The global
debt reckoning – Total global debt at $230 trillion. Total world debt over 300
percent annual GDP. There is no escape from a reckoning with debt markets. Posted by mybudget360 in banks, central banks, debt, government
Total global debt crossed a
troubling event horizon by going past the $200 trillion mark last year.
Given the latest figures we are likely well above a total global debt of $230
trillion based on a comprehensive study done by ING last year. The banking sector rummages for
every possible way of accessing debt. Global central banks from the Fed
to the ECB to the Bank of Japan are now fully engaged in a digital printing end
game. It isn’t so much the startling debt figures that are presented but
the GDP that is actually backing up this insurmountable level of debt.
The latest data shows that total world debt is running above 313 percent of
annual GDP. To put this into perspective the US meltdown occurred when
household debt reached about 120 percent total debt to annual GDP. The
only way to keep payments current is with a low rate environment. There
is no choice. So central banks will do everything they can to print this
debt into oblivion. In many ways this is a reason that we have seen a
rush into assets from commodities, real estate, art, Bitcoins, and anything
that isn’t just a bunch of 1s and 0s on a central bank computer easily changed
by the whims of politicians and those connected to them.
Total debt
recall
One of the more interesting figures
that I came across was that in 2000, every $2.4 of debt creation produced $1 of
GDP growth. Today that figure is up to $4.6 for every $1 of GDP
growth. In other words, the impact of debt creation is having less and
less of an impact on real economic growth. Unless you live in the digital
cloud, you care about the real economy.
Ultimately the health of an economy
should be measured by good paying jobs and income growth. Since the recession ended in 2009 we have seen more
growth in low wage jobs and income growth
is not to be found. At the same time, the Fed has expanded its balance
sheet to a whopping $4 trillion.
Total debt is also growing in our
own system at home: In the 1950s, US
debt was close to zero. Source: Federal Reserve
The total US debt market is close to
$60 trillion. So the US alone is a big chunk of the $230 trillion in
total global debt outstanding. Central banks at this point are stuck in a
rut. For large economies like the US and Japan having interest rates rise
is simply unacceptable given the massive amount of debt carried by these
countries. This of course assumes that central banks have full power over
the economy.
Take for example the US public debt:
In 2014 public debt was $12.3
trillion, intragovernmental debt was $5 trillion and total debt was $17.3
trillion. Source: US Treasury
The US owed $17.25 trillion.
What is important to note is that the US is borrowing at a ridiculously low interest rate:
For total marketable debt, the
average interest rate is 1.998 percent and for non-marketable debt it is 3.401
percent. Blended the average rate is 2.477 percent. Even at this
historically low level our interest payments are
well above $400 billion per year:
Even if rates went up to
historically low levels of say 5 percent, this would bring annual debt
servicing to close to $1 trillion. To put this in perspective the
government collects about $2.9 trillion so that $1 trillion is no small amount
in relationship to what is being generated on the tax side. The US is no
exception here. We recently started seeing a mad dash to the exits in
developing countries. Why? Interest rates are higher for an emerging
economy for obvious reasons:
Very little is financed by the
private-sector in developed countries as would be expected. As financial
markets develop these things can change but given the low rate environment,
people have chased yields all across the globe. Hence a total of $230
trillion and more in public, private, and corporate liabilities. Yet what
we are seeing is a large amount of rent seeking and more debt being needed to
generate $1 of GDP.
There is such a thing as too much debt.
Short of incomes rising we are merely setting up a different sort of debt
crisis. We already got a bit of a taste of that early in the year in many
emerging markets.
Global
debt in 2016 is $61.2 trillion.
http://www.nationaldebtclocks.org/
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