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Global debt soars to 356% of GDP

296 points by cwwc 6y ago

fasteddie31003 6y ago
Won't inflation reduce debt? I can see massive inflation on the horizon.
airstrike 6y ago
"Soars" is a bit of a stretch. Both the y-axis and x-axis scales on the RHS chart seem misleading. How about going back 10 or even 20 years? And how about starting the y-axis from, say, 100%
- dmarchand90 6y ago
  I just did the math and it's only gone up 15% over the previous year which seems extremely reasonable given the circumstances. It's much less than I thought it would be.
  - markus_zhang 6y ago
    I think one important difference is how (comparing to QE) much fiat money went into the economy directly through Covid aid and other items. Does anyone have the data?
- deleted 6y ago
  [deleted]
rayiner 6y ago
I’m no economist so I don’t claim to fully understand everything involved here. But one thing worth pointing out is that, when talking about the world as a whole, increasing debt can be the sign of positive developments. People are going to be more willing to lend money for longer time horizons in a society that’s more stable and secure. You don’t take a 25 year loan to build a shopping center in the middle of a civil war.
- nabla9 6y ago
  In this case the main cause was GDP shrinking.
  - PragmaticPulp 6y ago
    Yes, debt went up but GDP went down more. Conversely, this means that GDP recovery will provide downward pressure on the ratio.
- bjarneh 6y ago
  Good point, but this type of math always puzzles me. We owe ourselves 356% of what we produce every year? We don't owe this money to some foreign planet with a death-star pointing at us. So at what point should we be concerned? What is the worst that can happen? We don't get our own money back from ourselves?
  - BurningFrog 6y ago
    > "We owe ourselves..." That's a bit of a hostile "we". I and my bank don't have any debt, considered as a group. Technically true, but doesn't make my mortgage go away. > What is the worst that can happen? When governments can't/won't pay their debts, the way out is printing money to pay with. This has in at least one case led to the Holocaust. Low sample size, but still.
    - selimthegrim 6y ago
      Next up from HN hot takes - how cowrie shells led to the Cambodian genocide. You heard it here first.
      - BurningFrog 6y ago
        It's unknowable how Germany would have developed without the 1923 hyperinflation, but my guess is it would have muddled along as a semi stable democracy, instead of what happened. https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_R...
reedf1 6y ago
I am leveraged (via my mortgage) about 600% of my GDP (yearly salary). This seems realistic for me, why is it not realistic for the government? Especially when the government's spend directly correlates with their future income.
- ashtonkem 6y ago
  As a general rule, analogies between personal finance and government finance don’t work very well. It feels intuitive, but governments can do things you cannot. You personally lack the ability to cause inflation via your debt, for example. You also can’t raise bonds, adjust taxes, or declare war. Not saying that 356% is bad, I’m not an economist, but just because you’re leveraged higher than that on a mortgage tells us very little about whether or not 356% is bad or not. For certain it matters what that government debt is going to pay for. Debt for infrastructure (and therefore future growth) is quite a bit different than debt to finance consumption, for example.
  - maxerickson 6y ago
    The shift to long term mortgages ballooned house prices. If people conspired to pay banks less, houses would cost less (purchases are mostly made based on the monthly payment and perception that the price will go up, not on some more concrete valuation).
    - chii 6y ago
      > If people conspired to pay banks less, houses would cost less and so that one person who would really prefer a particular house/location (because it's a great house/location) would pay just a little bit more and guarantee that he/she gets it. Guess what happens then?
      - robjan 6y ago
        Then it becomes attractive for the neighbour to sell their house. There are two sides to a market.
    - 6y ago
zozin 6y ago
The Dollar debt denominated system either blows up taking down American hegemony with it or the Fed, et al. manages to inflate its way out of the debt and America prospers while the rest of the world lags behind. Given that the two other centers of power (EU and China) are as inimical towards each other as China is to the US, I doubt a non-Dollar alternative springs up any time soon. I wouldn't start betting against America any time soon.
- johanneskanybal 6y ago
  It's interesting to me not being able to imagine a world where the dollar is less important. Every other country on the planet doesn't need their currency to be the global standard to be successful. You'll be fine when that inevitably happens too.
- bubbleRefuge 6y ago
  Not sure why you are getting downvoted ? The crux of it is that the rest of world(ROW) wishes to net export to America and America wishes to net import. So ROW, wants to save dollars and maintain a relatively stable exchange rate in order for prices to remain attractive. Unless and untill someone else steps up as net import for ROW, I don't see it happening. Also, we benefit from this world order because ROW spends bares the real world costs of production: labor, pollution, raw materials, etc where as we bare the monetary costs which are not 'real' world costs and you could argue since there is no gold standard, monetary costs are just the entering numbers into a spreadsheet. Its a racket.
kryogen1c 6y ago
interesting, if not unsurprising. >That projection was made without including President Biden's proposed $1.9 trillion stimulus package this is, as the kids say, an oof. the more interesting question those graphs present to me is what happened in 2016-2018? why did debt skyrocket but debt% of gdp go down?
- rayiner 6y ago
  > the more interesting question those graphs present to me is what happened in 2016-2018? why did debt skyrocket but debt% of gdp go down? The Trump economy.
  - selimthegrim 6y ago
    Dead cat bounce - goosing the accelerator was going to catch up to him
    - rayiner 6y ago
      A lot of it I think was just trajectory. But I think deregulation (lowering costs of domestic production) + tariffs (raising costs of imports) is probably the right approach.
      - JamesBarney 6y ago
        I don't think it's tariffs. Most economists agree once you take into account retaliatory tariffs they're bad for the economy. This doesn't mean we shouldn't do them, it might be worth it to take a gdp hit to preserve certain types of jobs. Plus the trade deficit didn't really move. I doubt it's deregulation especially in the short-term. It takes a herculean amount of deregulation to move gdp, and most of the impact would happen over the long term. Like they say it takes a lot of Harbinger's triangles to fill an Okun gap. Honestly I think the Trump economy is mostly due to Trump yelling at the Fed to keep their foot on the gas. We had un/underemployment and he pushed them to lean a little harder on the accelerator.
c7DJTLrn 6y ago
It's just imaginary numbers at this point. I'm no economist but the fact that this is all still functioning seems like a miracle to me, resting on the single concept of owing money.
- nerdponx 6y ago
  The money, credit, and banking system is an under-appreciated wonder.
Werewolf255 6y ago
It's almost like there's a global emergency happening.
neals 6y ago
I've always wondered if this website (axios) is related to the NPM package for http requests. Anybody?
- __float 6y ago
  Not related -- "The site's name is based on the Greek: ἄξιος (áxios), meaning "worthy"". "Just" a Greek word, that's all.
- realPubkey 6y ago
  Yes me. Every single time is see something posted from axios.
- deleted 6y ago
  [deleted]
d--b 6y ago
So if it’s untenable, it means those lending money will lose some, right? Or devalue, which also means those holding cash will lose some money. Why would that be so bad? If all countries decided to devalue jointly, it wouldn’t create inflation, no? Seems to me that it would iron out some inequalities...
- spiderfarmer 6y ago
  Pension funds would be massacred.
m12k 6y ago
Does anyone know if there is anywhere we can find a graph of interest (rather than debt) vs GDP? It seems more useful to compare one annualized number with another. With interest rates historically low, this might be less of a burden on the economy than previous lower debts at higher interest rates, or it might be much worse - but I can't tell from a graph like this.
- PragmaticPulp 6y ago
  This graph includes private sector debt, which has interest rates all over the place. Only about 1/3 of it is government debt. Keep that in mind when trying to put it in context.
- matthewdgreen 6y ago
  For the US (only), you go here: https://fred.stlouisfed.org/series/FYOIGDA188S https://fred.stlouisfed.org/series/FYOIGDA188S For the world there's the World Bank. I don't know if this is the right statistic, though: https://data.worldbank.org/indicator/GC.XPN.INTP.RV.ZS https://data.worldbank.org/indicator/GC.XPN.INTP.RV.ZS
singron 6y ago
The headline sounds a little more exciting than it really is. Debt before this year was already at 320% of GDP. It's also important to remember that GDP is an annual number ($/year) whereas the debt number includes accumulated debt from all prior years.
- neural_thing 6y ago
  A 45 percentage point increase in a year is phenomenally, mind-bogglingly huge.
  - deleted 6y ago
    [deleted]
  - robjan 6y ago
    It's very cheap to borrow money and has been for the last decade. The more you borrow, the more you can capture the economic growth.
    - ffggvv 6y ago
      until you have to refinance the debt because you haven’t paid any of it off and it’s matured and rates are way higher...
      - pessimizer 6y ago
        If rates are way higher, then that means that money is making money. If you borrowed in order to invest, rather than consume, you should have been making money.
  - mywittyname 6y ago
    It's a 15% increase overall though. When you consider that the unemployment spiked at the fastest rate ever seen and the entire world fell into a brief, but severe recession (~30% GDP decline in the US), a 15% increase in debt / GDP seems quite mild.
standardUser 6y ago
"...the world's already high debt levels look to be inhibiting economic growth and threaten to hold back a full recovery from the pandemic in the long run." Is that what they "look" do be doing? Explain how.
FlownScepter 6y ago
Who the fuck do we owe, the Martians? How long before we just accept that money is made up and free ourselves of this make believe game? Just give people what they need to survive and let the unwieldy and inefficient private sector die, we're propping them all up with tax money already anyway and they still barely tread water.
- PragmaticPulp 6y ago
  This headline includes private sector debt. Most of that number is private debt. If you have a mortgage or a car loan or a credit card, you’re part of that number. And you certainly owe real money to real lenders. Likewise, government debt is still real debt. A not insignificant part of your taxes goes to servicing interest on government debt. That’s because it’s still a real debt owed to real people who expect real interest payments. Money isn’t some made up concept. We can’t simply print more and declare it all good. Don’t confuse money with wealth, which is a separate concept that underpins this system.
  - FlownScepter 6y ago
    > If you have a mortgage or a car loan or a credit card, you’re part of that number. And you certainly owe real money to real lenders. Yes and on an individual scale like that, it makes complete sense. It's borrowed against my future income, and that I will someday pay off (I mean probably not I'll buy a different house but you know what I mean.) I'm saying, on a scale of Nations and megacorporations, it's fucking bananas nonsense. According to the Goog, US national debt is 27 trillion. Who do we owe? How did we qualify to borrow that, apart from being if not the center, at least a good chunk of the center, of the world economy? Is anyone in a position to say we can't borrow it? Is there a credit check? Who fails that check, if there is one, because we haven't despite the last several decades of absolutely racking it up. At this point to analogize the US to a single person (which is reductive and useless but bear with me, I'm making a point), we'd be someone with hundreds of thousands in credit card debt, making a lot of money to be sure, but also carrying four mortgages and making interest only payments, and the bank in question is just still handing us money. And like, I don't think that's great, but also, it's been chugging along more or less fine for as long as I've been around. So... why don't we just stop pretending it means anything? We "owe" some foreign banks... do we? Says who? Who's gonna enforce that? Are they gonna foreclose America? The only time I've ever seen countries actually brought to their knees by banking is when a tiny one gets too uppity about getting screwed on the global economy scale, at which point we send in Marines to remind them who's in charge. Who's gonna do that to us?
hourislate 6y ago
I recently read a great book called "The Price of Tomorrow" - Jeff Booth. The author discusses how credit and debt is the main driver of growth over the last 20 years (Inflationary) because technology is deflationary and as it exponentially increases so does deflation. Governments who are terrified of deflation and dependent on a system that encourages incessant growth and higher prices, can only maintain that growth through credit and debt (inflation). Considering that almost every country in the world is participating in uncontrolled borrowing and spending, it's going to get very interesting. An quick and interesting read...would recommend.
- JumpCrisscross 6y ago
  > Governments who are terrified of deflation and dependent on a system that encourages incessant growth and higher prices, can only maintain that growth through credit and debt (inflation) Money is cash and credit. The government has been printing cash for a decade. You don’t need, and we haven’t only had, debt.
- hahahahe 6y ago
  Innovation is always inflationary.
exabrial 6y ago
I really don't think we need the stimulus package congress is trying to ram through. At this point we just need things to settle down.
BurningFrog 6y ago
I really don't like expressing debt as % of GDP. It makes it sound like when you pass 100% all the money is gone. I prefer "44 months of GDP" over "356% of GDP".
pokot0 6y ago
Isn't government debt extremely cheap compared to 20/30 years ago? Should we not look at how much interest we are paying compared to GDP for a better outlook?
- boringg 6y ago
  Yes agreed - debt repayment is more important that total debt. People always confuse this stuff (understandably).
- dnadler 6y ago
  Yes, that's a good point. We should also consider that a lot of the interest rates are negative in real terms.
PragmaticPulp 6y ago
This headline is total global debt, which includes private sector debt. Many of the comments here are mistakenly assuming this is only government debt, which is incorrect. The article mentions the government portion of debt further down: > Government debt accounts for 105% of global GDP, up from 88% in 2019, rising by $12 trillion in 2020 or nearly triple its $4.3 trillion increase in 2019.
boringg 6y ago
I'd be more interested in what percentage of global GDP are the debt repayments. This is a bit of scare mongering on Axios part - if the denominator goes down (gdp as a result of a pandemic) of course the % is going to blow up. At least they did put in a time-series plot of the last years. Yes debt flew up this year ... is anyone surprised given the large scale stimulus by most central banks? As a side note / gripe - Any reputable news organization should always be putting in time-series plots for any news article talking about talking about budgets/large scale economic values so people can grasp concepts and get honest context. Otherwise it always feels manipulative when they place random large numbers for shock value.
inglor_cz 6y ago
I would say that what really matters is the interest rate. Interest rates worldwide are really, really low. In quite a few countries, below zero actually. So the real debt burden, which comes from the need to pay interest, is not really painful right now. It is not at all clear if such a low level of interest rates can be sustained forever. If it jumps up a bit, heavily indebted countries like Italy and France will be immediately in serious trouble and risk of default. There is another risk of having interest rate too low: zombie corporations can be kept alive longer by borrowing, unprofitable projects too.
- sleepysysadmin 6y ago
  >I would say that what really matters is the interest rate. Interest rates are negative in many places. Germany has had negative interest rates for nearly 2 years and 0% for over 5 years. Does that mean you have can infinite debt? Worse yet, Germany was deflationary for nearly all of 2020 and are officially in a recession. Constitutionally Germany's government cannot run a deficit. As such they have reduced their government debt in the last several years. For all of 2020 however unemployment basically never moved. Now lets look at Canada where the government has run historic record breaking levels of debt. In 2020 alone the central bank took on $400 billion in debt. The Canadian government stopped reporting their economic numbers during 2020 because lets be realistic... GDP of Canada is roughly 1750 billion. 14% unemployment. That $400 billion does mean that Canada was not deflationary. So the government took on $400 billion in debt and how much did GDP increase? Surely we should see 15-20% gdp increase? Nope. We see -17%. >It is not at all clear if such a low level of interest rates can be sustained forever. YTD on interest rates is +35% or so. Which is interesting because inflation targets are well below target. >There is another risk of having interest rate too low: zombie corporations can be kept alive longer by borrowing, unprofitable projects too. Well we're seeing it all over. So many countries are over leveraged and bubbles are everywhere. They are going to pop.
OscarCunningham 6y ago
> Nonfinancial private sector debt alone now makes up 165% of the entire world's economic output. What does this mean? Do they just mean 'is as large as' rather than 'makes up'?
boringg 6y ago
(DEBT repayments)/GDP >>> important then DEBT/GDP. Right now debt is super cheap so might as well stock up.
fasteddie31003 6y ago
If I but my money in this bitcoin thing I keep hearing about, would I not be as exposed to global debt?
acd 6y ago
I think central banks are distorting the economy in a non good way by artifically lowering interest rates. Low interest rate is driving up house and asset prices. Central banks try and control price inflation by lowering interest rates to get wage/price inflation up to 2% but we live in a globalized market so that dont work.
- radium3d 6y ago
  In what way are the interest rates on fixed loans artificial though may I ask?
  - acd 6y ago
    Central banks intervene in the market and buys debts. Thus central banks distort the true pricing of debt since well if the central bank would not buy the debt the price of issuing that debt would be higher ie interest rate. Its artificial in that with quantitative easing the true price of the assets is distorted. "A central bank implements quantitative easing by buying financial assets from commercial banks and other financial institutions, thus raising the prices of those financial assets and lowering their yield, while simultaneously increasing the money supply. In contrast to conventional open-market operations, quantitative easing involves the purchase of more risky assets (than short-term government bonds) and at a large scale, over a pre-committed period of time. " source: https://en.wikipedia.org/wiki/Quantitative_easing https://en.wikipedia.org/wiki/Quantitative_easing
leroman 6y ago
Virtual resources leveraging from loaning from future generations doesn't take into account natural resources.. don't see how this can hold up in reality..
Reason077 6y ago
I wonder what portion of that ~$20 trillion surge in debt since the start of the pandemic has been pumped directly into equities and cryptocurrencies?
CraigJPerry 6y ago
>> Why it matters: The increase brings numerous countries, including the U.S., to extreme debt levels, well beyond what economists have called untenable in the past. That’s not an answer to the question posed. So why exactly does it matter? >> Why the debt matters: While worries about significantly pushing up inflation and borrowing costs have not come to pass Ok, so it doesn’t matter? People with one particular story to tell about macro economics were wrong AGAIN. Shock horror. >> slow growth and diminishing returns have, and the world's already high debt levels look to be inhibiting economic growth and threaten to hold back a full recovery from the pandemic in the long run. Correlation/causation? This is a poor article. All huffed and puffed up language without substance.
- orwin 6y ago
  Yeah, its because it really doesn't matter.
thoughtstheseus 6y ago
The debt jubilees are coming. The deferment of rent, desire to cancel student debt, swelling govt. debt are all trends in the same vain.
yalogin 6y ago
If everyone in the world is in debt, why don’t we just collaborate and pardon the debt? A reset if you will and keep it going. Or do nothing and ignore it, I am not an economist so purely guessing here, but debt doesn’t seem to have negative impact on economies. Other things will but I haven’t seen one instance where the country is in bad shape of not because of debt. EDIT: I get that debt is not the same for all countries. I was only talking about canceling the percentage of debt that is common across all countries. Also, when I say ignore it, I am only talking from US centric view I guess. The US will probably never repay its debt and as long as the dollar is strong it keeps borrowing and the debt keeps increasing. So ignoring the debt is not done overtly to not repay but done so as to keep getting more debt and not getting forced to curtail growth plans.
- WhompingWindows 6y ago
  It's not unheard of, but it's pretty rare in the history of government finance. I believe this occurred in the French Revolution, wherein the monarchy's finances were in tatters. Ministers of finance took out multiple loans to keep up revenue and hide the clusterfuck of debts, but eventually something had to give...the French simply didn't pay a lot of their debts back due to national emergency and revolutionary upheaval (which came before/during/after this financial move). How the French govt got so indebted was partially exorbitant spending (like helping the US in its revolutionary war vs Britain), but also that they taxed their nobility at 0%. They couldn't change the laws because of a labyrinthine legal system and a power structure packed with 0% paying nobles. This is an extreme version of what we have today, where many rich people avoid taxes and pay effectively lower rates than poor people.
- deleted 6y ago
  [deleted]
- PragmaticPulp 6y ago
  > Or do nothing and ignore it What happens when you ignore your mortgage or car payment? You lose the asset, because the lender has recourse against non-payment. Now what happens if we make it illegal for lenders to do anything about missed payments? Suddenly, the lenders are in a much riskier position. They can’t give out cheap loans if the recipients know they can simply ignore the interest payments and keep the house or car. As a result, interest rates much be way, way higher to make up for all of the people who choose to ignore their loans. Loans become much harder to get for anyone who doesn’t have a long credit history of repaying loans, meaning starter homes aren’t affordable until people are in their 30s or 40s, if ever. Same thing happens at government scale. If we simply stop paying the debt, trust disappears and the cost of borrowing goes up. We can’t finance our infrastructure and public services because no one has any desire to lend money to an institution that has demonstrated a refusal to pay it back. Does your city need to replace a bridge? I guess they need to save up the taxes for the next 10 years and then replace it, rather than issuing 10-year bonds at cheap rates. Or from another perspective: Imagine your friend needs $1000 to start a business. You loan him $1000 and he writes up a contract to repay you $1050 later. However, we declares a debt jubilee and now he refuses to pay you back. You’re now out $1000, have no recourse, and your friend has a business with no debt. Would you ever consider loaning anyone money again? If you did, you’d probably want a $1300 repayment on your $1000 loan to offset the risk of another debt jubilee destroying your investment again. Debt is just a contract to finance projects at a certain rate. A debt jubilee voids the contract. If you destroy the contract, you destroy the system that finances things.
chalst 6y ago
Michal Kalecki: "I have found out what economics is; it is the science of confusing stocks with flows". Can we not have financial journalism with apples-to-oranges comparisons like "Nonfinancial private sector debt alone now makes up 165% of the entire world's economic output". The lead paragraph has "well beyond what economists have called untenable in the past", without commenting on the fact that this swiftly abandoned consensus about unsustainable levels of debt was based on the incompetent analysis of Reinhart and Rogoff. (cf. https://en.wikipedia.org/wiki/Growth_in_a_Time_of_Debt https://en.wikipedia.org/wiki/Growth_in_a_Time_of_Debt ). There might be a real issue here, but this is bad reporting.
- cs702 6y ago
  No one is comparing anything. Computing ratios of stocks (balances) to annual flows is standard procedure. We do it for countries (debt/annual gdp is a commonly used ratio), for companies (debt/annual EBITDA is a commonly used leverage ratio), and for individuals (household debt/annual income is a commonly used ratio).
  - chalst 6y ago
    The dimensionless %age terminology is misleading (hence the Kalecki quote) but I agree standard: it would make the difference in kind clearer to give this in terms of time, say days, but I am not going to object every time I see this. But to use metaphors like saying a class of debt "makes up" GDP is magnifying the confusion and not the kind of thing a financial journalist should be writing.
    - cs702 6y ago
      > The dimensionless %age terminology is misleading These ratios are not percentages; they're measured in years = [balance in dollars] / [flow in dollars / year], by convention. In the case of households, debt/income gives you a rough estimate of how many years of income it would take to pay all debt, with everyone understanding that not all income can go to pay debts. The ratio is a rough measure of debt service capacity, measured in years. In the case of businesses, debt/EBITDA gives you a rough estimate of how many years of operating cash flows would take the company to pay all debt, , with everyone understanding that not all operating cash flow can go to service debts. The ratio is a rough measure of debt service capacity, measured in years. In the case of governments, debt/GDP it gives you a rough measure of how many years of output the entire economy would have to produce to match the balance of public debts, with everyone understanding that economic output can never be taxed at 100%. The ratio is a rough measure of debt service capacity, measured in years.
narrator 6y ago
Someone owns that debt. Most of it is government debt. The problem with government debt is people without any creativity can just buy government debt and earn interest on trillions just betting on the government's ability to tax and get into more debt.
- ausbah 6y ago
  that's why the interest rates for government bonds, at in the US, are so low - they're essentially risk free. the issue is the interest rates are so low they don't even beat inflation as far as I know
- PragmaticPulp 6y ago
  > Most of it is government debt No, it’s mostly private sector debt. Read further down in the article to where the author separates out government debt, which is less than 1/3 of the total. Also, you’ve misunderstood the purpose of cheap debt. If the debt encourages growth, the denominator of the debt to GDP ratio increases and the percentage goes down. It’s not a perfect instrument, but it’s simply not true that creative people are flipping government debt into risk-free interest accruing assets elsewhere. It has to be invested to outdo government interest rates. That’s the entire point.
ianai 6y ago
Using percent to make the “bigger” number more dramatic is not helpful. Especially with the publics little knowledge about international trade.
kazinator 6y ago
What is "global debt?" It seems like a comical word: a loan that humanity owes to extraterrestrials? We kind of have a global debt to the Earth; we have been taking a lot from it and leaving it damaged.
cs702 6y ago
Throughout history, rising global debt has been followed by financial and/or economic crisis, again and again. There's lots of debate and little agreement as to why rising debts have preceded crises, but there's no debate about the fact that this is what has happened in the past. A team of World Bank economists wrote a comprehensive report precisely about this topic in December 2019, right before global debt started soaring during the pandemic. Their conclusion: > The global economy has experienced four waves of debt accumulation over the past fifty years. The first three debt waves ended with financial crises in many emerging and developing economies. The latest, since 2010, has already witnessed the largest, fastest and most broad-based increase in debt in these economies. Their total debt has risen by 54 percentage points of GDP to a historic peak of almost 170 percent of GDP in 2018.[a] Since then, global debt has risen by more than 2x in relation to GDP. -- [a] https://www.worldbank.org/en/research/publication/waves-of-debt https://www.worldbank.org/en/research/publication/waves-of-d...
- PragmaticPulp 6y ago
  The debt-to-GDP ratio has two inputs: Debt and GDP. The ratio has partially increased due to rising debt, but most of the increase came from falling GDP in this case. I agree that excessive debt is bad, but I also can see that counter-cyclical fiscal policy can help shorten recessions such as the COVID recession. Note that only 1/3 of the headline number comes from government debt. The rest is private sector. I’m in the camp that thinks we’ve overcompensated for this recession with too much spending, but I also don’t think it’s as catastrophically bad as some of the claims. We’re running the economy red hot and it will eventually pull back, but at the same time we would have had a recession right away due to COVID lockdowns if not for some amount of stimulus. It’s a tricky balance to get right and we’ll never get it perfect, but I also don’t think that we’re winding up for some sort of economic collapse. Pullbacks will happen, but like previous recessions they too will end. I know several people who have been betting on a recession for over 5 years now by exiting the stock market. At this point we could have a 50% drop in the stock market and they’d still only break even on that bet.
  - cs702 6y ago
    IMHO, the least-worst choice for governments everywhere has been to partially freeze their economies into lock-down, and borrow and spend however much is necessary, for as long as necessary, to keep human and capital infrastructure in decent shape until the pandemic is history. The alternatives would have been horrific. But I suspect we'll have to reign debts at some point, either via high taxes (relatively benign, but unpleasant), high inflation rates (more unpleasant and destructive), financial/economic crises (extremely unpleasant and destructive), or some other mechanism.
radium3d 6y ago
Factor in the annual percentage rates on that. I think it makes a large difference. The actual amount that needs to be paid back is far less. I think the final amount owed on that debt is important to look at, not just the total amount borrowed.
ffggvv 6y ago
jpow and yellen are evil printing money to boost stock prices for the rich. wait til next year when peoples 401k is cut in half and inflation also makes everything more expensive
TLightful 6y ago
I'm willing to chip in a fiver. Anyone else want to setup a gofundme for the global economy?
dragonwriter 6y ago
> The increase brings numerous countries, including the U.S., to extreme debt levels, well beyond what economists have called untenable in the past. That's a very weird construction, that makes it sound like it is applying a standard that even the unspecified economists it appeals to have, in fact, already abandoned. Certainly, some economists have called 100% public debt to GDP ratio untenable in the past, and the US has been above that for a while. What is the total debt to GDP ratio threshold being applied, what is the basis for it being called untenable, and where were countries before and after? While the rate of increase seems large, after accounting for the y-axis trickery scare tactic with the graph, the absolute increase in either debt or debt-GDP ratio doesn't seem all that great, so the idea that it's flipped a large portion of the world including the US from happiness and light to untenable debt seems...untenable. > "The upswing was well beyond the rise seen during the 2008 global financial crisis," IIF economists said in the report. As both GDP decline and at least public deficit spending (this is total debt, not government debt, so it also includes private finances) were greater than in 2008-2009, that's unsurprising. It's actually unsurprising from the GDP decline alone and a fairly general norm of Keynesian countercyclical fiscal policy.
andy_ppp 6y ago
I don’t understand where the interest paid on that debt is going? Who ends up making money on it and at what rate is most of it?
ehonda 6y ago
Here is my understanding: Our money system is based on fractional reserve banking, a system where money is created primarily through loans, which means banks will loan out ~90% (or more) of their deposits (which works fine as long as there isn't a bank run), this results in a chain where a $100 deposit of money eventually will result in about $900 in money created (electronically, out of thin air) in the form of loans to other people, all thanks to that $100 deposit. So the bulk of money is created by private banks. Now the loans made out must be paid back with interest, but there is not enough money in existence today to pay back the loans with interest, which means interest can only be paid back if more money is created (more people willing to take on debt in order to create more money). If more money cannot be created fast enough for the economy, more people will default on their loan repayments and you basically have a built in guarantee of crashes every few decades due to this. The Fed can try to prevent this by lowering interest rates to encourage borrowing, but this only prolongs the inevitable and can make the crash even worse when it does eventually happen. You also have a guarantee of inflation over the long term since more money is being created almost all the time. The government borrows from the Fed, which issues out T-Bills, bonds, etc, but when they want to borrow hundreds of billions, or when the Fed issues billions to banks at discounted rates, I am not sure how the Fed gets that money or who they get that money from. The stock market continues to climb because money is automatically dumped into the market when people are paid. Part of their salary is put into the market for people's 401k's and pensions, so every day there is more money in the market, that is what keeps it going (for now).
rthomas6 6y ago
Because of the way fractional reserve banking works, the vast majority of actual money in the system comes from lending. Loans are how 90+% of money is created. If someone deposits $100 in bank A, and there is a 10% reserve rate (like in the US right now), then the bank can now legally make $1,000 in new loans. If the recipient of this loan then deposits this new money in bank B, bank B can now make $10,000 in new loans. A consequence of this is, if there is no debt, there is very little money circulating in the economy. And the more debt, the more money. This is just an explanation of how things work in our economy now. I don't think this is necessarily the best system.
- tryptophan 6y ago
  The reserve rate is currently 0. Yes, 0. That means banks can loan infinite money, and are limited only by the amount of people that can afford to hold more debt. >As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions. https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm Everything is fine.
  - rthomas6 6y ago
    Wow. ...How hard is it to start a bank? Edit: Wait a minute. What incentive is there now for banks to even try to entice people to deposit their money?
    - orthecreedence 6y ago
      > What incentive is there now for banks to even try to entice people to deposit their money? Two things come to mind: - Banks can blast you in the ass with fees, which they seem to love doing, so your (real) money becomes their (real) money by virtue of some 600-page long illegible contract - At some point, the Fed might increase this rate again, at which point I don't know what happens, but banks might have to start getting capital on-hand to meet the reserve. Maybe they want money in there just in case? I don't know the rules around "ok, the rate was 1% but now it's 10% so you banks better a) get the money immediately? b) get it in the next 10 years? c) ???"
CuriousNinja 6y ago
I am not an economist, but as an engineer 356% doesn't mean much without knowing what the breaking point is. What is the upper limit on the debt/GDP ratio? What system parameters would go into calculating such a limit? Is this a situation where we won't know the limit until it breaks because the system is too complex?
tppiotrowski 6y ago
> The world's debt-to-GDP ratio rose to 356% in 2020, a new report from the Institute of International Finance finds, up 35 percentage points from where it stood in 2019 According to first graph: 2019 - 320% 2020 - 356% How is this a 35% increase?
- amusablelemur 6y ago
  It's not. It's an increase of "35 percentage points" and not "35 percent"
- pif 6y ago
  356 - 320 = 36 "up 35 percentage points" does not mean the same as "a 35% increase".
teekert 6y ago
OK I'm a noob so forgive me for asking: Debt to whom?
imnotlost 6y ago
Private sector debt can comfortably be discharged in bankruptcy and new things can grow - creative destruction. Public sector debt in your own currency is all right, it's not like you can ever run out of money - print more of it. Inflation? Eh, maybe in certain sectors but it's not like income is rising, nor is labor participation rates.
squibbles 6y ago
A series of charts plotted by Wolfram Alpha (for US data) shows that debt seems to go up, steadily, forever. [1] The steady rise of debt seems to be a phenomenon independent of specific events. Perhaps this is simply a long-term effect of interdependency. [1] https://www.wolframalpha.com/input/?i=chart+of+debt+to+gdp https://www.wolframalpha.com/input/?i=chart+of+debt+to+gdp
TheOtherHobbes 6y ago
Some of this is circular. A owes B owes C... D E F owes A. It's not unusual to find loops that partly zero out when positions are settled. The problem is no one knows how much they're worth.
dgudkov 6y ago
When you see a chart* with a non zero-based Y-axis you can be sure that the article that includes the chart either has an agenda or tries to sensationalize things. * Note: there are few exceptions where the absolute value is not important, only the fluctuations are, e.g. stock charts.
chewz 6y ago
Debt is just borrowing from the future. And because future is infinite and rates are negative there is no limit on the amount that we could borrow from future generations.
- seppin 6y ago
  > And because future is infinite An optimist, huh?
cryptica 6y ago
It's really very simple. All the debt must be paid back by diluting everyone's salaries through future inflation which will create even more debt. If you're a salary earner and not a capital owner (I.e. earn passive income from assets), that debt represents the degree to which you are a slave to capital owners and also the degree of difficulty for you to get out of this situation. If you're not a capital owner at this stage and you don't have a rich daddy. You're a slave. No other way to put it. Your salary is held hostage by that debt. It's your salary, not the assets of the elite that is going to be paying the interest.
naveen99 6y ago
Or global wealth soars to 500% of gdp
midjji 6y ago
The left graph makes it look like the increase is well within the expected yearly variation, the right one starts quite high 325% level, making it deceptive, but also less informative, especially since combined they appear to say that debt continued to increase as before, but gdp dropped by 25% in 2020. That seems excessive, and I would certainly have expected the debt to increase more and be far more exact compared to gdp. So is the takeaway that we didnt really borrow alot in 2020, and gdp estimation is hard? Conclusion is that the article is likely not based on accurate information.
timwaagh 6y ago
I mean interest rates are through the floor. Debt is cheap so people load up on it.
jganetsk 6y ago
People should read Debt: The First 5000 Years by David Graeber [1]. Then they would learn that debt 1) is viewed in very different ways in different cultures, places and times 2) is not always bad 3) should not always be paid off. [1] https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years

296 points by cwwc 6y ago

Won't inflation reduce debt? I can see massive inflation on the horizon.

"Soars" is a bit of a stretch. Both the y-axis and x-axis scales on the RHS chart seem misleading. How about going back 10 or even 20 years? And how about starting the y-axis from, say, 100%

dmarchand90 6y ago
I just did the math and it's only gone up 15% over the previous year which seems extremely reasonable given the circumstances. It's much less than I thought it would be.
- markus_zhang 6y ago
  I think one important difference is how (comparing to QE) much fiat money went into the economy directly through Covid aid and other items. Does anyone have the data?
deleted 6y ago
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rayiner 6y ago

I’m no economist so I don’t claim to fully understand everything involved here. But one thing worth pointing out is that, when talking about the world as a whole, increasing debt can be the sign of positive developments. People are going to be more willing to lend money for longer time horizons in a society that’s more stable and secure. You don’t take a 25 year loan to build a shopping center in the middle of a civil war.

nabla9 6y ago
In this case the main cause was GDP shrinking.
- PragmaticPulp 6y ago
  Yes, debt went up but GDP went down more. Conversely, this means that GDP recovery will provide downward pressure on the ratio.
bjarneh 6y ago
Good point, but this type of math always puzzles me. We owe ourselves 356% of what we produce every year? We don't owe this money to some foreign planet with a death-star pointing at us. So at what point should we be concerned? What is the worst that can happen? We don't get our own money back from ourselves?
- BurningFrog 6y ago
  > "We owe ourselves..." That's a bit of a hostile "we". I and my bank don't have any debt, considered as a group. Technically true, but doesn't make my mortgage go away. > What is the worst that can happen? When governments can't/won't pay their debts, the way out is printing money to pay with. This has in at least one case led to the Holocaust. Low sample size, but still.
  - selimthegrim 6y ago
    Next up from HN hot takes - how cowrie shells led to the Cambodian genocide. You heard it here first.
    - BurningFrog 6y ago
      It's unknowable how Germany would have developed without the 1923 hyperinflation, but my guess is it would have muddled along as a semi stable democracy, instead of what happened. https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_R...

reedf1 6y ago

I am leveraged (via my mortgage) about 600% of my GDP (yearly salary). This seems realistic for me, why is it not realistic for the government? Especially when the government's spend directly correlates with their future income.

ashtonkem 6y ago
As a general rule, analogies between personal finance and government finance don’t work very well. It feels intuitive, but governments can do things you cannot. You personally lack the ability to cause inflation via your debt, for example. You also can’t raise bonds, adjust taxes, or declare war. Not saying that 356% is bad, I’m not an economist, but just because you’re leveraged higher than that on a mortgage tells us very little about whether or not 356% is bad or not. For certain it matters what that government debt is going to pay for. Debt for infrastructure (and therefore future growth) is quite a bit different than debt to finance consumption, for example.
- maxerickson 6y ago
  The shift to long term mortgages ballooned house prices. If people conspired to pay banks less, houses would cost less (purchases are mostly made based on the monthly payment and perception that the price will go up, not on some more concrete valuation).
  - chii 6y ago
    > If people conspired to pay banks less, houses would cost less and so that one person who would really prefer a particular house/location (because it's a great house/location) would pay just a little bit more and guarantee that he/she gets it. Guess what happens then?
    - robjan 6y ago
      Then it becomes attractive for the neighbour to sell their house. There are two sides to a market.
  - 6y ago

zozin 6y ago

The Dollar debt denominated system either blows up taking down American hegemony with it or the Fed, et al. manages to inflate its way out of the debt and America prospers while the rest of the world lags behind. Given that the two other centers of power (EU and China) are as inimical towards each other as China is to the US, I doubt a non-Dollar alternative springs up any time soon. I wouldn't start betting against America any time soon.

johanneskanybal 6y ago
It's interesting to me not being able to imagine a world where the dollar is less important. Every other country on the planet doesn't need their currency to be the global standard to be successful. You'll be fine when that inevitably happens too.
bubbleRefuge 6y ago
Not sure why you are getting downvoted ? The crux of it is that the rest of world(ROW) wishes to net export to America and America wishes to net import. So ROW, wants to save dollars and maintain a relatively stable exchange rate in order for prices to remain attractive. Unless and untill someone else steps up as net import for ROW, I don't see it happening. Also, we benefit from this world order because ROW spends bares the real world costs of production: labor, pollution, raw materials, etc where as we bare the monetary costs which are not 'real' world costs and you could argue since there is no gold standard, monetary costs are just the entering numbers into a spreadsheet. Its a racket.

kryogen1c 6y ago

interesting, if not unsurprising. >That projection was made without including President Biden's proposed $1.9 trillion stimulus package this is, as the kids say, an oof. the more interesting question those graphs present to me is what happened in 2016-2018? why did debt skyrocket but debt% of gdp go down?

rayiner 6y ago
> the more interesting question those graphs present to me is what happened in 2016-2018? why did debt skyrocket but debt% of gdp go down? The Trump economy.
- selimthegrim 6y ago
  Dead cat bounce - goosing the accelerator was going to catch up to him
  - rayiner 6y ago
    A lot of it I think was just trajectory. But I think deregulation (lowering costs of domestic production) + tariffs (raising costs of imports) is probably the right approach.
    - JamesBarney 6y ago
      I don't think it's tariffs. Most economists agree once you take into account retaliatory tariffs they're bad for the economy. This doesn't mean we shouldn't do them, it might be worth it to take a gdp hit to preserve certain types of jobs. Plus the trade deficit didn't really move. I doubt it's deregulation especially in the short-term. It takes a herculean amount of deregulation to move gdp, and most of the impact would happen over the long term. Like they say it takes a lot of Harbinger's triangles to fill an Okun gap. Honestly I think the Trump economy is mostly due to Trump yelling at the Fed to keep their foot on the gas. We had un/underemployment and he pushed them to lean a little harder on the accelerator.

c7DJTLrn 6y ago

It's just imaginary numbers at this point. I'm no economist but the fact that this is all still functioning seems like a miracle to me, resting on the single concept of owing money.

nerdponx 6y ago
The money, credit, and banking system is an under-appreciated wonder.

Werewolf255 6y ago

It's almost like there's a global emergency happening.

neals 6y ago

I've always wondered if this website (axios) is related to the NPM package for http requests. Anybody?

__float 6y ago
Not related -- "The site's name is based on the Greek: ἄξιος (áxios), meaning "worthy"". "Just" a Greek word, that's all.
realPubkey 6y ago
Yes me. Every single time is see something posted from axios.
deleted 6y ago
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d--b 6y ago

So if it’s untenable, it means those lending money will lose some, right? Or devalue, which also means those holding cash will lose some money. Why would that be so bad? If all countries decided to devalue jointly, it wouldn’t create inflation, no? Seems to me that it would iron out some inequalities...

spiderfarmer 6y ago
Pension funds would be massacred.

m12k 6y ago

Does anyone know if there is anywhere we can find a graph of interest (rather than debt) vs GDP? It seems more useful to compare one annualized number with another. With interest rates historically low, this might be less of a burden on the economy than previous lower debts at higher interest rates, or it might be much worse - but I can't tell from a graph like this.

PragmaticPulp 6y ago
This graph includes private sector debt, which has interest rates all over the place. Only about 1/3 of it is government debt. Keep that in mind when trying to put it in context.
matthewdgreen 6y ago
For the US (only), you go here: https://fred.stlouisfed.org/series/FYOIGDA188S https://fred.stlouisfed.org/series/FYOIGDA188S For the world there's the World Bank. I don't know if this is the right statistic, though: https://data.worldbank.org/indicator/GC.XPN.INTP.RV.ZS https://data.worldbank.org/indicator/GC.XPN.INTP.RV.ZS

singron 6y ago

The headline sounds a little more exciting than it really is. Debt before this year was already at 320% of GDP. It's also important to remember that GDP is an annual number ($/year) whereas the debt number includes accumulated debt from all prior years.

neural_thing 6y ago
A 45 percentage point increase in a year is phenomenally, mind-bogglingly huge.
- deleted 6y ago
  [deleted]
- robjan 6y ago
  It's very cheap to borrow money and has been for the last decade. The more you borrow, the more you can capture the economic growth.
  - ffggvv 6y ago
    until you have to refinance the debt because you haven’t paid any of it off and it’s matured and rates are way higher...
    - pessimizer 6y ago
      If rates are way higher, then that means that money is making money. If you borrowed in order to invest, rather than consume, you should have been making money.
- mywittyname 6y ago
  It's a 15% increase overall though. When you consider that the unemployment spiked at the fastest rate ever seen and the entire world fell into a brief, but severe recession (~30% GDP decline in the US), a 15% increase in debt / GDP seems quite mild.

standardUser 6y ago

"...the world's already high debt levels look to be inhibiting economic growth and threaten to hold back a full recovery from the pandemic in the long run." Is that what they "look" do be doing? Explain how.

FlownScepter 6y ago

Who the fuck do we owe, the Martians? How long before we just accept that money is made up and free ourselves of this make believe game? Just give people what they need to survive and let the unwieldy and inefficient private sector die, we're propping them all up with tax money already anyway and they still barely tread water.

PragmaticPulp 6y ago
This headline includes private sector debt. Most of that number is private debt. If you have a mortgage or a car loan or a credit card, you’re part of that number. And you certainly owe real money to real lenders. Likewise, government debt is still real debt. A not insignificant part of your taxes goes to servicing interest on government debt. That’s because it’s still a real debt owed to real people who expect real interest payments. Money isn’t some made up concept. We can’t simply print more and declare it all good. Don’t confuse money with wealth, which is a separate concept that underpins this system.
- FlownScepter 6y ago
  > If you have a mortgage or a car loan or a credit card, you’re part of that number. And you certainly owe real money to real lenders. Yes and on an individual scale like that, it makes complete sense. It's borrowed against my future income, and that I will someday pay off (I mean probably not I'll buy a different house but you know what I mean.) I'm saying, on a scale of Nations and megacorporations, it's fucking bananas nonsense. According to the Goog, US national debt is 27 trillion. Who do we owe? How did we qualify to borrow that, apart from being if not the center, at least a good chunk of the center, of the world economy? Is anyone in a position to say we can't borrow it? Is there a credit check? Who fails that check, if there is one, because we haven't despite the last several decades of absolutely racking it up. At this point to analogize the US to a single person (which is reductive and useless but bear with me, I'm making a point), we'd be someone with hundreds of thousands in credit card debt, making a lot of money to be sure, but also carrying four mortgages and making interest only payments, and the bank in question is just still handing us money. And like, I don't think that's great, but also, it's been chugging along more or less fine for as long as I've been around. So... why don't we just stop pretending it means anything? We "owe" some foreign banks... do we? Says who? Who's gonna enforce that? Are they gonna foreclose America? The only time I've ever seen countries actually brought to their knees by banking is when a tiny one gets too uppity about getting screwed on the global economy scale, at which point we send in Marines to remind them who's in charge. Who's gonna do that to us?

hourislate 6y ago

I recently read a great book called "The Price of Tomorrow" - Jeff Booth. The author discusses how credit and debt is the main driver of growth over the last 20 years (Inflationary) because technology is deflationary and as it exponentially increases so does deflation. Governments who are terrified of deflation and dependent on a system that encourages incessant growth and higher prices, can only maintain that growth through credit and debt (inflation). Considering that almost every country in the world is participating in uncontrolled borrowing and spending, it's going to get very interesting. An quick and interesting read...would recommend.

JumpCrisscross 6y ago
> Governments who are terrified of deflation and dependent on a system that encourages incessant growth and higher prices, can only maintain that growth through credit and debt (inflation) Money is cash and credit. The government has been printing cash for a decade. You don’t need, and we haven’t only had, debt.
hahahahe 6y ago
Innovation is always inflationary.

exabrial 6y ago

I really don't think we need the stimulus package congress is trying to ram through. At this point we just need things to settle down.

BurningFrog 6y ago

I really don't like expressing debt as % of GDP. It makes it sound like when you pass 100% all the money is gone. I prefer "44 months of GDP" over "356% of GDP".

pokot0 6y ago

Isn't government debt extremely cheap compared to 20/30 years ago? Should we not look at how much interest we are paying compared to GDP for a better outlook?

boringg 6y ago
Yes agreed - debt repayment is more important that total debt. People always confuse this stuff (understandably).
dnadler 6y ago
Yes, that's a good point. We should also consider that a lot of the interest rates are negative in real terms.

PragmaticPulp 6y ago

This headline is total global debt, which includes private sector debt. Many of the comments here are mistakenly assuming this is only government debt, which is incorrect. The article mentions the government portion of debt further down: > Government debt accounts for 105% of global GDP, up from 88% in 2019, rising by $12 trillion in 2020 or nearly triple its $4.3 trillion increase in 2019.

boringg 6y ago

I'd be more interested in what percentage of global GDP are the debt repayments. This is a bit of scare mongering on Axios part - if the denominator goes down (gdp as a result of a pandemic) of course the % is going to blow up. At least they did put in a time-series plot of the last years. Yes debt flew up this year ... is anyone surprised given the large scale stimulus by most central banks? As a side note / gripe - Any reputable news organization should always be putting in time-series plots for any news article talking about talking about budgets/large scale economic values so people can grasp concepts and get honest context. Otherwise it always feels manipulative when they place random large numbers for shock value.

inglor_cz 6y ago

I would say that what really matters is the interest rate. Interest rates worldwide are really, really low. In quite a few countries, below zero actually. So the real debt burden, which comes from the need to pay interest, is not really painful right now. It is not at all clear if such a low level of interest rates can be sustained forever. If it jumps up a bit, heavily indebted countries like Italy and France will be immediately in serious trouble and risk of default. There is another risk of having interest rate too low: zombie corporations can be kept alive longer by borrowing, unprofitable projects too.

sleepysysadmin 6y ago
>I would say that what really matters is the interest rate. Interest rates are negative in many places. Germany has had negative interest rates for nearly 2 years and 0% for over 5 years. Does that mean you have can infinite debt? Worse yet, Germany was deflationary for nearly all of 2020 and are officially in a recession. Constitutionally Germany's government cannot run a deficit. As such they have reduced their government debt in the last several years. For all of 2020 however unemployment basically never moved. Now lets look at Canada where the government has run historic record breaking levels of debt. In 2020 alone the central bank took on $400 billion in debt. The Canadian government stopped reporting their economic numbers during 2020 because lets be realistic... GDP of Canada is roughly 1750 billion. 14% unemployment. That $400 billion does mean that Canada was not deflationary. So the government took on $400 billion in debt and how much did GDP increase? Surely we should see 15-20% gdp increase? Nope. We see -17%. >It is not at all clear if such a low level of interest rates can be sustained forever. YTD on interest rates is +35% or so. Which is interesting because inflation targets are well below target. >There is another risk of having interest rate too low: zombie corporations can be kept alive longer by borrowing, unprofitable projects too. Well we're seeing it all over. So many countries are over leveraged and bubbles are everywhere. They are going to pop.

OscarCunningham 6y ago

> Nonfinancial private sector debt alone now makes up 165% of the entire world's economic output. What does this mean? Do they just mean 'is as large as' rather than 'makes up'?

boringg 6y ago

(DEBT repayments)/GDP >>> important then DEBT/GDP. Right now debt is super cheap so might as well stock up.

fasteddie31003 6y ago

If I but my money in this bitcoin thing I keep hearing about, would I not be as exposed to global debt?

acd 6y ago

I think central banks are distorting the economy in a non good way by artifically lowering interest rates. Low interest rate is driving up house and asset prices. Central banks try and control price inflation by lowering interest rates to get wage/price inflation up to 2% but we live in a globalized market so that dont work.

radium3d 6y ago
In what way are the interest rates on fixed loans artificial though may I ask?
- acd 6y ago
  Central banks intervene in the market and buys debts. Thus central banks distort the true pricing of debt since well if the central bank would not buy the debt the price of issuing that debt would be higher ie interest rate. Its artificial in that with quantitative easing the true price of the assets is distorted. "A central bank implements quantitative easing by buying financial assets from commercial banks and other financial institutions, thus raising the prices of those financial assets and lowering their yield, while simultaneously increasing the money supply. In contrast to conventional open-market operations, quantitative easing involves the purchase of more risky assets (than short-term government bonds) and at a large scale, over a pre-committed period of time. " source: https://en.wikipedia.org/wiki/Quantitative_easing https://en.wikipedia.org/wiki/Quantitative_easing

leroman 6y ago

Virtual resources leveraging from loaning from future generations doesn't take into account natural resources.. don't see how this can hold up in reality..

Reason077 6y ago

I wonder what portion of that ~$20 trillion surge in debt since the start of the pandemic has been pumped directly into equities and cryptocurrencies?

CraigJPerry 6y ago

>> Why it matters: The increase brings numerous countries, including the U.S., to extreme debt levels, well beyond what economists have called untenable in the past. That’s not an answer to the question posed. So why exactly does it matter? >> Why the debt matters: While worries about significantly pushing up inflation and borrowing costs have not come to pass Ok, so it doesn’t matter? People with one particular story to tell about macro economics were wrong AGAIN. Shock horror. >> slow growth and diminishing returns have, and the world's already high debt levels look to be inhibiting economic growth and threaten to hold back a full recovery from the pandemic in the long run. Correlation/causation? This is a poor article. All huffed and puffed up language without substance.

orwin 6y ago
Yeah, its because it really doesn't matter.

thoughtstheseus 6y ago

The debt jubilees are coming. The deferment of rent, desire to cancel student debt, swelling govt. debt are all trends in the same vain.

yalogin 6y ago

If everyone in the world is in debt, why don’t we just collaborate and pardon the debt? A reset if you will and keep it going. Or do nothing and ignore it, I am not an economist so purely guessing here, but debt doesn’t seem to have negative impact on economies. Other things will but I haven’t seen one instance where the country is in bad shape of not because of debt. EDIT: I get that debt is not the same for all countries. I was only talking about canceling the percentage of debt that is common across all countries. Also, when I say ignore it, I am only talking from US centric view I guess. The US will probably never repay its debt and as long as the dollar is strong it keeps borrowing and the debt keeps increasing. So ignoring the debt is not done overtly to not repay but done so as to keep getting more debt and not getting forced to curtail growth plans.

WhompingWindows 6y ago
It's not unheard of, but it's pretty rare in the history of government finance. I believe this occurred in the French Revolution, wherein the monarchy's finances were in tatters. Ministers of finance took out multiple loans to keep up revenue and hide the clusterfuck of debts, but eventually something had to give...the French simply didn't pay a lot of their debts back due to national emergency and revolutionary upheaval (which came before/during/after this financial move). How the French govt got so indebted was partially exorbitant spending (like helping the US in its revolutionary war vs Britain), but also that they taxed their nobility at 0%. They couldn't change the laws because of a labyrinthine legal system and a power structure packed with 0% paying nobles. This is an extreme version of what we have today, where many rich people avoid taxes and pay effectively lower rates than poor people.
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PragmaticPulp 6y ago
> Or do nothing and ignore it What happens when you ignore your mortgage or car payment? You lose the asset, because the lender has recourse against non-payment. Now what happens if we make it illegal for lenders to do anything about missed payments? Suddenly, the lenders are in a much riskier position. They can’t give out cheap loans if the recipients know they can simply ignore the interest payments and keep the house or car. As a result, interest rates much be way, way higher to make up for all of the people who choose to ignore their loans. Loans become much harder to get for anyone who doesn’t have a long credit history of repaying loans, meaning starter homes aren’t affordable until people are in their 30s or 40s, if ever. Same thing happens at government scale. If we simply stop paying the debt, trust disappears and the cost of borrowing goes up. We can’t finance our infrastructure and public services because no one has any desire to lend money to an institution that has demonstrated a refusal to pay it back. Does your city need to replace a bridge? I guess they need to save up the taxes for the next 10 years and then replace it, rather than issuing 10-year bonds at cheap rates. Or from another perspective: Imagine your friend needs $1000 to start a business. You loan him $1000 and he writes up a contract to repay you $1050 later. However, we declares a debt jubilee and now he refuses to pay you back. You’re now out $1000, have no recourse, and your friend has a business with no debt. Would you ever consider loaning anyone money again? If you did, you’d probably want a $1300 repayment on your $1000 loan to offset the risk of another debt jubilee destroying your investment again. Debt is just a contract to finance projects at a certain rate. A debt jubilee voids the contract. If you destroy the contract, you destroy the system that finances things.

chalst 6y ago

Michal Kalecki: "I have found out what economics is; it is the science of confusing stocks with flows". Can we not have financial journalism with apples-to-oranges comparisons like "Nonfinancial private sector debt alone now makes up 165% of the entire world's economic output". The lead paragraph has "well beyond what economists have called untenable in the past", without commenting on the fact that this swiftly abandoned consensus about unsustainable levels of debt was based on the incompetent analysis of Reinhart and Rogoff. (cf. https://en.wikipedia.org/wiki/Growth_in_a_Time_of_Debt https://en.wikipedia.org/wiki/Growth_in_a_Time_of_Debt ). There might be a real issue here, but this is bad reporting.

cs702 6y ago
No one is comparing anything. Computing ratios of stocks (balances) to annual flows is standard procedure. We do it for countries (debt/annual gdp is a commonly used ratio), for companies (debt/annual EBITDA is a commonly used leverage ratio), and for individuals (household debt/annual income is a commonly used ratio).
- chalst 6y ago
  The dimensionless %age terminology is misleading (hence the Kalecki quote) but I agree standard: it would make the difference in kind clearer to give this in terms of time, say days, but I am not going to object every time I see this. But to use metaphors like saying a class of debt "makes up" GDP is magnifying the confusion and not the kind of thing a financial journalist should be writing.
  - cs702 6y ago
    > The dimensionless %age terminology is misleading These ratios are not percentages; they're measured in years = [balance in dollars] / [flow in dollars / year], by convention. In the case of households, debt/income gives you a rough estimate of how many years of income it would take to pay all debt, with everyone understanding that not all income can go to pay debts. The ratio is a rough measure of debt service capacity, measured in years. In the case of businesses, debt/EBITDA gives you a rough estimate of how many years of operating cash flows would take the company to pay all debt, , with everyone understanding that not all operating cash flow can go to service debts. The ratio is a rough measure of debt service capacity, measured in years. In the case of governments, debt/GDP it gives you a rough measure of how many years of output the entire economy would have to produce to match the balance of public debts, with everyone understanding that economic output can never be taxed at 100%. The ratio is a rough measure of debt service capacity, measured in years.

narrator 6y ago

Someone owns that debt. Most of it is government debt. The problem with government debt is people without any creativity can just buy government debt and earn interest on trillions just betting on the government's ability to tax and get into more debt.

ausbah 6y ago
that's why the interest rates for government bonds, at in the US, are so low - they're essentially risk free. the issue is the interest rates are so low they don't even beat inflation as far as I know
PragmaticPulp 6y ago
> Most of it is government debt No, it’s mostly private sector debt. Read further down in the article to where the author separates out government debt, which is less than 1/3 of the total. Also, you’ve misunderstood the purpose of cheap debt. If the debt encourages growth, the denominator of the debt to GDP ratio increases and the percentage goes down. It’s not a perfect instrument, but it’s simply not true that creative people are flipping government debt into risk-free interest accruing assets elsewhere. It has to be invested to outdo government interest rates. That’s the entire point.

ianai 6y ago

Using percent to make the “bigger” number more dramatic is not helpful. Especially with the publics little knowledge about international trade.

kazinator 6y ago

What is "global debt?" It seems like a comical word: a loan that humanity owes to extraterrestrials? We kind of have a global debt to the Earth; we have been taking a lot from it and leaving it damaged.

cs702 6y ago

Throughout history, rising global debt has been followed by financial and/or economic crisis, again and again. There's lots of debate and little agreement as to why rising debts have preceded crises, but there's no debate about the fact that this is what has happened in the past. A team of World Bank economists wrote a comprehensive report precisely about this topic in December 2019, right before global debt started soaring during the pandemic. Their conclusion: > The global economy has experienced four waves of debt accumulation over the past fifty years. The first three debt waves ended with financial crises in many emerging and developing economies. The latest, since 2010, has already witnessed the largest, fastest and most broad-based increase in debt in these economies. Their total debt has risen by 54 percentage points of GDP to a historic peak of almost 170 percent of GDP in 2018.[a] Since then, global debt has risen by more than 2x in relation to GDP. -- [a] https://www.worldbank.org/en/research/publication/waves-of-debt https://www.worldbank.org/en/research/publication/waves-of-d...

PragmaticPulp 6y ago
The debt-to-GDP ratio has two inputs: Debt and GDP. The ratio has partially increased due to rising debt, but most of the increase came from falling GDP in this case. I agree that excessive debt is bad, but I also can see that counter-cyclical fiscal policy can help shorten recessions such as the COVID recession. Note that only 1/3 of the headline number comes from government debt. The rest is private sector. I’m in the camp that thinks we’ve overcompensated for this recession with too much spending, but I also don’t think it’s as catastrophically bad as some of the claims. We’re running the economy red hot and it will eventually pull back, but at the same time we would have had a recession right away due to COVID lockdowns if not for some amount of stimulus. It’s a tricky balance to get right and we’ll never get it perfect, but I also don’t think that we’re winding up for some sort of economic collapse. Pullbacks will happen, but like previous recessions they too will end. I know several people who have been betting on a recession for over 5 years now by exiting the stock market. At this point we could have a 50% drop in the stock market and they’d still only break even on that bet.
- cs702 6y ago
  IMHO, the least-worst choice for governments everywhere has been to partially freeze their economies into lock-down, and borrow and spend however much is necessary, for as long as necessary, to keep human and capital infrastructure in decent shape until the pandemic is history. The alternatives would have been horrific. But I suspect we'll have to reign debts at some point, either via high taxes (relatively benign, but unpleasant), high inflation rates (more unpleasant and destructive), financial/economic crises (extremely unpleasant and destructive), or some other mechanism.

radium3d 6y ago

Factor in the annual percentage rates on that. I think it makes a large difference. The actual amount that needs to be paid back is far less. I think the final amount owed on that debt is important to look at, not just the total amount borrowed.

ffggvv 6y ago

jpow and yellen are evil printing money to boost stock prices for the rich. wait til next year when peoples 401k is cut in half and inflation also makes everything more expensive

TLightful 6y ago

I'm willing to chip in a fiver. Anyone else want to setup a gofundme for the global economy?

dragonwriter 6y ago

> The increase brings numerous countries, including the U.S., to extreme debt levels, well beyond what economists have called untenable in the past. That's a very weird construction, that makes it sound like it is applying a standard that even the unspecified economists it appeals to have, in fact, already abandoned. Certainly, some economists have called 100% public debt to GDP ratio untenable in the past, and the US has been above that for a while. What is the total debt to GDP ratio threshold being applied, what is the basis for it being called untenable, and where were countries before and after? While the rate of increase seems large, after accounting for the y-axis trickery scare tactic with the graph, the absolute increase in either debt or debt-GDP ratio doesn't seem all that great, so the idea that it's flipped a large portion of the world including the US from happiness and light to untenable debt seems...untenable. > "The upswing was well beyond the rise seen during the 2008 global financial crisis," IIF economists said in the report. As both GDP decline and at least public deficit spending (this is total debt, not government debt, so it also includes private finances) were greater than in 2008-2009, that's unsurprising. It's actually unsurprising from the GDP decline alone and a fairly general norm of Keynesian countercyclical fiscal policy.

andy_ppp 6y ago

I don’t understand where the interest paid on that debt is going? Who ends up making money on it and at what rate is most of it?

ehonda 6y ago

Here is my understanding: Our money system is based on fractional reserve banking, a system where money is created primarily through loans, which means banks will loan out ~90% (or more) of their deposits (which works fine as long as there isn't a bank run), this results in a chain where a $100 deposit of money eventually will result in about $900 in money created (electronically, out of thin air) in the form of loans to other people, all thanks to that $100 deposit. So the bulk of money is created by private banks. Now the loans made out must be paid back with interest, but there is not enough money in existence today to pay back the loans with interest, which means interest can only be paid back if more money is created (more people willing to take on debt in order to create more money). If more money cannot be created fast enough for the economy, more people will default on their loan repayments and you basically have a built in guarantee of crashes every few decades due to this. The Fed can try to prevent this by lowering interest rates to encourage borrowing, but this only prolongs the inevitable and can make the crash even worse when it does eventually happen. You also have a guarantee of inflation over the long term since more money is being created almost all the time. The government borrows from the Fed, which issues out T-Bills, bonds, etc, but when they want to borrow hundreds of billions, or when the Fed issues billions to banks at discounted rates, I am not sure how the Fed gets that money or who they get that money from. The stock market continues to climb because money is automatically dumped into the market when people are paid. Part of their salary is put into the market for people's 401k's and pensions, so every day there is more money in the market, that is what keeps it going (for now).

rthomas6 6y ago

Because of the way fractional reserve banking works, the vast majority of actual money in the system comes from lending. Loans are how 90+% of money is created. If someone deposits $100 in bank A, and there is a 10% reserve rate (like in the US right now), then the bank can now legally make $1,000 in new loans. If the recipient of this loan then deposits this new money in bank B, bank B can now make $10,000 in new loans. A consequence of this is, if there is no debt, there is very little money circulating in the economy. And the more debt, the more money. This is just an explanation of how things work in our economy now. I don't think this is necessarily the best system.

tryptophan 6y ago
The reserve rate is currently 0. Yes, 0. That means banks can loan infinite money, and are limited only by the amount of people that can afford to hold more debt. >As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions. https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm Everything is fine.
- rthomas6 6y ago
  Wow. ...How hard is it to start a bank? Edit: Wait a minute. What incentive is there now for banks to even try to entice people to deposit their money?
  - orthecreedence 6y ago
    > What incentive is there now for banks to even try to entice people to deposit their money? Two things come to mind: - Banks can blast you in the ass with fees, which they seem to love doing, so your (real) money becomes their (real) money by virtue of some 600-page long illegible contract - At some point, the Fed might increase this rate again, at which point I don't know what happens, but banks might have to start getting capital on-hand to meet the reserve. Maybe they want money in there just in case? I don't know the rules around "ok, the rate was 1% but now it's 10% so you banks better a) get the money immediately? b) get it in the next 10 years? c) ???"

CuriousNinja 6y ago

I am not an economist, but as an engineer 356% doesn't mean much without knowing what the breaking point is. What is the upper limit on the debt/GDP ratio? What system parameters would go into calculating such a limit? Is this a situation where we won't know the limit until it breaks because the system is too complex?

tppiotrowski 6y ago

> The world's debt-to-GDP ratio rose to 356% in 2020, a new report from the Institute of International Finance finds, up 35 percentage points from where it stood in 2019 According to first graph: 2019 - 320% 2020 - 356% How is this a 35% increase?

amusablelemur 6y ago
It's not. It's an increase of "35 percentage points" and not "35 percent"
pif 6y ago
356 - 320 = 36 "up 35 percentage points" does not mean the same as "a 35% increase".

teekert 6y ago

OK I'm a noob so forgive me for asking: Debt to whom?

imnotlost 6y ago

Private sector debt can comfortably be discharged in bankruptcy and new things can grow - creative destruction. Public sector debt in your own currency is all right, it's not like you can ever run out of money - print more of it. Inflation? Eh, maybe in certain sectors but it's not like income is rising, nor is labor participation rates.

squibbles 6y ago

A series of charts plotted by Wolfram Alpha (for US data) shows that debt seems to go up, steadily, forever. [1] The steady rise of debt seems to be a phenomenon independent of specific events. Perhaps this is simply a long-term effect of interdependency. [1] https://www.wolframalpha.com/input/?i=chart+of+debt+to+gdp https://www.wolframalpha.com/input/?i=chart+of+debt+to+gdp

TheOtherHobbes 6y ago

Some of this is circular. A owes B owes C... D E F owes A. It's not unusual to find loops that partly zero out when positions are settled. The problem is no one knows how much they're worth.

dgudkov 6y ago

When you see a chart* with a non zero-based Y-axis you can be sure that the article that includes the chart either has an agenda or tries to sensationalize things. * Note: there are few exceptions where the absolute value is not important, only the fluctuations are, e.g. stock charts.

chewz 6y ago

Debt is just borrowing from the future. And because future is infinite and rates are negative there is no limit on the amount that we could borrow from future generations.

seppin 6y ago
> And because future is infinite An optimist, huh?

cryptica 6y ago

It's really very simple. All the debt must be paid back by diluting everyone's salaries through future inflation which will create even more debt. If you're a salary earner and not a capital owner (I.e. earn passive income from assets), that debt represents the degree to which you are a slave to capital owners and also the degree of difficulty for you to get out of this situation. If you're not a capital owner at this stage and you don't have a rich daddy. You're a slave. No other way to put it. Your salary is held hostage by that debt. It's your salary, not the assets of the elite that is going to be paying the interest.

naveen99 6y ago

Or global wealth soars to 500% of gdp

midjji 6y ago

The left graph makes it look like the increase is well within the expected yearly variation, the right one starts quite high 325% level, making it deceptive, but also less informative, especially since combined they appear to say that debt continued to increase as before, but gdp dropped by 25% in 2020. That seems excessive, and I would certainly have expected the debt to increase more and be far more exact compared to gdp. So is the takeaway that we didnt really borrow alot in 2020, and gdp estimation is hard? Conclusion is that the article is likely not based on accurate information.

timwaagh 6y ago

I mean interest rates are through the floor. Debt is cheap so people load up on it.

jganetsk 6y ago

People should read Debt: The First 5000 Years by David Graeber [1]. Then they would learn that debt 1) is viewed in very different ways in different cultures, places and times 2) is not always bad 3) should not always be paid off. [1] https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years