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Is this a valid back of the envelope sort of calculation? World Debt is $250T World GDP is $80T https://www.visualcapitalist.com/80-trillion-world-economy-one

Is this a valid back of the envelope sort of calculation? World Debt is $250T World GDP is $80T https://www.visualcapitalist.com/80-trillion-world-economy-one-chart/ https://www.visualcapitalist.com/80-trillion-world-economy-o... Central bank interest rates are around 1 or 2% for the west ( https://au.investing.com/central-banks/ https://au.investing.com/central-banks/ ), a lot higher for others So at the moment servicing that debt is doable - for the west anyway. If interest rates go up then things might get tricky. However the debt seems to keep going up, so if the debt keeps increasing and the interest rates go up then things will turn nasty. There are no doubt some countries now that are effectively dead man walking and if interest rates go up could start crashing which could collapse the whole house of cards. I suppose rampant inflation will remove the debt. Total wealth of the world is $317T (https://en.wikipedia.org/wiki/List_of_countries_by_total_wealth https://en.wikipedia.org/wiki/List_of_countries_by_total_wea...) so everyone could liquidate and have some money left over. So as long as the assets of the world make enough to service the interest on the debt things will keep chugging along. The real problem I suppose is how much of the world has to work to service the interest bill. Or is that ridiculously naive?

lifeisstillgood 8y ago
Seems sensible - worth noting that who owns the debt will be an increasingly important political issue
tim333 8y ago
Not ridiculously naive but probably a simplification. The devil's in the detail really. Very large debts can be stable especially if they are in the local currency and the government will help out if banks are a bit over leveraged such as in China so far. Things can go very wrong in other circumstances such as borrowing in a foreign currency followed the local currency crashing, eg Argentina, the Asian financial crisis.
robertAngst 8y ago
>So as long as the assets of the world make enough to service the interest on the debt things will keep chugging along. The real problem I suppose is how much of the world has to work to service the interest bill. I worry that this is the case. Our best economic leaders have been wrong(or told to do wrong policies for political reasons for ~200 years). Tasty candy today can spell a stomach ache later. Given the numerous times our grandparents generation has pushed off problems, I wonder if government debt is a short term political win, with long term ramifications(looking at Japan).
trashtester 8y ago
Real interest rates after inflation vary from negative (parts of Europe) to much more than 1-2%. As long as real interest rates remain negative, it is clearly self-sustained. Countries that control their own currencies can always negate all debt by printing money (through fractional easing). However, if inflation starts to increase again, printing money is only a short term solution if there is a budget deficit. If the budget is run at a deficit in a high inflation scenario, printing more money will cause Venezuela style hyperinflation. In the case of the US, it would be interesting to see how the government would react if the dollar was put under this kind of pressure. Early austerity would result in mass unemployment and heavily slashed welfare. Looser policies would create high inflation, cutting savings by half or more and also collapsing salaries for public sector employees. Hopefully, the US would be able to avoid hyperinflation, but with the current tendency towards populsm (on both the left and the righ), I don't feel so sure anymore.
- pjc50 8y ago
  I think hyperinflation is best understood as a forex phenomenon: since you can't print foreign currency, if your economy is importing much more value than it exports (including FDI!), then the value of the local currency declines relative to the rest of the world and you end up with hard currency shortages and people handing over increasingly large bundles of notes to pay for hard currency. Normally the commodities which cause this problem because they have to be imported no matter what the price are the global staples: oil, food, pharmaceuticals. So you'd have to ask exactly how the US could get into this state. It exports all three of those staples. It's a major inward investment destination. It's the owner of the dollar, widely recognised everywhere else as "hard currency". It would take extraordinary mismanagement to lose those advantages. Venezuela's dire situation is mostly because its oil industry has been chronically mismanaged and production has collapsed. One consequence of this is that oil is being imported (bought at global prices in dollars) and sold at local pre-collapse subsidised prices (in worthless Bolivars). Similarly Zimbabwe's collapse was mismanaged "land reform" expropriation of profitable agriculture, and Weimar Germany was ruined by the need to export gold to France for reparations.
  - trashtester 8y ago
ryanmercer 8y ago
>so if the debt keeps increasing and the interest rates go up then things will turn nasty. Or what happens when something like the Tunguska event happens over NYC or London or Tokyo and you suddenly have 500 billion or a trillion in damage including mass casualties and likely hundreds of thousands of dead. Then what? You just lost a tremendous amount of value and the ability to generate a very large amount of income and probably just completely lost some companies and private individuals that owned debt. Or if not an asteroid/comet/meteor, what if it's a hurricane barreling right into NYC or 'the big one' hitting one or major cities in California or an Asian city on the ring of fire? >everyone could liquidate and have some money left over. Problem with that though is real estate. Real estate in NYC alone is worth something like 1.5 trillion dollars. I imagine at least 10% of that total wealth of the world is just in the real estate in a dozen or two cities. And what happens when global warming leads to flooding of the land of many coastal cities, in fact 14 of the world's 17 largest cities are located along coasts so in 10, 50, 100 years when some of those cities have either had to expend huge amounts of money finding a geoengineering solution, or have been abandoned and are now flooded, what happens with the debt that still exists? Are companies, are people, going to keep servicing loans on property underwater? Are they going to be able to move their manufacturing without taking on large loans at potentially unreasonable rates? Debt often lasts several decades and we now live in a world where drastic events can happen in days or weeks. 1 nuclear weapon can effectively destroy a city (even if it doesn't outright level the city, the economic implications of even a small nuclear detonation would be catastrophic for the host country at a minimum), single storms can severely impact the lives of millions, a single volcano can displace millions of people for days or weeks like when Eyjafjallajökull erupted in Iceland in 2010 and resulted in a 6 day travel ban that canceled 95,000 flights. The more debt the world creates, the higher the risk of failure increases by nature but it increases even quicker in the 21st century when there are extreme buying fads and trends, destabilizing climate, weapons of mass destruction.

lifeisstillgood 8y ago

Seems sensible - worth noting that who owns the debt will be an increasingly important political issue

tim333 8y ago

Not ridiculously naive but probably a simplification. The devil's in the detail really. Very large debts can be stable especially if they are in the local currency and the government will help out if banks are a bit over leveraged such as in China so far. Things can go very wrong in other circumstances such as borrowing in a foreign currency followed the local currency crashing, eg Argentina, the Asian financial crisis.

robertAngst 8y ago

>So as long as the assets of the world make enough to service the interest on the debt things will keep chugging along. The real problem I suppose is how much of the world has to work to service the interest bill. I worry that this is the case. Our best economic leaders have been wrong(or told to do wrong policies for political reasons for ~200 years). Tasty candy today can spell a stomach ache later. Given the numerous times our grandparents generation has pushed off problems, I wonder if government debt is a short term political win, with long term ramifications(looking at Japan).

trashtester 8y ago

Real interest rates after inflation vary from negative (parts of Europe) to much more than 1-2%. As long as real interest rates remain negative, it is clearly self-sustained. Countries that control their own currencies can always negate all debt by printing money (through fractional easing). However, if inflation starts to increase again, printing money is only a short term solution if there is a budget deficit. If the budget is run at a deficit in a high inflation scenario, printing more money will cause Venezuela style hyperinflation. In the case of the US, it would be interesting to see how the government would react if the dollar was put under this kind of pressure. Early austerity would result in mass unemployment and heavily slashed welfare. Looser policies would create high inflation, cutting savings by half or more and also collapsing salaries for public sector employees. Hopefully, the US would be able to avoid hyperinflation, but with the current tendency towards populsm (on both the left and the righ), I don't feel so sure anymore.

pjc50 8y ago
I think hyperinflation is best understood as a forex phenomenon: since you can't print foreign currency, if your economy is importing much more value than it exports (including FDI!), then the value of the local currency declines relative to the rest of the world and you end up with hard currency shortages and people handing over increasingly large bundles of notes to pay for hard currency. Normally the commodities which cause this problem because they have to be imported no matter what the price are the global staples: oil, food, pharmaceuticals. So you'd have to ask exactly how the US could get into this state. It exports all three of those staples. It's a major inward investment destination. It's the owner of the dollar, widely recognised everywhere else as "hard currency". It would take extraordinary mismanagement to lose those advantages. Venezuela's dire situation is mostly because its oil industry has been chronically mismanaged and production has collapsed. One consequence of this is that oil is being imported (bought at global prices in dollars) and sold at local pre-collapse subsidised prices (in worthless Bolivars). Similarly Zimbabwe's collapse was mismanaged "land reform" expropriation of profitable agriculture, and Weimar Germany was ruined by the need to export gold to France for reparations.
- trashtester 8y ago

ryanmercer 8y ago

>so if the debt keeps increasing and the interest rates go up then things will turn nasty. Or what happens when something like the Tunguska event happens over NYC or London or Tokyo and you suddenly have 500 billion or a trillion in damage including mass casualties and likely hundreds of thousands of dead. Then what? You just lost a tremendous amount of value and the ability to generate a very large amount of income and probably just completely lost some companies and private individuals that owned debt. Or if not an asteroid/comet/meteor, what if it's a hurricane barreling right into NYC or 'the big one' hitting one or major cities in California or an Asian city on the ring of fire? >everyone could liquidate and have some money left over. Problem with that though is real estate. Real estate in NYC alone is worth something like 1.5 trillion dollars. I imagine at least 10% of that total wealth of the world is just in the real estate in a dozen or two cities. And what happens when global warming leads to flooding of the land of many coastal cities, in fact 14 of the world's 17 largest cities are located along coasts so in 10, 50, 100 years when some of those cities have either had to expend huge amounts of money finding a geoengineering solution, or have been abandoned and are now flooded, what happens with the debt that still exists? Are companies, are people, going to keep servicing loans on property underwater? Are they going to be able to move their manufacturing without taking on large loans at potentially unreasonable rates? Debt often lasts several decades and we now live in a world where drastic events can happen in days or weeks. 1 nuclear weapon can effectively destroy a city (even if it doesn't outright level the city, the economic implications of even a small nuclear detonation would be catastrophic for the host country at a minimum), single storms can severely impact the lives of millions, a single volcano can displace millions of people for days or weeks like when Eyjafjallajökull erupted in Iceland in 2010 and resulted in a 6 day travel ban that canceled 95,000 flights. The more debt the world creates, the higher the risk of failure increases by nature but it increases even quicker in the 21st century when there are extreme buying fads and trends, destabilizing climate, weapons of mass destruction.