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The World’s $100T Fiscal Timebomb Keeps Ticking
- jxf 2y agoThe idea of the "world debt level" being alarming doesn't make a lot of sense to me. There isn't anyone else we _could_ owe money to, right? I'm not educated enough in global finance to have a useful opinion in this, but imagine the following scenario: * Country A owes $100M to Country B * Country B owes $100M to Country C * Country C owes $100M to Country A Here, the "world debt level" is $300M. But if country C pays $100M to country A, who then pays it to country B, who then pays it to country C, you'll have settled all three debts and no net money changed hands. If you multiplied all the debts here by a factor of 1,000,000, you'd get a "$100T fiscal timebomb" for each country. But how much of a big deal is that in this hypothetical scenario when they don't, on a net basis, actually owe any money at all?
- mksreddy 2y agoSome of the debt is even A holds B’s debt and B holds A debt. Example: US and Japan.
- dist-epoch 2y agoThe debts can be in different currencies, or at different maturities, you can't just cancel them out.
- spydum 2y agoI'm kind of with you, but I think you may be leaving out the impact of defaults and the cascading effect when country B ends up not being able to satisfy that debt?
- jordanb 2y agoYeah if you want to know what the net debt on earth at any one time, the answer is easy: $0. Until we start borrowing space dollars from aliens, every debt is someone else's credit, every liability is someone else's asset. The global debt must sum to zero.
- blackbear_ 2y agoThat only works if you assume that all debts will eventually be repaid in full. But in reality some companies go bankrupt and some of their creditors will have lost money.
- dist-epoch 2y agoWhat's more important than the absolute debt levels is the various marginal financial flows they generate - interest payments, derivative trades, ... It's in a highly unstable meta-equilibrium.
- nkmskdmfodf 2y agoYou're ignoring interest. If there is 100T of outstanding debt at 3% annual interest, that's 3T in interest per year. At a certain point it may be impossible to keep the overall interest payments going and the debt graph will collapse like dominoes. The great recession was also mainly caused by debts within the US economy.
- chgs 2y agoSo country A pays 3% to country b, who pays 3% to country c who pays 3% to country A
- nkmskdmfodf 2y agoWhat happens when country A can't pay?
- cannonpr 2y agoVery bad things, or maybe very good things, depends on your perspective, a reset in any case and a restructuring of debt, usually just after a crash.
- scott_w 2y agoWhich isn’t free either. Consider the interest levels of countries considered unstable vs those considered stable (UK/US compared to Türkiye/Argentina for example). It massively changes what actions the respective governments can take.
- deleted 2y ago[deleted]
- selectodude 2y agohttps://en.m.wikipedia.org/wiki/European_debt_crisis https://en.m.wikipedia.org/wiki/European_debt_crisis Everything old is new again. https://www.youtube.com/watch?v=OrhJcqgXrlw https://www.youtube.com/watch?v=OrhJcqgXrlw
- lr4444lr 2y agoNational budgets are complicated. Part of that is revenue from interest on debt issuance. Another part is borrowing to make up for deficits. If all debtors stop paying, revenue has to be adjusted by the expected rate of return - this is not equal, even if the amounts borrowed are. In turn, creditors will stop buying debt if they cannot make a return on interest: that means either spending has to be reduced by the debtor nation, taxes have to go up, or money printing has to begin. In cases like the EU countries that gave up their sovereign currency, printing is not an option. It's not as simple as canceling out all the credits and debits. Flows matter.
- deleted 2y ago[deleted]
- bluecalm 2y agoSuch debt would be cancelled and is not problematic. The problematic one is government owing money to citizens or institutions (domestic or foreign). If USA owes 100B to a pension fund in Japan and Japan owes 100B to pension fund in USA then there is no way to cancel it. Governments have to pay the money back with interest and at some point it becomes significant burden to tax payers. It's problematic especially when those tax payers aren't the ones who benefited from spending the debt was taken to finance.
- bugbuddy 2y agoThe solution will always be inflation and devaluation. Your millions will start to feel like thousands and your billions will start to feel like millions. The first trillionaire will not be far off but because of unhappy circumstances.
- aoeusnth1 2y agoInflation is a middle ground between respecting the debt and canceling the debt. Depending on amount of inflation and time window, the government can reach any point in the (0%, 100%) debt cancelation interval.
- dh2022 2y agoThere is no way to cancel these debts because the creditors and debtors are different. The parent comment assumed creditors and debtors are the same.
- spwa4 2y agoThat debt represents a trade Japanese people made: they get to take away 100B of US production to enjoy their old age. In trade they gave the US government something. Oil. Toyotas. Whatever. The US government helpfully made that trade, promising US babies would, once grown up, deliver on that 100B of, say, labour. The real problem is that neither the US government nor (now grown up) US babies intend to hold up their end of the bargain. And vice-versa.
- pa7x1 2y agoThe money is owed to our future selfs or generations to come, who pay the interests. If the money obtained through debt is well invested such that it creates growth that outpaces the interest rate then all is good, as future tax payers will have a larger economy to be taxed in order to pay that debt. But if it's not, we are just stealing from the future. When a country acquires debt to finance its pension system, that's just plain and simply inter-generational robbery. It's pensioners voting to give themselves money at the expense of the younger generations. It will become more and more pervasive across the west given our demographics and is crippling entire economies across Europe.
- SubiculumCode 2y agoThis response does not address the parent's question, and ignores that issuing currency with a debt mechanism isn't anything but an artificial constraint (not an immutable law of nature).
- bryanlarsen 2y agoMoney is the way we divide up the productive capacity of a country. To become richer as a nation, you increase the productive capacity of a country, you don't collect little pieces of paper.
- snapplebobapple 2y agoDebt is not money though, debt is a future claim on some portion of that output and that claim is to the whole comingled basket of productive capacity that took out the debt so in a country's case itis a claim on all of it because a country can income tax and/or wealth tax up to 100 % of the income/wealth. So a coubtry can get richer by increasing capacity more than the claim on capacity or it can decrease the claim on capacity freeing up output for the country.
- bryanlarsen 2y agoWhich is why who holds the debt is more important than the existence of the debt. If the government owes the money to a pension fund that's a good thing. If they owe it to a foreign adversary, it's not.
- sdenton4 2y agoTurns out asymmetry plays an important role here...
- paulpauper 2y agoMaybe this time is different for real, but people make this sort of prediction or warning every year for as long as I can remember. Meanwhile, the S&P 500 and Nasdaq have consistently posted annual double-digit real returns. So what? What do we do with this information? Yeah, there is a lot of debt, but the economy is bigger too.
- ziofill 2y agoBut a large chunk of taxes goes to pay off the debt
- chgs 2y agoAnd who gets that pay off? And what do they do with it once they get it?
- RALaBarge 2y agoRich people. More yachts.
- itsanaccount 2y agoI seem to get to chime in on questions like this repeatedly (those karma points won't delete themselves.) Lets watch hackernews stubbornly avoid conversations about power and in this case how its accumulated to instead myopically focus on the technical/symbolic stand-ins for power.
- zztop44 2y agoOnly because policy makers choose to do so. They could just as easily create the money the pay off the debt out of thin air. But doing so wouldn’t make sense. Governments will never pay off the debt because doing so would not be good macroeconomic policy. The debt doesn’t exist to be paid off. Governments don’t handle national accounts in the same way households manage their budgets. Don’t think about them the same way.
- dh2022 2y ago
- iyn 2y agohttps://archive.ph/vALFM https://archive.ph/vALFM
- yayitswei 2y agoWhat's up with Germany?
- bugbuddy 2y agoMemories of 1920s
- louthy 2y agoMy impression is that the Germans have been anti-debt ever since [1] led to some pretty catastrophic repercussions (culminating in WWII) [1] https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_R...
- throw0101c 2y ago> My impression is that the Germans have been anti-debt ever since [1] led to some pretty catastrophic repercussions (culminating in WWII) Hyper-inflation occurred in the 1920s in Germany (and other countries in the same region, at the same time). In the 1930s, when Hitler managed to grab power after being appointed Chancellor, it was austerity that was in fashion: * https://en.wikipedia.org/wiki/Austerity:_The_History_of_a_Dangerous_Idea https://en.wikipedia.org/wiki/Austerity:_The_History_of_a_Da... * https://www.goodreads.com/book/show/13484866-austerity https://www.goodreads.com/book/show/13484866-austerity See also Imperial Japan. Debt had nothing to do with WW2. In fact, deficit spending in (e.g.) the US helped to reduce unemployment and get the economy going again: it was premature monetary and fiscal tightening in 1936-37 that caused another economic dip. (So-called "sound money", i.e., the Gold Standard, also helped drive things from a stock market crash and economic slowdown into the Great Depression.)
- louthy 2y ago> Debt had nothing to do with WW2. That is not what I said.
- wkat4242 2y agoWe have the same thing in Holland. It's also a thing where we consider responsible finance to be that one doesn't need loans, with the some exception of a mortgage. Having tons of credit cards and 'shuffling' them like in the US is unthinkable here. Banks also don't require that you take out loans to get a good credit rating. Having none is even better.
- black_13 2y ago[dead]
- mannyv 2y agoOverall, the US is doing things that were supposed to be impossible a few decades ago. And Treasury keeps printing money. More importantly, the debt markets are relatively healthy. Nobody talks about 'crowding out' anymore. I don't follow monetary policy anymore, but I do know this era is unique and the old rules really don't apply anymore. The fact is, there aren't really any good places to put your money except for the US, and the Us is taking full advantage of that.
- chung8123 2y agoWe are seeing huge issues with assets inflating. Housing being one of the big ones.
- _sys49152 2y agoI dont see how the US dosent hyperinflate its way out of its issues.
- latchkey 2y agoBitcoin is pushing $69k (again) and gold/silver are both ATH. I personally view this as an indication that a lot of people agree with your statement.
- bloated5048 2y agoWhat if... governments just wait for people, they owe money to, to die of old age..?
- Mistletoe 2y agoI’m going to guess Warren Buffet’s descendants will still expect to be paid. >As of August 2024, Warren Buffett's company Berkshire Hathaway held $234.6 billion in U.S. Treasury bills, or T-bills. This is more than the Federal Reserve's $195 billion in holdings.
- dh2022 2y agoMost of the creditors are institutions. Like Social Security, Pension Funds, Fortune 500 Treasury departments. These will be here for a really long time.
- from-nibly 2y agoDebts don't work that way. When someone owes you money that's an asset. Assets generally transfer on death. The government is the one where if it died the debt would go away. At a certain point that might be the only way out for them.