrowers have been somewhat lucid, even this large debt can be paid off without any crisis?

megaman8 8y ago

I see no intention from governments of ever paying off that debt. All I see, worldwide and US is more and more spending. At one point in the future we won't be able to pay for it anymore. So, what happens if everyone finds out they're not getting their money back? i hope we never find out. 30% of US debt is owned by intergovernmental agencies: like Social security/medicare/military retirement funds - so that might go down the tubes. The other 70% of US debt is public debt, of which almost half is owned by foreign governments and investors. https://www.thebalance.com/who-owns-the-u-s-national-debt-3306124 https://www.thebalance.com/who-owns-the-u-s-national-debt-33...

zanny 8y ago
Its turtles all the way down. US debt isn't just money the US owes some guy sitting on a pile of money. The debtors owe debtors owe debtors - nobody has a Scrooge style money pit sitting around. It is a house of cards, but it isn't one with a clear winner and loser. A loss of faith in international credit destroys all economies.
mempko 8y ago
If governments paid off their debt, there would be no money. Money IS debt.
- appleflaxen 8y ago
  you keep posting this all over the thread, but it's not true. money requires no interest payment. debt does.
  - saganus 8y ago
    There's a very interesting explanation on why you can consider money as being debt by Paul Grignon [0]. Of course, there are critics of this view and it's not necessarily 100% correct, but it does seem plausible. [0] https://en.wikipedia.org/wiki/Money_as_Debt https://en.wikipedia.org/wiki/Money_as_Debt

jondubois 8y ago

The current system seems extremely fragile to me; it's as if the tiniest miscalculation in terms of government debt versus economic growth could set a country on an irreversible course to hyperinflation (with respect to other countries' currencies). It seems ridiculous that governments have the power to seal the financial fate of their citizens in this way; irrespective of the actual economic output of those citizens. I think this makes a strong case for cryptocurrencies; citizens should be allowed to choose a currency which reflects their own level of financial discipline (and not that of their government).

thomasmarriott 8y ago

"The system is insolvent. No one knows what to do next — except repeat the insanity till the next bubble blows. That'll be the one. The big one." — Gekko, Wall Street 2, 2010 #thewayoutisup

ArtWomb 8y ago

Wow. I assumed global deficits were approx $50T in the QE-era. With Global World Product (GWP) ballpark $75-100T. And annual global growth rates averaging 3-4% in good times. Even with old numbers. And the assumption interest rates will remain below historical means. There is the possibility creditors can never be paid back. But with these new estimates of 3X leverage? Time has come to think seriously about debt relief and cancellation. Not top down this time, but bottom up. Starting with direct injection into student loans, home mortgages, medical, small business loans, etc.

paulpauper 8y ago

Debt relative to GDP according to the chart shown in the article went up 14% in a decade from 280 to 380 trillion, which does not seem that bad imho. Relative debt is more important than nominal debt.

techie128 8y ago

Why is there no mention of India?

DesiLurker 8y ago

This is a bit older but good background presentation by Richard Duncan: https://vimeo.com/101487179 https://vimeo.com/101487179 PS: Ignore the title

mirimir 8y ago

> Because of that, the fretting about the Fed’s current balance-sheet runoff plan is almost comical. There’s simply too much debt in the system and no clear path to truly paying it off. Not even central bank officials are pretending they’ll shed all their holdings — estimates fluctuate around ending at $2.5 trillion. I thought that the plan was to eventually inflate the debt away. But maybe that's just cynical conspiracy theory.

dr_win 8y ago

To truly understand how bad it is, we would have to analyse the 250T figure in more detail. There is a "free debt" component to it which was generated via seigniorage[1] and "real debt" to people, companies and other economic actors. It seems to me that many commenters here see only one part of it. To illustrate it, let me give you an example how "free debt" can be generated by a government. Imagine for a second that we have one world government (WG) and one world currency. And assume that we are in a peace time when collective world productivity grows 3% every year. World's central bank (WCB) targets 2% inflation. Also assume that velocity of money[2] is constant and in general people's behave the same in time. This effectively means WCB can "freely print" 5% of new money without causing any real problem. But who should get the new money? Instead of simply printing it and directly giving it to someone, they have pretty sophisticated/obfuscated mechanisms how to introduce the new money to the system. Typically part of that new money is given to the WG in exchange for WG's bonds. The new money is effectively introduced as an interest-bearing debt. But please note that this debt is "free" for WG. WCB will never want to repay the debt (by allowing WG's debt to always roll over). And also note that WCB is part of WG. That means the collected interest WG formally paid to WCB is then given back to WG. Of course WG can also sell bonds to people, companies and other actors. This debt is the "real debt" which must be paid back. But let's assume WG is prudent and does not do that. You can observe that WG can continue this as long the world productivity is growing better than -2% The problem with "free debt" comes when the growth is even worse (e.g. in war times) or when velocity of money gets faster suddenly (or there are other inflation pressures or shocks). WCB should reverse this mechanism in this bad case. It has to "pump excess currency out of the system" by selling its bonds and destroying the currency to hit the 2% inflation target (technically it would do it by not allowing complete rotation of WG's debt). Of course real world scenario is much more complex than that. And real governments additionally take "real debt" where usual rules apply. The question for us is how big part of those 250T is the "real debt". [1] https://en.wikipedia.org/wiki/Seigniorage https://en.wikipedia.org/wiki/Seigniorage [2] https://en.wikipedia.org/wiki/Velocity_of_money https://en.wikipedia.org/wiki/Velocity_of_money

williesleg 8y ago

Everybody can just pay me.

williesleg 8y ago

Oh, right, it's Bloomberg. They love interest rates and crap like that. Nothing innovative, just debt and debt servicing.

HIPisTheAnswer 8y ago

Using 150k tonnes of above ground gold, if all of it was minted into currency, would equal +- 100M dollars. Probably not more than 10% is minted currency coins - .999 isn't for currency use. So there is about 10M dollars in existence.

CompelTechnic 8y ago
1200 USD per ounce x 16 oz per lb x 2000 lb per ton x 150,000 =5.76E12 USD 5,760,000,000,000 USD, except for the fact that Troy ounces are slightly different than normal ounces. Too lazy to look up.
- HIPisTheAnswer 8y ago
  a dollar is 24 3/4 grains of gold. edit:typo
  - CompelTechnic 8y ago
    Ah I see.

stretchwithme 8y ago

Isn't that $35K for every man, woman and child alive? How can that be?

EGreg 8y ago

The difference between debt-money and value-money is that debt-money is supposed to originally be backed by cashflows of value-money but is really paid back by an ever expanding amount of debt-money. In other words, things are getting more and more leveraged. The amount of money to actual goods and services is exponentially increasing. So the value of money steadily decreases and we get inflation. The danger is that this money evaporates as people default on loans. As long as interest rates are low, people don’t default very much, but as they rise, the defaults happen. Why do central banks need to raise interest rates at all? It just leads to a bloodbath as some loans get renegotiated. Why not just have one predictable interest rate like Milton Friedman spoke about? It seems to me that the central banks fix the next crisis by QA and low base interest rates. Why not just keep them low and let people default for actual reasons, instead of having a terrible time taking out a loan during high interest rate season? If our money supply is going to be so debt based, why raise base interest rates? To “reload” so you can swoop in and save people from a money supply crunch you induced?

mempko 8y ago

Before you read the article, keep one thing in mind, Money IS debt. If there is no debt, there is no money. Another way of looking at government debt is private sector savings.

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axilmar 8y ago

Would it work if all debts on Earth were simultaneously erased by creating the relevant amounts of money?