The earth goes further and further into the debt. Even the GFC didn’t cure us of our credit addiction. Where will it all end?
Apparently the earth is now $200 trillion dollars in debt.
And Jupiter is coming to collect.
It’s a funny statistic, and it’s strange to think about the whole world being in debt. But this is how the global economy works.
But we’re not borrowing from other planets. There’s no line of credit from the Bank of Venus. We’re borrowing from ourselves.
From our future selves.
You’ve got to admire human ingenuity. We’ve constructed a system where we can draw down future production and earnings, and spend them in the present day.
Effectively the whole world’s working on “I’m getting paid next week. I’ll fix you up then.”
This is the basics of the lending model. I’ll lend you $1 today, if you give me $2 tomorrow.
Tomorrow, tomorrow, I love you, tomorrow
And in the modern era, everyone’s in on it. Banks are lending to governments. Governments are lending to households. Banks are lending to non-bank financial institutions.
Credit is the oil of the capitalist machine.
Is that a bad thing?
Not necessarily. Personally, I’m a big fan. My fortune has been built on leverage. If I had to buy my first property outright I’d still be saving for it.
Who’d be writing these blogs then?
And credit, as a tool in the modern human’s tool kit (up there with the wheel and agriculture) has allowed us to enjoy a far greater level of prosperity that would have otherwise been possible.
And with that, it has helped raise millions of people out of poverty – and the misery, disease and death that come with destitution.
But of course, not all debt is the same. We can understand this at a household level. Borrowing to buy a shiny new stereo is not the same as borrowing to invest in an income-producing asset like property, or even to invest in your own skills – like a Uni degree.
One type of borrowing sets your future-self up with greater earning potential to pay back the debts you owe. The other leaves your future-self grumbling about how you always get it in trouble.
Same story with government debt. There’s a role for borrowing to build the productive capacity of the economy. Investment in infrastructure, roads, communications etc. can all build the economic potential of the future.
This potential, realised through increased tax revenues, can make it a positive proposition for the government just on purely economic grounds.
But borrowing to throw pork at the electorate or bribe them off with tax-cuts does nothing to build national wealth. It’s an entirely different story.
(I don’t really care what level the budget deficit or surplus is. The real question is whether we’re spending the money wisely or not.)
And there’s good and bad debt in the financial sector as well. It’s one thing to invest in a company with good earning potential – giving them the capital to invest in a new factory and expand production.
It’s another to take leveraged bets on opaque financial instruments (like sub-prime mortgage back securities), or speculate in hot markets.
There is good debt, and bad debt.
And sadly, on the face of it, you’d have to think that the global balance is tipping further and further towards bad debt.
McKinsey and co. have estimated that global debt has risen by $57 trillion since the GFC – to just under $200 trillion today.
If debt was the scoundrel that unleashed the GFC on the world, should we be worried that debt is going up, not down.
The answer to that is really whether it’s been good debt or bad debt.
It’s hard to know exactly, but on the face of it, it doesn’t look good. Debt has risen over 40% since the GFC. Global output growth though has risen, what, 20% tops?
So debt is growing twice as fast as production.
To me that seems to suggest that there’s a lot of speculation going on here. Either people think that some real boom times are coming in the near future (which I doubt), or everyone’s just getting back on the credit sauce.
And it is a global phenomenon. All major economies today have higher levels of borrowing relative to GDP than they did in 2007. Global debt to GDP has risen by 17 percentage points.
Worryingly, almost half of it is government debt, which has grown by $25 trillion since 2007. In 10 of the countries they studied, it exceeded 100% of GDP.
But household debt is also “reaching new peaks”. Only Ireland, Spain, the UK and the US have deleveraged at the household level. In advanced economies such Australia, Canada and Denmark, it now exceeds pre-GFC levels.
But you’d have to think this is one of the natural consequences of the QE era. When credit is cheap – or effectively free for some participants in some markets – then you would expect people to take on more credit.
The cost of serving that credit has obviously fallen.
But the flip-side of that is that when credit is super-cheap, there’s less incentive to use it wisely. Just throw it any market showing signs of growth. Invent some new-fangled financial instrument to throw the dice on. New footy fields for everyone!
The tower of debt keeps growing. With each new layer the dangers grow and we have further to fall. More than ever we need prudent lending practices and tight credit criteria, and mechanisms to ensure that money flows into productive activity.
If that sounds like a lot to ask for, it’s because it is.
Watch this space closely.
David says
I was thinking along the same lines John but without the financial detail to back-up my thinking. When the Banks passed on the interest rate cut last week, I phoned my Agent and instructed him to put my Melbourne investment unit on the market. I couldn’t get the thought out of my head that I was carrying too much debt and while everyone else was looking at buying, it was an opportunity to clear my debt and pay-off my home mortgage at the same time. I’ve spoken to a few people and they’ve all said to hang-on as long as possible but I don’t want to be standing alone when the music stops !! Ttime to get out of the Melbourne property market and be able to sleep at night.
Gunter Lang says
Why would anyone in their right mind ever want to get out of the Melbourne property market? It is probably one of the soundest market in the world. For 115 years the average increase in value of Melbourne real estate has been 7 % p.a. Add to this an average rental yield of 4 % p.a. and you have a return of 11 % p.a. year after year after year. Nothing else even comes close.
Rachael Clarke says
Its the same as every other property bubble in history.
Rudi K says
David, your principle is sound. An old adage: if the level of debt makes you lose sound sleep, you ARE over extended, because you realise that if something unforeseen happens you may lose a lot more than the investment that bothers you.Steady everything then go on again at a level to keep you sleeping comfortably at night. In my own environment I had “friends” boasting about their massive portfolio,coming to me for help when my previous advise was that they lived well beyond their capacity. Greed is a very dangerous felon – it’s certainly not “good”.
Rudi K says
Certainly a most prudent comment, and there is more to your comments, not mentioned here. Jon, we need to hold our governments to account to those principles. We see today the most vile and unscrupulous methods of countries, governments, banks and other financial bodies to pile up debts to dizzying heights with the one clear intention that: “if things go wrong, we make the buggers that provided us with the funds (and of course also those who didn’t) to pay our debts”. That is called socializing the debts of the otherwise “sound” capitalist pursuit towards ever growing profits. The costs of failure are to be paid by others, who btw were never intended to participate in the profits if they eventuated. There are very, very few really wealthy people and an ever increasing army of faux riche, working poor and utterly wretched people created by these ruthless debt manipulations. How can we deal with this? I think people, as voters in quasi democratic countries and more informed and knowledgeable than previous generations (?), are starting to perceive these machinations and they are demanding more accountability – even though this may signal more volatile and perhaps more frequent government changes. If we want to continue to expound the positive aspects of capitalism we must genuinely foster more fairness and equality simultaneously and that means we have to vigorously oppose and fight the impoverishing debt manipulations foisted on us in sneaky and clandestine ways.
Ian B says
So; what IS going to happen when these creators of credit say, “We want our money back”?
Will it be like the 1930’swith mass foreclosures, calling in of loans, interest rates pushed through the roof and no more lending?
When will it happen?
As far as I know, there are three countries left in the world that still don’t have a private, BIS connected central bank and massive debt as a result. They can not foreclose on the loans to these countries because they have none. I can’t imagine the debt merchants foreclosing on 99% of the world when 100% is so close.
Before the overthrow of Qadafi, the government of Libya issued all credit in the domestic economy, there was zero external debt and the debt merchants had no leverage. A BIS connected central bank was established in Benghazi even before the rebels had taken Tripoli and while Qadafi was still alive. No prizes for guessing what the so called rebellion was really about. I wonder what Libya’s debt looks like now.
Countries still issuing their own credit are Iran, North Korea and (possibly) Cuba. It will be interesting to see how long they last and what happens after they fall.
Will that be the signal that the music is about to stop?
the_unraveller says
Sh*t happens when most least expect it. Otherwise, it would not be a big deal like the GFC. People hang in there tight… risk it and you’ll win it… well that only applies to very small percentage.
truthman says
https://knowledgesource.com.au/who-does-earth-owe-money-to/
What a crock!!!! Seriously either you are one of “them” or you’re asleep!! Simple logic tells one that for every alleged “debt” there must be “credit” and that debt is derived from Loans…. hmmm something wrong.. the Banksters never loan anything… how can one Loan something one does not have???? It is all fraud!!!
Ok ok I know sounds crazy because you have been conditioned to believe the lie. So let’s get down to basics. Now pretend you are under oath.. Did you receive anything of substance or value in your hand, your account, or someone else receive on your behalf anything of substance and value of the alleged “Lender”s prior to you signing and delivering the Note and DOT or Mortgage???? NO!!!! Therefore you did not get a “Loan” look up definition of Loan, Lender and Borrower.. “Giving something of substance and value which one has to someone else with the expectation that it will be returned or likeness thereto at some specific date.”
Now if you give someone a fifty dollar bill and ask them to give twenty to Jim, twenty to Fred, seven to Lisa and keep three for the service… did they loan you anything? NO!!! Very good now you got it. In the fiat system your signature is the authorization to use some of your credit and put it into circulation (find electronic transfer sheet) You see what they do is create a whole facade just to get your signature and then they monetize it against your credit. In the Case of the Note for instance … go read it for yourself… first line “In return for a Loan I have received, I promise to pay…” but wait you did not “receive” (past tense) anything prior to giving them the Note so then how can you return something you never got? You can’t!! Just as one cannot “Loan” something they do not have to loan… remember it is by the good faith and Credit of the people (you) that all the funds are derived from!!!. And they charge interest (fee for the use of their funds which they no longer have use of) but wait they are not out anything cause they never had it to begin with!!
So making money by fraud over and over again.. so they figured out how to cause people to go broke by raising unlawful taxes (yes if you do not have a for profit business under an assumed name registered and created through the State then there is no “taxable business entity” man cannot be taxed!!!!!! See tax code- actually read the whole damn thing several times as I have and you will soon see that only “persons” can be taxpayers and “person” is defined as “Fiduciary, trust, partnership, LLC, Corporation and any municipal subdivision of the State. So if you o not have one of those then you have no “taxable entity” or “person”, coming from “persona” mask, appearance.. etc… lets simplify and go to the Constitution Art V of the Bill of Rights “The right of the people to be secure in their persons, …..” So clearly “people” have “persons” some private … most private and one or more “public” which is to say “entity of the State” …. so are you the man or woman a “taxpayer”? NO again and you never can be… you may have a person that is a taxpayer (as defined in the code) but you can never be a person so you can never be a “taxpayer”…
Now, your head is spinning I know but you are so programmed at being a “sinner”, “debtor”, “Borrower”, “violator”, “suspect”, “taxpayer” “Defendant” etc…. what you heard was “do you pay your taxes” and you being a natural born defendant said “oh hell yes” but that was not the question.. I asked you if you are a “Jackass”… you can act like a jackass but can never be a jackass with a tail and big ears can you. No!!… same thing here. Now you may hold a position in a business entity of the State who is required to pay the taxes for the “person” of the entity of the State, but you will be authorized to write a check from the business account not your private account!!!…
Are you getting the picture yet? WE are being deceived from birth to death to steal by fraud all our wealth, substance and credit by fiction, conversion, extortion under color of law… in short your ignorance. Why the fuke do you think they created the public fool system… to de educate you and your children to be puppets, go alongers to get alongers…. Ok so they control the market place… now if you were a bankster, would you want to get paid over thirty years or collect twenty, fifty times the amount in the Note? No shit… so they simply raise the price of oil, gas prices double triple and that causes all prices to double within a year or two, so now the alleged dumb ass borrower cannot afford to feed their family and pay the mortgage, so they stop paying and the banksters collect insurance on the bundle REMICS up to 24 times we discovered or even more… but wait that is just the tip of the fraud, they sold short and bought lots of options then created various derivatives and on and on and on all on nothing all lies all BS. (see the movie “The Big Short”!!)
Ok lets go back to basics…. if there are five hundred of anything on the earth how can you pay back 750 of the thing that there is only 500 of? Can’t!!!!! it is fraud people, deception, fraud…. for those who are truly interested start researching some cases where the Investors were told they cannot recoup from the REMIC because they bought into nothing and have no interest in anything cause there never was anything in the REMICS… and when you take the time to actually read the Servicing and pooling agreement you will see that there is missing link and is void.. see Gladski case Calf in the last year… and look at a few fraudclosure cases from Judge Schack in NY… he was clever, without telling the secret.. he gave the banks 45 days to show the evidence of the transfer of funds … could not do it cause there never was ….
Oh and ya know how the Note is used as a “negotiable instrument” (jackass thing again) clearly defined in UCC3 as “unconditional promise to pay” … but wait we know it is not unconditional but conditional upon “In return for a Loan I have received I promise to pay” and third line “The Lender or anyone who takes this Note by transfer (not assignment) and is entitled to payments under this Note shall be called the “Note Holder”. Interesting I have yet to see a foreclosure where the Plaintiff comes in as the “Note Holder” and have evidence they “Loaned” anything to be “entitled to payments under this Note”. Then they use it as a contract to enforce with the courts.. wait if it a an unconditional promise to pay how can it be conditional and a contract at the same time? Can’t… Oh, BTW are you a commercial entity? NO! so then how can the State apply Commercial law upon you? Can’t !! but they do because the people are so dumbed down they do not even know what questions to ask… I do…. “Who can take the Stand and testify under pains of perjury and substantiate with proper paperwork, accounting and show where the money came from to loan and that it was the “Lenders” to Loan… etc etc.. No one!!!!!!!!!!!!!!!!. OOOOPs got a bit of a problem then don’t we?
So much more but the sun is coming up and I need a nap… so one last tid bit… have you or the courts ever read the Deed of Trust -DOT/Mortgage??? NO!! It does not secure the Note!!! it secures the debt evidenced by the Note.. so it secures the Debt created by a loan that never happened… what happens to a trust that no longer has a purpose? It dissolves…. so how can there be a foreclosure of the DOT/Mortgage? only in corrupt courts….
Oh I know it goes against everything you have been trained to believe.. no free ride, no windfall, no free lunch, no, no no, can’t can’t can’t… thus my ditty “Americant’s”…. can’t read, can’t write a cause of action, can’t ask pertinent questions, can’t hold public servants accountable, cant study, can’t demand the thieves and criminals have equal treatment under the law… can’t can’t teach your children, can’t take time, can’t can’t can’t… But you can!! you must….
Oh yea, if it is a contract which it kinda sorta is, but definitely not a “Negotiable instrument” as defined, who accepted the offer and conditions of the contract? No one so the contract is not ratified nor complete and no one but you have any interest in it… it is your property and entitled to all that is derived from it lawfully and all the rest must be returned to the insurance companies, government bailouts, the losers in the stock, commodities, paper trades, the American people that “Bailed out” the insurance scammers for trillions.. and on and on…and on… and on…
As an honorable man I sought for 4 years to find out who “loaned” the money, who was owed, and I offered to pay whoever was entitled to payment… no one came forward and on a few properties a simple letter to the alleged holder of the Note to inquire as to the “Loan” two and three even five years after fraudclosure and they wrote back on proper letter head paper (absent in virtually all documents allegedly from them in the fraudclosures) in which was written that the Loan was still with them and behind in payments… still in the REMIC??? three to five years after an alleged foreclosure?? how is that possible? Oh and BTW now there are three “loan Numbers and three separate accounts for the same alleged “Loan” that never happened….
So let’s do an accounting.. they got the deposit, all payments, all proceeds, collected on insurance up to 24 times the amount of the entire REMIC (when 21% go into “default” they collect on the entire alleged value of the REMIC which means every other alleged Loan was paid 24 times…) so why is anyone still paying that which never existed and was paid many times already????? Then they got Government bail outs, and other benefits, programs etc, the whole time selling the market short to make a few more trillion.. market fixing and insider trading and then some carpetbagger, interloper attorney crooks with licenses to practice law (oh wait that is a myth too) fabricate instruments, assignments (for which there is no provision for) fake allonges not dated, false signatures, fake notaries, counterfeit copies of the alleged Note and DOT/Mortgage, false affidavits which are so obvious on their face that any alleged Judge can see it is fake, false and fraud, counterfeit.. (where is the original after all if it is a “negotiable instrument then it is bearer paper so who is bearing it and what is being beard?????? Hmmmm something stinks…
Oh and let’s not forget that this is done with many many copies made and allegedly put into REMICS to do it all over again and again and again…. The Solution? Simple enforce the fricken laws!!! Study securities fraud and all that and cause the servants to perform as the law requires…. once that is done the Banksters who are the alleged creditors are now revealed for what they really are crooks, confiscate all their assets and return it to the people of the earth and over night the earth and the people are rich again…. no debt cause there never was any.. remember that Creator created everything and gave it to us… it is, was and always will be ours… we can never be debtors (can be obligated to perform under proper contract with one another yes but never debtor!!!)
Also, see Hale v Henkel P. 74-75 “all corporations are creatures of the State and all creations of the State are presumed to be for the benefit of the public” so let me ask a simple question, if it is a choice between a bicycle (thing) having a house to “live in” or just own…. or you and your family… which makes more sense the thing created for the benefit of the people living, or the non living thing created to benefit the people? So why is it invariably that the Corrupt courts find in favor of the banksters, attorneys pretending to be representing banksters using counterfeit documents, if they were not corrupt??
Oh I almost forgot… where it the original Note and all the copies made and sold once the alleged debt is satisfied???????? According to law and the DOT it is required to be returned marked “Paid”.??? Still being sold traded monetized copied bundled and sold to unsuspecting investors around the world and sold short that’s what….. can anyone spell “Clinton foundation” I mean “Criminal enterprise”??