[HN Gopher] Global debt soars to 356% of GDP
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Global debt soars to 356% of GDP
Author : cwwc
Score : 206 points
Date : 2021-02-18 14:08 UTC (8 hours ago)
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| fasteddie31003 wrote:
| Won't inflation reduce debt? I can see massive inflation on the
| horizon.
| dragonwriter wrote:
| > 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.
| chewz wrote:
| 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.
| OscarCunningham wrote:
| > 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'?
| standardUser wrote:
| "...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.
| boringg wrote:
| (DEBT repayments)/GDP >>> important then DEBT/GDP. Right now debt
| is super cheap so might as well stock up.
| FlownScepter wrote:
| 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.
| splaytreemap wrote:
| "Money is made up therefore it serves no purpose" is just a
| bafflingly implication. Care to provide any detail at all about
| how your moneyless society is going to work?
| FlownScepter wrote:
| Oh it absolutely serves a purpose, it's a shared value that
| speeds the exchange of goods and services. However as the
| monetary system exists now, is mainly as a tool of oppression
| to keep people locked in a cycle of working themselves to
| death. It doesn't work for anyone save a tiny minority of
| people, who have more of it than they could ever use.
|
| I suppose instead of "moneyless" society, I'm saying we need
| a money reboot.
| tastyfreeze wrote:
| We need money that has actual value that can't be
| manipulated. That is why the gold standard worked. At the
| same time that is why those in power ended the gold
| standard.
|
| Without the anchor to gold our money can freely be
| manipulated for personal or political gain at the expense
| of the public.
| FlownScepter wrote:
| > We need money that has actual value that can't be
| manipulated. That is why the gold standard worked. At the
| same time that is why those in power ended the gold
| standard.
|
| No, the gold standard worked because at that time,
| manipulating the value of money to tweak the economy was
| not a practice. And besides-which, gold is a terrible
| standard anyway. We use tons of the stuff in basic, cheap
| electronics all the time. We use it on boutique audio
| connectors. It's not uncommon or rare at all. It's like
| diamonds, the only reason they're worth a goddamn thing
| is that everybody just agrees they should be, even though
| the same substance that sits on the end of a $10,000 ring
| is ground up and coats the outer surface of saw blades.
|
| > Without the anchor to gold our money can freely be
| manipulated for personal or political gain at the expense
| of the public.
|
| As we've seen though, this can be done with virtually any
| asset now, which is why land remains basically the only
| thing that holds value, because increasing or decreasing
| the supply of it is really ridiculously hard.
| tastyfreeze wrote:
| Manipulating the value of money wasnt done because it
| wasnt possible. Not because nobody thought of it.
|
| The gold standard is a protection against exactly the
| problem you are complaining about.
| rthomas6 wrote:
| We owe each other. A owes B, who owes C, who owes A. Sometimes
| paying off one debt causes a cascade of several debts being
| paid off in turn, all with the same money.
| tastyfreeze wrote:
| Please see the history of communist countries for how that
| works out. Central allocation of resources is incredibly
| inefficient and highly susceptible to corruption.
| loveistheanswer wrote:
| We need not only look at communist countries for corrupt,
| innefficient central allocation of resources when we can also
| look at central banks around the world.
| seibelj wrote:
| Private sector had multiple pharma firms ready to go to create
| vaccines to cure us from terrible virus. If we had one
| "efficient" government firm we wouldn't have anything.
| FlownScepter wrote:
| And public sector money props them up each year when they pay
| little if any taxes, and we also fund their research
| endeavors because corporations are notoriously shitty at that
| sort of thing.
|
| 99% of private sector "innovation" is repackaging the stuff
| created under DoD/DARPA research projects. Then once that's
| done, they corner cut.
| stackedinserter wrote:
| Where did you get this number?
|
| Which DoD/DARPA stuff do FAANG repackage?
| FlownScepter wrote:
| They often repackage a shit ton of open source software
| developed by volunteers, all of which is running on
| Internet standards originally developed by the Department
| of Defense for military use. Most of the tech in the
| servers was developed by various DARPA initiatives
| surrounding transistors and solid-state memory.
|
| Mind you these things were _invented at_ companies, yes,
| but almost every time if you dig deep enough you 'll
| start finding the lists of the various grants given to
| said companies to fund this research, because otherwise
| they just tend to not do that. This is not controversial
| stuff, it's very normal.
| JumpCrisscross wrote:
| > _when they pay little if any taxes_
|
| Who's paying the taxes then?
| FlownScepter wrote:
| I dunno man, you tell me. We're perpetually running out
| of money every time we're talking about doing things like
| helping people not die or freeze to death, yet
| miraculously we always have trillions around to funnel
| into more tanks that will rust away in a field in
| Kentucky, but we can't help people survive the deadly
| plague circling the globe by just paying them to stay
| home, yet also have the money to just GIVE Wall Street
| 3.5 TRILLION DOLLARS, like just here, not a loan
| whatever, it's all good bro. Just 3.5T for 30 minutes-ish
| of market stability.
|
| You explain how this shit is working for anyone not in
| the C-level or political classes.
|
| The only time I hear about Supply and Demand is when poor
| people get fucked. Nobody is worried about the money
| supply when we're pissing streams of BILLIONS into the
| military industrial complex, when we already have a
| military multiple factors larger than anyone else on the
| fucking planet. Yet in the midst of shitloads of people
| not being able to afford rent, we can't like, defer
| mortgages or just give the people money, noooo, that'll
| hurt the moooneeeey.
| xtian wrote:
| Who's left if you remove corporations? It's individuals,
| and more and more over time it's the middle strata of
| earners.
| burnthrow wrote:
| You're so right. First give me all of your money, it's an
| illusion anyway.
| eloff wrote:
| > let the unwieldy and inefficient private sector die, we're
| propping them all up with tax money already anyway and they
| still barely tread
|
| The whole private sector? You mean the economy?
|
| It's hard to tell if this is sarcasm, but I'll go and name this
| the unicorns and rainbows theory of economics.
| jpxw wrote:
| Lol, if you got your way you would immediately crash the
| economy.
|
| See for example any country that has ever tried anything close
| to this - Zimbabwe, Venezuela or post-war Hungary, to name just
| a few examples.
|
| When that happens, perhaps you'd understand why a stable money
| supply is important.
| [deleted]
| whitepaint wrote:
| > inefficient private sector die
|
| This is factually wrong. We've been miraculously efficient
| since 18th century.
| FlownScepter wrote:
| > This is factually wrong. We've been miraculously efficient
| since 18th century.
|
| Being more efficient than the 1700's is an astonishingly low
| bar.
| ChrisLomont wrote:
| Yet that efficiency has only increased as the money system
| we have now stabilized, and was adopted by every single
| country in the world, because it did provide empirical
| benefits to the populations in those countries.
|
| So the point is correct - stable currencies have allowed
| vast increases in economic growth and vastly better
| standards of living than were possible the millennia before
| it.
|
| Being locked to other forms of money, such as the rate a
| country can amass gold, slowed growth to that rate. The
| current system is vastly better.
| FlownScepter wrote:
| Your point presumes that the spread of the globalized
| market is a boon to the countries it touches. Like, fair
| dues, now people in remote island nations can buy
| televisions and smart phones, but now they also have
| Facebook which is being used by their leaders to foster
| genocides.
|
| "Standard of living" is more complicated than good and
| bad.
| neural_thing wrote:
| We've borrowed from our future selves, as well as our children.
| We brought consumption from the future into the present.
| calebm wrote:
| It's like stealing candy from a baby.
| FlownScepter wrote:
| And we've been doing it for as long as I've been alive. I'm
| certainly never going to make enough to pay it down, and
| nobody else in my generation is. So like... who's paying it
| and when? Or again, do we just acknowledge this whole thing
| is just a Ponzi scheme to direct more money to the same
| boardrooms who already have more money than they could ever
| conceivably spend?
|
| Take all of Bezo's wealth away, and just leave the number
| there. He'll never know nor will anyone else, because there
| is nothing you can do with that much money. There's nothing
| to buy.
| PragmaticPulp wrote:
| I've responded to some of your other comments with
| corrections. You've been stating falsehoods as facts
| throughout this thread. If you really believe that we could
| "take all of Bezo's wealth" or that it would improve the
| situation rather than worsen it (seizing private assets to
| punish business owners is the fastest way to ensure no
| business owners want to operate in your country) then it's
| clear that you don't understand how basic economics works.
|
| We're not going to get anywhere productive as long as the
| goal is to punish the rich no matter the cost. The economy
| isn't a zero-sum game where every dollar of Bezos' net
| worth is a dollar subtracted from the poor. Amazon had
| created value across the economy, far beyond Bezos' net
| worth. Likewise, arbitrarily destroying Amazon or Bezos
| would likewise destroy value across the economy, as well as
| destroy the institutional trust that enables the economy in
| the first place.
| FlownScepter wrote:
| > I've responded to some of your other comments with
| corrections. You've been stating falsehoods as facts
| throughout this thread. If you really believe that we
| could "take all of Bezo's wealth" or that it would
| improve the situation rather than worsen it (seizing
| private assets to punish business owners is the fastest
| way to ensure no business owners want to operate in your
| country) then it's clear that you don't understand how
| basic economics works.
|
| Your imagination is limited. I don't care about business
| or business owners. I'm exploited by every business I
| interact with, either as a consumer or an employee. They
| don't have my loyalty.
|
| > We're not going to get anywhere productive as long as
| the goal is to punish the rich no matter the cost. The
| economy isn't a zero-sum game where every dollar of
| Bezos' net worth is a dollar subtracted from the poor.
|
| Yes, it literally is. Amazon makes money by selling
| whatever product at a cost higher than it cost them to
| complete the logistics to get that product to a consumer.
| That means their profits are whatever they can scrape off
| of paying people to shuffle boxes through their
| warehouses, drive their trucks, and write their code.
| That is exploitation by definition: those employees are
| not paid what their labor has generated in terms of
| wealth. Every employee is paid less than they are worth,
| because otherwise profits would not exist.
|
| > Amazon had created value across the economy, far beyond
| Bezos' net worth.
|
| Amazon has also decimated numerous other businesses, and
| used the resulting holes in the market to grow.
|
| > Likewise, arbitrarily destroying Amazon or Bezos would
| likewise destroy value across the economy, as well as
| destroy the institutional trust that enables the economy
| in the first place.
|
| I don't want to destroy Amazon, necessarily. I want them
| to pay their workers enough to live. The problem is every
| time people suggest that, people like you come in and say
| "well if we paid them a living wage the business would
| die, do you want that?" To which I say, yes. If your
| business must pay poverty wages and force people onto
| Government welfare, that is _literally the Government
| subsidizing your workforce_ and why the hell should we do
| that? If we 're going to pay, by proxy, for people to
| work at Amazon, then let's just fucking own Amazon as a
| public utility and cut out fucking Bezos. We don't need
| Bezos. He is doing nothing essential at Amazon, he just
| had the capital to start it, and he certainly doesn't do
| fucking anything worthy of earning what he does. No human
| being can EARN 4.5 million dollars an hour.
|
| We saw in the pandemic what happens when the workers
| can't go to work, but the finance guys, and the CEOs and
| everyone else can. The economy ground to a fucking halt.
| Bezos was able to do everything he does at Amazon just
| fine, just like every other CEO, because what they do is
| functionally nothing. Their workers, on the other hand,
| were essential! They were heroes! So they had to go to
| work, and get sick, and die to avoid this entire ponzi
| scheme coming crashing down. And still huge sectors of it
| are on the verge of collapse precisely because _the
| people actually generating wealth are having a hell of a
| time doing it._
| PragmaticPulp wrote:
| > I don't care about business or business owners.
|
| That much is clear. You also said:
|
| > Fuck no, I want no one to use money.
|
| I'm afraid your ideology is preventing any actual
| discussion of economics.
| FlownScepter wrote:
| "Well we can now only inhabit 2% of the planet after the
| ice caps melted and flooded the rest, and it rains acid
| every day, and we haven't seen the sun in a decade, but
| for awhile, we generated so much value for shareholders.
| It was beautiful."
| dang wrote:
| Would you please stop using HN for ideological battle?
| It's tedious, predictable, not what this site is for,
| destroys the curious conversation that it is supposed to
| be for, and does nothing to help the ice caps.
|
| https://news.ycombinator.com/newsguidelines.html
|
| Edit: on closer look, I'm going to ban this account until
| we get some indication that you want to use HN as
| intended. There are already too many signs to the
| contrary, such as the insult in
| https://news.ycombinator.com/item?id=26168564. If you
| don't want to be banned, you're welcome to email
| hn@ycombinator.com and give us reason to believe that
| you'll follow the rules in the future.
|
| Using HN primarily for political or ideological battle is
| generally something that we ban accounts for, regardless
| of which ideology they're battling for. As I said above,
| it's destructive of what HN is meant to be for.
| PragmaticPulp wrote:
| 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 wrote:
| > 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?
| selimthegrim wrote:
| American assets can be repossessed abroad if a judgement is
| served - look at what happened to Argentina in NY. Plus you
| want Americans to be free from money but everyone else use
| our currency at gunpoint?
| FlownScepter wrote:
| > American assets can be repossessed abroad if a
| judgement is served - look at what happened to Argentina
| in NY.
|
| Yeah, that happened to Argentina, who is not America. I'm
| saying if that's the consequence, which you seem to agree
| it is for nonpayment, then America is immune from that
| consequence. If someone tried that shit on a US Naval
| ship, they would be bombed out of existence.
|
| Mind you, this is brutally unfair to the Global South.
| That's my point. Global capitalism just exploits
| countries to small too play the game like we do, and the
| countries that do play said game, do so largely with
| stolen wealth from those same exploited countries.
|
| If America owes money but the mechanisms to enforce that
| don't exist, then why do we owe it? We owe it exactly as
| long as we agree we owe it. And this is not to say
| America should just move on, this is to say the _world_
| should move on.
|
| > Plus you want Americans to be free from money but
| everyone else use our currency at gunpoint?
|
| Fuck no, I want no one to use money.
| dang wrote:
| " _Please respond to the strongest plausible
| interpretation of what someone says, not a weaker one
| that 's easier to criticize. Assume good faith._"
|
| https://news.ycombinator.com/newsguidelines.html
| ChrisLomont wrote:
| >Who do we owe?
|
| You can look this up. 21T is owned by the public (think
| retirement funds, pensions, etc., a lot of which own
| treasuries). Simply blowing off paying them would wreck the
| US economy and destroy lots of people. So it's real money
| owed to real people.
|
| Foreign govts own around a third of the debt - same thing -
| they invested in US treasuries and those assets are
| intertwined in their economies, just like ours. Of this
| Japan has 1.3T and China 1T.
|
| State and local US govts own around 1T for their pension
| funds.
|
| So we owe it to any actor that has purchased US Treasuries,
| and that's a lot of people, big and small.
|
| >it's fucking bananas nonsense
|
| No it's not. It's simply big, but then again, so is the US
| and world economy. There is no goofy, ill-conceived,
| wholesale ignorant corruption going on.
|
| > Is there a credit check?
|
| Yes, it's the rate at which buyers willingly buy Treasuries
| on the open market. If enough people/institutions lower
| their trust, rates go up. It's as simple as that.
|
| The main question is not how much debt the US carries, but
| can it afford to service the debt, and so far, that is a
| yes. Servicing the debt is around 10% of federal receipts,
| which is a decent chunk, but by no means debilitating.
| PragmaticPulp wrote:
| Government debt is literally sold. You can go buy it and
| invest in America, and you will receive your interest
| payments right on time like clockwork.
|
| Likewise, when you pay your taxes, some of that goes to
| servicing that debt. You can look up how much of your
| federal tax bill went to paying debt holders.
|
| The system only works as long as its trusted. If we just
| stopped paying interest on our debt, that trust would
| vanish overnight. As a result, the price of borrowing would
| skyrocket because who would invest in something that has
| demonstrated it doesn't care about paying you back?
|
| Likewise, if we do too silly monetary policy stuff, the
| trust will also disappear. Despite what the memes say, we
| can't literally print infinite money and call it good.
| Fiscal policy isn't a secret, it's done in the open. The
| buyers of our debt know what they're buying.
| CuriousNinja wrote:
| > Don't confuse money with wealth, which is a separate
| concept that underpins this system.
|
| How would you differentiate between the two?
| tboyd47 wrote:
| The debt and the money is not "made up," but the "we" is made
| up. The owed amount will be paid by our children and
| grandchildren through their taxes. The money will go to foreign
| countries, federal agencies, central banks, hedge funds, and
| pension payouts.
| fasteddie31003 wrote:
| If I but my money in this bitcoin thing I keep hearing about,
| would I not be as exposed to global debt?
| andy_ppp wrote:
| 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?
| teekert wrote:
| OK I'm a noob so forgive me for asking: Debt to whom?
| ehonda wrote:
| 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).
| kazinator wrote:
| 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 wrote:
| 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-d...
| PragmaticPulp wrote:
| 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 wrote:
| 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.
| ffggvv wrote:
| rising debt is usually preceded by loose money/cheap credit.
| which leads to irresponsibile speculation and manias.
|
| and then ofc we will be expected to bail the speculators out at
| the end of this
| fshbbdssbbgdd wrote:
| If x and y are correlated, it could be the case that x causes
| y, y causes x, or x and y are both caused by z.
|
| Could it be the case that high levels of debt and crashes are
| both caused by the business cycle? If debt increases when the
| economy grows (because debt is used to fund investment), and
| the economy grows and recedes in a cycle, won't we expect there
| to always be lots of debt before the recession? In the
| counterfactual where we don't have debt, we'd also have less
| investment, so perhaps development would be permanently lower
| (ie. worse than the low point of each recession).
| savanaly wrote:
| Are we 100% sure it's not an ice cream sales cause shark
| attacks correlation?
| narrator wrote:
| 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 wrote:
| 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 wrote:
| > 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.
| acd wrote:
| 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 wrote:
| In what way are the interest rates on fixed loans artificial
| though may I ask?
| acd wrote:
| 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
| TheOtherHobbes wrote:
| 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.
| leroman wrote:
| 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..
| airstrike wrote:
| "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 wrote:
| 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 wrote:
| 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]
| rayiner wrote:
| 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.
| agumonkey wrote:
| No economist either, but there's a balance. Too long the
| projects too high the possibility of something changing along
| the way or the thing never finishing.
| fatsdomino001 wrote:
| Does society look stable and secure to you right now?
| lapetitejort wrote:
| Yes. We are dealing with problems better than in the 20th
| century.
| fatsdomino001 wrote:
| I agree we are dealing with problems better than in the
| 20th century... but we're on the precipice of a massive
| economic depression, actually probably already in the
| throes of it. Unfortunately the fed has bastardized the
| cost of money and so people are getting cheap loans despite
| the outsized risk that it'll simply never be paid back.
|
| We're in for interesting times that's for sure.
| i_haz_rabies wrote:
| It doesn't take much imagination to see some pretty
| early-20th-century level outcomes from current trends.
| david927 wrote:
| Why is this down voted? Things are incredibly unstable.
|
| Further, while "increasing debt can be the sign of positive
| developments" it can also simply reflect a panic dropping
| rates to zero to try to bail out the boat. The big question
| is the utility of that debt. Is it being used to expand
| wealth or is it being consumed -- especially in buy-backs to
| artificially inflate stock prices?
|
| This isn't rocket science. This isn't a good thing.
| dragonwriter wrote:
| > Does society look stable and secure to you right now?
|
| Do you think society would look more stable and secure if
| debt-to-GDP ratio had been kept constant in the massive
| slowdown by even further reductions of private and public
| spending?
| thewarrior wrote:
| That's not what's happened here though. This debt is to cover
| up holes in balance sheets because of covid. Also because of
| artificial lowered interest rates.
|
| Low interest rates = Low growth.
| londons_explore wrote:
| > You don't take a 25 year loan to build a shopping center in
| the middle of a civil war.
|
| I do... If my friends win the civil war, I'll have a great
| shopping center to make lots of profits... If my side loses the
| civil war and my city is bombed to the ground, then I doubt
| anyone will be coming after me for that debt.
|
| It's the super low interests rates that are a sign of no
| ongoing civil war... And those interest rates are denominated
| in currencies backed by nothing, so aren't really tied to
| anything.
| dghlsakjg wrote:
| You might have misread that. A better phrasing is "no one
| gives you a 25 year loan in the middle of a civil war"....
| for the exact reasons you listed
| jganetsk wrote:
| Increasing debt also means increasing savings. One person's
| date is another person's savings.
| anm89 wrote:
| I'm no chef but I think heat is usually good for food. That's
| why I just put the meat in the pan at full flame and leave it
| there for 10 hours.
|
| Saying that debt can be positive in some situations does
| absolutely nothing to address the concerns of this article. The
| problem is it doesn't look good in this situation for a large
| number of complicated reasons.
| snidane wrote:
| Or something unexpected happens and you get stuck with low
| interest rates and a war of some sort.
|
| High debt and low interest rate environment don't guarantee
| your more stable amd secure society. Only for short term while
| you keep printing money. While experiencing all kinds of weird
| societal phenomena, such as markets decoupled from
| fundamentals, extremely expensive real estate or low birth
| rates. The low birth rates will actually implode this entire
| debt and money printing based scheme or some war or similar
| conflict even sooner.
| newacct583 wrote:
| This is all wrong, though. We're talking about _global_ debt.
| There 's no external buffer from which funds are being drawn,
| nor money "printed" to refill. It's all our money. Every debt
| borrowed is held by someone else. Debt, on this scale, is
| effectively the engine that turns "wealth" (static resources)
| into "economy" (doing stuff).
|
| All the stuff you're talking about is true only on micro
| scales, assuming that that debt is "owed" to some third
| party.
|
| In fact this can keep going on forever, really. If the money
| printers are going Brrr... and no inflation is happening nor
| buildups of saved wealth, then _by definition_ the economy is
| increasing in size.
| nostrademons wrote:
| Global debt is really a measure of the complexity &
| interconnectedness of the economy. Like you say, all debt
| is somebody else's asset. When total debt loads rise it
| just means that there are more links between firms in the
| economy, where somebody else's financial picture can affect
| yours.
|
| The downside, like the sibling comment mentions, is that
| complex systems have complex failure modes. Additional
| links between firms raises the chance that you could get a
| cascading solvency crisis.
|
| I'd really like to see _who_ holds the debt. Is it widely
| dispersed - say lots of individual retirees owning
| government bonds? Or is it a few big financial firms who
| own all the assets with lots of little debtors? That has
| big implications for what inflation incentives are.
| woofie11 wrote:
| More debt generally leads to more economic growth. More
| trade leads to more economic growth. Those are true
| statements.
|
| They also lead to brittle economic systems.
|
| In 1900, if everyone was asked to stay home for 3 months,
| they'd go home for 3 months, and come out not-too-much-
| worse for the wear. In 2020, when the same happened,
| crippling mortgage payments, leases, and similar caused a
| near-total implosion.
|
| Likewise, in 2020, we nearly saw global supply chain break
| down. In 1800, a global economic crisis couldn't do too
| much to a town in the midwest growing its own food. In
| 2020, if, for example, TSMC were to go wonky due to China
| taking Taiwan, we'd lose over half of our IC manufacturing
| capacity, including critical components for virtual every
| other electronic device made.
|
| We're wound really tight. The danger is systemic collapse.
| [deleted]
| elefanten wrote:
| All of your examples occur in the context of a much less
| developed and less connected world. Industrialization
| massively increased its footprint, the computing era
| began and then the internet era began. These are phase
| changes to human civilization.
|
| Of course it has a different impact vs essentially
| subsistence agriculture, as per your midwest yardstick.
| woofie11 wrote:
| We don't have an infinite pool of human states. We have
| one history. We don't have examples of modern and
| unconnected.
|
| We do have examples of collapses from too much
| interconnection and trade. A good example of systemic
| collapse of this sort, from another point in human
| history, is Late Bronze Age collapse circe 1150BC. There
| were complex, structured societies which were pretty
| efficient for the time, due to trade and specialization.
|
| All of the major cultures were wiped out, all at about
| the same time, when those structures broke down.
| athenot wrote:
| That begs the question: is there a middle ground between
| fully interconnected and off-the-grid subsustence?
| newacct583 wrote:
| > if, for example, TSMC were to go wonky due to China
| taking Taiwan
|
| That's not an argument about debt, though.
| woofie11 wrote:
| It's a comment about the other piece: Trade and
| specialization.
|
| It's more efficient to have specialized countries. If
| Germany and Japan focus on optics, that's more efficient
| than having an optics industry in each country. Everyone
| is wealthier.
|
| It's also more brittle; if WWII breaks out again (as a
| hypothetical), the allies don't have access to optics,
| and can't repair step-and-repeats. That, in turn, means
| they can't manufacture ICs. And so on, down the line.
| qwytw wrote:
| "In 1900, if everyone was asked to stay home for 3
| months, they'd go home for 3 months, and come out not-
| too-much-worse"
|
| Considering that back then most households spent close to
| 50% of their income on food and there were basically no
| social safety nets it's much more likely they would have
| starved to death by then end of those 3 months...
| paganel wrote:
| Maybe in the few industrialized areas from that time,
| such as the UK, Belgium, the Rurh basin or the US North-
| East, the rest of the world was pretty much still
| agricultural and as such didn't depend on a factory
| job/income in order to live.
| throw0101a wrote:
| Interest rates have been falling (with some gyrations) for 700
| years: (in the West):
|
| * https://www.bankofengland.co.uk/working-paper/2020/eight-
| cen...
|
| * https://www.visualcapitalist.com/700-year-decline-of-
| interes...
|
| * 20d ago: https://news.ycombinator.com/item?id=25951516
| nabla9 wrote:
| In this case the main cause was GDP shrinking.
| PragmaticPulp wrote:
| Yes, debt went up but GDP went down more.
|
| Conversely, this means that GDP recovery will provide
| downward pressure on the ratio.
| neolefty wrote:
| The part that is government debt, I think of as private funding
| of government:
|
| * Government cannot cover its expenses through taxes
|
| * There is plenty of wealth out there though, and its owners
| are eager to "invest" it
|
| The problem is that with funding comes power. If a government
| owes you, you have some kind of power over it. There are many
| mechanisms -- beyond the scope of this comment -- but it leads
| to greater capture of government by the wealthy.
|
| Who is wealthy?
|
| * Retirement funds
|
| * Companies with lots of cash sitting around
|
| * Investment firms
|
| An alternate approach would be to raise taxe rates on these
| entities instead (and hopefully lower the tax rates when the
| crisis passes) -- then they wouldn't get the money back. In the
| case of retirement funds, you'd need to compensate with direct
| payments to retirees in general, which would be a
| redistribution of wealth.
| bjarneh wrote:
| 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 wrote:
| > _" 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.
| OscarCunningham wrote:
| > I and my bank don't have any debt, considered as a group.
|
| The way this figure is calculated, the amount of debt you
| and your bank have between you is your mortgage + your bank
| account.
| selimthegrim wrote:
| Next up from HN hot takes - how cowrie shells led to the
| Cambodian genocide. You heard it here first.
| BurningFrog wrote:
| 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_Weima
| r_R...
| neonological wrote:
| Wealth can't be produced out of thin air.
|
| The best way to think of it is 356% inflation that will hit
| us slowly.
|
| I'm this case because the printed money is going to people
| with lower income it can be thought of as wealth transfer
| from richer people to poorer people. Poor people get printed
| cash, wealth people lose more due to inflation. Most of us as
| software engineers should be losing money if our wealth is
| stored as cash.
| hfsp wrote:
| Anyone claiming money printing helps the poorer part of the
| population is uninformed or virtue signaling.
|
| Money printing transfers wealth overall to the asset owning
| class, not the bottom ~40% of Americans who do not hold
| assets.
|
| Research from the NY Fed and impact of money printing: http
| s://www.newyorkfed.org/medialibrary/media/research/staff...
| oconnor663 wrote:
| My understanding is that the mortgage crisis of 2007 is an
| example of something like this going bad. Technically it was
| just Americans owing money to other Americans right? But I
| think how these things go bad is something like:
|
| - Some loans start to default. Either randomly, or because
| the easy availability of credit encourages riskier projects.
|
| - Conservative lenders get spooked and exit. Credit becomes a
| bit scarcer.
|
| - This repeats in a cycle. Each round wipes out more
| businesses. At first it's mostly the obviously risky ones,
| but increasingly it's normal business with unlucky timing.
|
| - People start to see the writing on the wall, credit markets
| lock up, and panic sets in. Major corporations find
| themselves unable to make payroll. Ordinary financial stuff
| like currency exchanges stop working, while everyone
| scrambles to figure out which intermediary banks might be
| insolvent.
| metalliqaz wrote:
| the 2007 crisis wasn't caused by debt. it was caused by
| huge structures of derivatives based on that debt.
| oconnor663 wrote:
| This isn't my field, so I should be clear that I'm making
| stuff up based on podcasts I've listened to :) The way I
| understand it is that things like MBS's and CDS's were
| the low-level details of that specific crisis, which we
| might not expect to happen again in exactly the same way.
| But the high-level picture was that the failure of major
| institutions had ripple effects that both 1) directly
| caused other institutions to fail and 2) indirectly
| created a lot of uncertainty about who might fail next.
| Importantly, (2) can cause more failures, by freezing up
| the markets that a lot of businesses depend on for
| everyday transactions. This cycle between (1) and (2) can
| be a general effect, that we might expect to see again in
| future crises, regardless of what specific low-level
| details set it off.
| imnotlost wrote:
| Obviously a lot of that debt couldn't be serviced and a
| lot of it was extended to people who just couldn't afford
| it.
|
| The derivatives were a multiplier.
| metalliqaz wrote:
| yeah a multiplier, so instead of a steep correction in
| the housing market, there was a global financial meltdown
| PragmaticPulp wrote:
| The 2007 mortgage crisis had many causes, but much of it
| comes back to bad debt being issued to people who couldn't
| afford it, then the debt was repackaged into instruments
| that deliberately obscured the risk with good debt ratings.
|
| At the time, real estate investing felt like Bitcoin or
| GameStop today: Everywhere you turned, it felt like
| everyone else was getting hilariously rich by investing in
| it and anyone who wasn't speculating in real estate was
| going to be left out. Dinner party and online forum
| conversation was all about how real estate prices could
| only go up and how we were going to be destroyed by
| inflation if we didn't put all of our money into real
| estate, the real store of value.
|
| The difference was that anyone could walk into a bank and
| get a huge mortgage without much scrutiny. As strange as it
| sounds, lenders would give you a mortgage based on "stated
| income" without verifying paystubs or even checking if you
| had a job.
|
| I remember realizing the frenzy was out of control when an
| unemployed acquaintance suddenly moved into a large new
| house and was talking about building her real estate rental
| empire. If money was free and house prices only go up, the
| only way to lose was to not play, right?
|
| As we all know, it turns out house prices can go down and
| debt really does have to be paid back.
|
| Low interest rates alone won't cause this cycle to repeat
| without similar Mia pricing of risk, but it certainly
| increases the probability of bubbles popping as quickly as
| they inflated.
|
| FWIW, the finance world seems keenly aware of the bubble-
| like nature of our current situation this time around,
| contrary to what I saw during the 2008 era.
| blackrock wrote:
| So how's it different now?
|
| Housing prices have gone up almost $200,000 in some
| areas.
| betterunix2 wrote:
| Housing prices have gone up in response to demand, which
| spiked because of the pandemic -- in other words, new
| information entered the system (a pandemic can turn a
| desirable city into an undesirable place to live) and the
| market worked exactly as it should. It may be that
| suburban housing is more valuable because we are going to
| be dealing with pandemic-related messes for many years.
| csharptwdec19 wrote:
| One big difference is NINJA loans aren't really a thing
| on mortgages any more. [0]
|
| [0] - https://en.wikipedia.org/wiki/No_income,_no_asset
| Swizec wrote:
| I like the "velocity of money" concept to think about this.
|
| You lend me $10. I then lend $10 to my friend who lends $10
| to his mom. We just created $30 of debt.
|
| But it's gonna take just $10 to repay all $30.
| tastyfreeze wrote:
| That becomes a real problem when mom cant pay back the
| loan.
| spurgu wrote:
| This is the whole gist of the (potential) problem.
| tastyfreeze wrote:
| Yes, just trying to point out the flaw in the "velocity
| of money" idea as it relates to debt.
|
| Multiple layers of lending on a single dollar is building
| a house of cards. When everything works out you get a
| nice house. When one of the legs fails the whole house
| comes tumbling down. This is not a good way to build an
| economy.
| kube-system wrote:
| The bright side is that it only takes $10 of stimulus to
| fix that potential $30 economic disaster.... if you give
| it to the right person.
| bjarneh wrote:
| > when mom cant pay back the loan
|
| You seem to know this 'mom' quite well :-)
| bjarneh wrote:
| > who lends $10 to his mom
|
| Poor mom, who needs to lend $10 from her son :-)
| Swizec wrote:
| Maybe she just didn't have her wallet on hand to buy that
| burrito lol
| lr4444lr wrote:
| The repayment of the debt for each year is usually by law a
| required set aside in budgeting before the rest of the
| revenue can be allocated. If there is less and less left for
| annual operation costs because we keep increasing our debt
| reliance, that will hurt people who rely on public services.
| If the laws are changed to make timely repayment on these
| bonds and treasuries optional, that will affect their credit
| rating, and the cost of borrowing, which means we have to pay
| more each year to get the same debt financing. It's not a
| good place to be.
| riffraff wrote:
| creditors and debtors are not the same set of entities.
| lightgreen wrote:
| The worst thing can happen is rich people get even more rich,
| poor people become more poor, then the recession starts, then
| poor people overthrow the government and set up some
| destructive authoritarian regime, and then China will conquer
| the western world.
| nateberkopec wrote:
| Most people owe at least 400% of their yearly earnings on
| their house, at least initially.
| minkeymaniac wrote:
| Not any different than taking yearly rent, multiplying by
| 30 and see if it is 4 times yearly salary. At least with a
| house you will have something after 30 years. In ten
| years.. your mortgage will be the same (property taxes
| won't be) Rent will for sure be higher after 10 years in
| the same place. But there are benefits to both renting and
| owning
| tuatoru wrote:
| Good questions, and you are right to be puzzled.
|
| Countries are not households, and the world as a whole is not
| a household either. Heuristics that work for individual
| households fail when applied to countries or the world.
|
| Debt hysteria is promoted by lenders, who will go to extremes
| to try to ensure they are repaid. Even if their actions cause
| a general depression that impoverishes themselves as well as
| borrowers.
| orra wrote:
| Indeed.
|
| Lenders conveniently forget the reason they can charge
| interest is because there's a risk they won't be paid back.
|
| Yet when these private investments go back, they always go
| to the government to be subsidised with a bailout.
| dragonwriter wrote:
| > Lenders conveniently forget the reason they can charge
| interest is because there's a risk they won't be paid
| back.
|
| No, the reason they _can_ charge interest is that they
| have the money now, and other people want it, and are
| willing.to pay interest to get it.
|
| The reason they _need_ to charge interest if they don 't
| want to go broke is that there is a risk they won't be
| paid back.
| orra wrote:
| Sure, yes. But OTOH I'm not sure the distinction you make
| is meaningful. If there was no risk, the cost to borrow
| would tend towards zero.
|
| Any liquidity issues could be addressed by the central
| bank, again at low interest if no risk.
| tjs8rj wrote:
| Private banks charge interest in general because that's
| the opportunity cost of that money.
| orra wrote:
| Interest rates for savers are record low. That's the
| opportunity cost for the savers.
|
| And a central bank of a sovereign country can arbitrarily
| increase liquidity, pushing down the non-risk part of the
| interest rate.
|
| But interest rates for borrowers, as I said, can be high,
| depending upon the risk profile.
| chii wrote:
| it's a future you (i.e., decendents) who pays back the debt.
| The expectation is that they can, because of the investment
| _you're_ making right now by using this debt. Future
| productivity is expected to grow.
|
| Now, whether this is actually the case remains to be seen...
| bubbleRefuge wrote:
| Not true for gov debt. Its complicated. But its an infinite
| cycle of issuing new treasury securities to 'fund' the
| accounts to service existing debt. Those funds are then
| spend back into the economy and then used to purchase new
| treasuries again.
| nine_zeros wrote:
| > We owe ourselves 356% of what we produce every year?
|
| This assumes that people think of the world as a single unit.
| Last 4 years should reveal our primitive minds.
| odiroot wrote:
| Countries (governments) have to service the debt, that is pay
| interest on it. More money into that, means less money into
| regular spending (infrastructure etc). This in turn may mean
| austerity.
| cmehdy wrote:
| The reality of it shows up when you zoom in: overall during
| the pandemic richer people got richer and poorer people got
| poorer.
|
| The "world" doesn't owe the "world" that amount, it's people
| in already tight situations owing that to people in pretty
| comfortable ones. The ones borrowing to get by are paying
| more money than what they borrowed to people who already had
| money to lend out.
|
| What we'll see is yet another rise in inequality, yet another
| wave of the bigger businesses surviving over the smaller
| ones, and more debates within each government regarding how
| much intervention is wanted to try and save people from the
| consequences of those inequalities.
| onlyrealcuzzo wrote:
| Poor people largely aren't in debt. It's that rich people
| use massive amounts of artificially cheap debt to their
| advantage - and people without debt and assets pay for the
| bill - because the Federal government keeps devaluing their
| earnings and savings to pay for the party.
| srcmap wrote:
| Profitable companies such as MSFT, G, FB, etc likely not
| in debt nor need the money.
|
| Only the distress companies (Oil, Travel, Restaurant,
| Airlines) need debt more than anyone else.
| pessimizer wrote:
| People without both debt and assets aren't paying
| anything.
|
| Poor people are in debt. They have student loans, medical
| debt, housing debt, etc.; there are people who owe on
| houses that they've been long evicted from. Inflation
| reduces that debt, which is why the fed believes its only
| mission is to hold inflation down.
|
| People with savings, and who own debt are the people who
| suffer from inflation. Or would, if there were any.
| Instead we just have an explosion in price of what rich
| people already own, like real estate.
| Proziam wrote:
| > People without both debt and assets aren't paying
| anything.
|
| Poor people without debt still pay because their buying
| power continually diminishes. Their $100 saved today
| isn't worth as much the next year.
|
| Poor people without assets still pay. They are forced to
| pay rent to those who have assets. The rent will be
| priced to cover the debt of the asset owner.
|
| > People with savings, and who own debt are the people
| who suffer from inflation.
|
| People with savings most typically invest it. The higher
| the inflation, the riskier the investments they will take
| to ensure their savings don't dwindle away.
| tmnvix wrote:
| People without both debt and assets are paying in the
| sense that their ability to purchase assets (such as a
| home) in the future is being diminished.
| onlyrealcuzzo wrote:
| It's not just assets. Commodities are up 40% from 1-year
| ago verse the dollar.
| nostrademons wrote:
| Producer prices as well. An acquaintance of mine runs a
| box factory. His paper suppliers have hiked prices twice
| since November, and naturally he's going to be passing
| this (and more) on to his customers.
| mistrial9 wrote:
| > Poor people largely aren't in debt.
| citations ?
| onlyrealcuzzo wrote:
| >68% of personal debt is mortgage debt. Another ~10% is
| auto loan debt [1]. Most home owners aren't considered
| poor. A (largely) disproportionate share of poor people
| don't own cars, don't have access to credit, and also
| didn't go to college.
|
| The idea that poor people could hold a large percentage
| of debt is - in itself - paradoxical / ridiculous. In
| order to have debt, you need something to service the
| debt with. Otherwise, you're bankrupt.
|
| The major caveat here is student debt - anyone can load
| up on student debt regardless of ability to service - and
| there's no way out of the debt. You can't file
| bankruptcy.
|
| [1] https://www.fool.com/the-ascent/research/average-
| american-ho...
| dnautics wrote:
| > The "world" doesn't owe the "world" that amount, it's
| people in already tight situations owing that to people in
| pretty comfortable ones.
|
| This is wrong. Most people in tight situations around the
| world don't even have access to banking _or_ debt.
|
| I imagine most of this is sovereign or corporate debt, and
| financialized debt, like obligations incurred by
| instruments such as shorts, or taken out to perform
| leveraged trading.
| cmehdy wrote:
| https://blogs.imf.org/2019/01/02/new-data-on-global-debt/
|
| "The private sector's debt has tripled since 1950. This
| makes it the driving force behind global debt. Another
| change since the global financial crisis has been the
| rise in private debt in emerging markets, led by China,
| overtaking advanced economies. At the other end of the
| spectrum, private debt has remained very low in low-
| income developing countries.
|
| Global public debt, on the other hand, has experienced a
| reversal of sorts. After a steady decline up to the
| mid-1970s, public debt has gone up since, with advanced
| economies at the helm and, of late, followed by emerging
| and low-income developing countries."
|
| -> Debt owned in the private sector isn't just about
| stock market but about all the small businesses which in
| the US are 99.9% of them (see
| https://www.chamberofcommerce.org/small-business-
| statistics/ )
|
| -> Public debt is debt that we all deal with, and it
| might come as a surprise to you but a majority of people
| aren't actually rich
|
| What I'm trying to say here is that you can play on the
| technicality of the amount of people under poverty
| thresholds not being in debt because they can't even
| access debt, but it's not really changing anything about
| the people who ARE in debt being in significant amounts
| people who might not have the shoulders to take it on but
| are trying to get by and doing so as a requirement to get
| by.
| dnautics wrote:
| No doubt that there is an increased burden on the lower-
| middle class, but when I phrase it that way, it should
| make clear why your take refers to an insignificant part
| of the equation.
|
| Nor am I suggesting that the lower class won't bear the
| brunt of this problem. They will eventually bear the
| brunt of the global debt issue in a different way -
| through prices that outpace pay increases.
| dr_dshiv wrote:
| Does lending money to the poor increase or decrease
| inequality?
| Thorentis wrote:
| The majority of this figure is not credit card and mortgage
| debt. It is government debt in the form of bonds, bought by
| central banks. Multiple first world countries have turned
| the money printer up to full throttle during pandemic, and
| that has caused the debt:GDP ratio to sky rocket.
| wdn wrote:
| The problem is cause by the government. How do you think
| stock market so much past year? The US government and other
| governments printed so much money that no where to go
| (remember, we are still locked down). With internet at or
| near zero, do you think people put their money in the bank?
| PragmaticPulp wrote:
| This headline number includes private sector debt, such as
| small business loans and mortgages.
|
| I can assure you that the comfortably rich are not getting
| richer by loaning money to the average person to buy houses
| and cars with 2.5% interest rates, while inflation is
| arguably significantly higher than that number.
|
| The rich get richer in this scenario because low interest
| rates increase the buying power for everyone, which means
| they can buy more expensive houses or pay less for the
| mortgage on the house they already own, which in turn means
| they can buy more things from Amazon, which means Amazon
| does more business, which means the stock price goes up,
| and so on.
|
| The populist narrative likes to simplify complex economic
| topics into rich versus poor narratives as if this was a
| zero-sum game, but it's not. I'm not sure how your final
| points about inequality relate to increasing total global
| debt, but it's obvious that this isn't as simple as
| funneling money from the poor to the rich.
| paganel wrote:
| A guy like Bezos basically doubled his net worth in a
| matter of just a couple of years for the simple reason
| that the US decided to flood the market with money, money
| which made its way into the stock-market, among other few
| places (like real estate or corporate bonds). Amazon does
| more business compared to a couple of years ago, but
| their share price wouldn't have been the same without the
| US taking in more debt.
| TuringNYC wrote:
| This seems like an unfair take. There are thousands of
| publicly corporations but the flooded money didnt go
| equally to all of them. They didnt even end up equally on
| a cap-weighted basis. Instead, they ended up
| disproportionately into select industries and
| disproportionately into select companies?
|
| As you note, money printing is a big part the tide went
| up. But why did Amazon go up even more than the tide? I
| think it is more complex than just printed money. It is
| partly aligned incentives, incentivized workers, ruthless
| execution, focus, internal investment, and i'm sure you
| can think of some bad reasons also.
| ska wrote:
| > The populist narrative likes to simplify complex
| economic topics into rich versus poor narratives as if
| this was a zero-sum game.
|
| There are multiple populist narratives. At least equally
| popular is simplifying into the narrative where the non-
| zero sum aspects make up for any number of other problems
| (cf Regan's trickle down stories).
|
| I guess it's hard to simplify complex things without
| losing important information.
| ASalazarMX wrote:
| > The rich get richer in this scenario because low
| interest rates increase the buying power for everyone,
| which means they can buy more expensive houses or pay
| less for the mortgage on the house they already own,
| which in turn means they can buy more things from Amazon,
| which means Amazon does more business, which means the
| stock price goes up, and so on.
|
| Oh, so everyone is getting richer! Whew, Thanks, I was
| worried for a second.
| Pokepokalypse wrote:
| Except very very little of our credit is 2.5% interest.
| Maybe home loans,and car loans. A huge proportion is
| 6-ish% student loans. A large proportion of credit out
| there is 25% or more, credit card debt.
| adamhp wrote:
| > which means they can buy more expensive houses or pay
| less for the mortgage on the house they already own,
| which in turn means they can buy more things from Amazon,
| which means Amazon does more business, which means the
| stock price goes up, and so on.
|
| Do they do this? I was under the impression that they
| stashed it offshore and sat on it. I'd like to see what
| "the rich" are actually spending their money on and how
| it drives any economic levers.
| cmehdy wrote:
| You can call it populist if you want, it's just
| mechanically true. For money to be lent out it's coming
| from somewhere where the money is existing or the risk
| can be handled, and in both of those cases where money
| exists or risk can be handled you're typically looking at
| richer rather than poorer. If you're a shareholder, you
| are more able to afford risk than if you're just throwing
| your money at paying the bills. If you're in that
| situation and borrowing from a bank, the bank's
| shareholders mechanically are benefiting from your
| activity. You're borrowing to get by and people who have
| a better cushion are doing better for it, I don't see
| what's so shameful to point out.
|
| Your explanation doesn't explain anything away but to try
| and put some sort of weird blame on poorer people for
| borrowing, it's just as usual of a narrative as the
| populist thing to be infantilizing poorer people. There's
| however a pretty big difference between borrowing at your
| limit or sometimes beyond because you're trying to get
| through a pandemic or have a place to live, and borrowing
| at high risk because you're playing with huge sums and
| can in fact afford the loss. The latter as a group made
| more money during the pandemic from any possible source
| you could look at, the former as a group lost money and
| jobs. I won't insult you by throwing Oxfam reports at the
| situation, especially since you might be keen on calling
| it populist too and calling it a day.
| diegoholiveira wrote:
| > For money to be lent out it's coming from somewhere
| where the money is existing
|
| Not true. Governments around the world are just using
| money that doesn't exists, an example is the new economic
| rescue package. This kind of money, is great to made rich
| people richer.
| cmehdy wrote:
| That's the whole discussion around money itself, isn't
| it. As soon as you do something other than exchange an
| apple for a goat (and even then, really), you're
| potentially creating money in one person's eye and not in
| the others. While I understand your point about the money
| not existing, if you're making it happen in the system
| you're putting something of yourself in the system to
| convert to money. In governments' case it is their
| "reputation" and ability to operate in the world, as
| shown with the Greece situation in the recent past.
|
| Ultimately it just wasn't in bills but it was indeed paid
| in the government's loss of abilities (as well as the
| price to the population) and made money in other places
| where it was due. And that exactly what governments do
| when they deal with currency: any adjustment isn't
| creating energy out of nothingness, it's just that the
| layers of our system make it pretty hard to figure just
| where the debt is paid and it ultimately ends up being
| paid by those least able to see it coming & to avoid it.
| Not to hammer the point again, but those people tend to
| be again on the end of the spectrum that has "poorer"
| written on it.
| sudosysgen wrote:
| That just makes the actual value come from people that
| need to buy real assets or non-invested money. In both
| cases it mostly comes out of the common man and makes
| rich people richer. But it's not as bad as a total market
| failure. This system sucks.
| PragmaticPulp wrote:
| The economy isn't a zero-sum game. We're not simply
| distributing finite amounts of wealth among the
| population.
|
| Consider what happens with high interest rates: The
| people with money are incentivized to put it in the bank
| and sit on it, while the people without money are forced
| to pay exorbitant interest rates for the privilege of
| borrowing that money to start businesses, buy cars they
| need to get to work, and so on.
|
| Low interest rates are a forcing function to force the
| wealthy to deploy capital somewhere other than letting it
| sit in a bank.
|
| > The latter as a group made more money during the
| pandemic from any possible source you could look at
|
| Stock prices are up because we literally stimulated the
| economy by giving the average person free money to spend
| and subsidizing their jobs. The headlines comparing net
| worth of wealthy people at the lowest point of the
| pandemic to the highest point are outrage porn. They
| didn't make money by funneling it out of the poor and
| into their bank accounts.
| cmehdy wrote:
| This zero sum saying needs to die, it doesn't say
| anything useful. What you MEAN to say is that it is not
| zero sum when you look along the time variable (as in
| sum(t+1) != sum(t)), because total value is not constant
| over time as we value human creation in a system of human
| beings. However at any fixed t, the total value is a
| constant and the sum adds up, hence why it's called a sum
| in the first place.
|
| Saying that the function isn't flat doesn't give us ANY
| useful information about the finer distribution of
| wealth, studies do. And those studies keep on pointing
| out a world where the inequality gaps are getting wider
| and deeper. This is exactly back to my first comment, and
| somehow that was populist to point that out to you.
| Aunche wrote:
| > What you MEAN to say is that it is not zero sum when
| you look along the time variable (as in sum(t+1) !=
| sum(t)),
|
| I think they were saying that it's not zero-sum with
| respect to policy rather than time. Most ideals of wealth
| redistribution would have disastrous effects on the
| economy. There's a reason why even the most progress
| countries primarily fund their social programs with
| income taxes and VATs rather than capital gains or wealth
| taxes.
| dominotw wrote:
| > The economy isn't a zero-sum game. We're not simply
| distributing finite amounts of wealth among the
| population.
|
| How though? There are only limited amounts of land to
| own, water to drink, desirable places to live ect. How
| can everyone simultaneously get rich. It is obviously a
| zero sum game. Over last year my FAANG friends had their
| stocks increase by insane amounts which they sold and
| bought second homes, beach houses, ski condos. I am not a
| FAANG employee or owner or TSLA stock, we want to buy a
| house but we are priced out of most places. We have to
| move away from our family to the farthest suburbs to even
| be in the competition.
| pwg wrote:
| > > The economy isn't a zero-sum game. We're not simply
| distributing finite amounts of wealth among the
| population.
|
| > How though? There are only limited amounts of land to
| own, water to drink, desirable places to live ect. How
| can everyone simultaneously get rich.
|
| If you define "get rich" as "own land" or "own water" or
| "own property in desirable place X" then yes, you can see
| it as zero-sum.
|
| But if you define "get rich" as "accumulate money", then
| the economy it is not zero-sum. And one of the ways it is
| not zero-sum is fractional reserve banking. This allows
| the banks (who arguably are the originators of most of
| the loans being discussed here) to literally "create
| money out of thin air". For a bank to underwrite a loan
| to someone for $20,000 for a car, they don't have to wait
| for grandma's saving account to accumulate $20,000 in
| order to have the funds to make that loan. They only need
| (example) $2,000 to be "savings" in grandma's savings
| account in order to be able to underwrite a $20,000 loan
| to the person wanting to buy the car. The $18,000
| difference was simply created by fiat out of thin air.
|
| Which is how, if one defines "get rich" as "accumulate
| money", the economy is not zero-sum. In order for person
| X to gain 10,000 more dollars, person Y does not have to
| give up any dollars (unlike with
| land/water/housing/etc.).
| esotericn wrote:
| "Getting rich" literally does mean owning capital.
|
| You are not rich if you have ten billion Zimbabwean
| dollars.
| dominotw wrote:
| > "own water"
|
| what is owning water? I don't want to own water. I want
| to live in place where there is no water shortages. What
| is your plan to survive without 'owning water' ?
| ksdale wrote:
| Once upon a time, everyone in the entire world lived in
| dire poverty on the brink of starvation. Now far fewer
| people do. (Well more absolute people, but fewer relative
| people) This improvement is mostly because so much more
| of everything is produced. Redistributing everything from
| the richest people of 100 years ago without producing
| more would leave the average modern person quite poor
| indeed.
| zemvpferreira wrote:
| Efficiency improvements and technology make the economy
| non-zero-sum. It's a trope to say that most of us live
| lives of a comfort that no Roman emperor could afford,
| but it's still true, and not because we have more wealth.
| Every year lots of things get cheaper compared to the
| money we make, and lots of new things are invented that
| replace much more expensive alternatives. We used to
| bring blocks of ice into the cities from the north
| (inside ships wrapped in hay I think) to act as
| refrigerators, for goodness sake.
|
| That said lots of markets are close to zero-sum on a
| near-term basis. Real estate in very scarce locations is
| a good example for sure.
| dragonwriter wrote:
| > 2.5% interest rates, while inflation is arguably
| significantly higher than that number.
|
| Inflation in the US isn't, even arguably, significantly
| higher than 2.5% per annum, and anyplace it is, interest
| rates are substantially higher.
|
| And don't "but asset price inflation"; that's not
| relevant, since that's just the rate at which people
| invested in assets can get richer, not a price deflator
| that helps gauge how rich someone with a given nominal $
| amount of wealth is.
| patrickaljord wrote:
| > overall during the pandemic richer people got richer
|
| No, I can tell you lots of rich people lost a lot during
| the pandemic. Especially in the affected industries
| (events, airlines etc). Unless by rich you mean Jeff and
| Elon, this statement isn't generally true though it is true
| for some.
| cmehdy wrote:
| There aren't just two rich people on earth, you know?
|
| https://theconversation.com/fact-check-us-did-some-
| americans...
|
| https://www.thestar.com/business/2020/08/15/as-the-
| pandemic-...
|
| https://www.npr.org/2020/04/22/840678984/small-business-
| resc...
|
| https://www.cbsnews.com/news/billionaires-
| pandemic-1-trillio...
| mbar84 wrote:
| Debt is a promise. A promise you make is based on
| expectations about the future, including promises that others
| have made to you. The more promises we make to each other,
| the more likely we are to be in a chain where somebody cannot
| keep their promise, which means that we are vulnerable to a
| cascade of failed promises. When such promises pervade the
| economy, once we see that they have been broken, we have to
| reorganize ourselves. This happens by closing businesses, by
| liquidating assets, switching jobs and eating cat food
| because the pension is now worthless.
|
| In financial terms, such cascades are typically mopped up by
| central banks through dilution of the money supply and/or
| taxpayer financed bailouts.
|
| Long story short: more debt means more risk of a financial
| crisis.
|
| p.s. I think it is not helpful to use terms such as "our
| own", "ourselves" when trying to understand these issues.
| munificent wrote:
| _> The more promises we make to each other, the more likely
| we are to be in a chain where somebody cannot keep their
| promise, which means that we are vulnerable to a cascade of
| failed promises._
|
| You can think of a promise as an edge between nodes in a
| graph. A failure cascade occurs when removing a single edge
| causes many nodes to become unreachable.
|
| Whether adding edges increases that change depends
| _entirely_ on the topology of the graph. A long linear
| chain increases the risk. (But you have to implicitly
| create new nodes--new lenders--in order to maintain that
| topology while adding edges.)
|
| But if you just add edges without increasing nodes, the
| result is that the graph becomes more connected and thus
| more resilient to edge loss. In other words, if you owe me
| $100 and don't pay, I'm out $100. But if five people owe me
| $20 and one doesn't pay, I still get $80 back.
| connectsnk wrote:
| We owe this money to the central banks
| JumpCrisscross wrote:
| > _We don 't owe this money to some foreign planet with a
| death-star pointing at us_
|
| One, not all that debt is termed to one year. And two, it's
| an internal transmission mechanism.
|
| If two people produce $50 a year, and one owes the other $100
| in four years and the other owes the one $100 in five years,
| that's a perfectly fine 200% debt to annual production ratio.
| For years 1, 2, 3 and 5, their positions will be equal. In
| year 4, there will be inequality. If one or the other
| defaults, that inequality would persist even though aggregate
| indebtedness went down.
| snemvalts wrote:
| Most of money today is from issued loans. The worst that
| happens is like the fears in 2008, where the loans (or the
| assets bought for those loans) are worth a lot less, and
| hence a lot of money will be as well.
| cgh wrote:
| Read Stephanie Kelton's book "The Deficit Myth" for an
| elaboration on your questions. It's a non-technical
| introduction to Modern Monetary Theory. Spoiler: you are
| correct, the rules are different for nations that control
| their sovereign currencies (eg the UK, Canada, Japan, the US,
| China, etc., but not EU countries).
| RobertoG wrote:
| I wish more people understood what is explained in that
| book.
|
| It's almost impossible to have a rational discussion about
| this subjects when most people (including the writer of the
| article, I'm afraid) don't understand the difference
| between private debt and the public debt of a country with
| its own currency.
| sdfin wrote:
| Read it, but please also read it's critics[1] and form your
| own opinion knowing about the two sides.
|
| [1] https://mises.org/wire/review-stephanie-keltons-
| deficit-myth
| stainforth wrote:
| Do you have another source. I don't trust that site based
| on its other article headlines.
| sdfin wrote:
| I read similar critics in other sites but right now I
| don't remember exactly where as to share the links. The
| arguments were similar. The article is balanced and well
| thought. You could search for other sites in the web, but
| I'd suggest you not to discard this one only for the
| headlines of other articles.
| bubbleRefuge wrote:
| Thank you. I always try to call out a fellow MMT'ers.
| Amazing how far this has come. Mossler said he thought it
| would take a hundred years to get to the point that the
| framework could be used pro-actively to create policy on a
| grand scale. Although, small scale stuff did come to
| fruition such as the Bush stimulus checks of 2007(i think)
| which I believe was MMT inspired.
| bubbleRefuge wrote:
| She has truly brought MMT to the mainstream. She's why I
| supported Bernie Sanders ( and I am a former republican)
| who is clueless about MMT and thinks we have to tax the
| rich to fund Federal programs. Allot of people don't know
| this, but MMT intellectuals have said we don't need federal
| income tax at all. State taxes are enought to maintain
| demand for the currency. This from left leaning/progressive
| economists.
| hfsp wrote:
| Have fun staying poor.
| bob33212 wrote:
| Everyone cannot be repaid at the same time. So there is a
| risk of a scenario where many lenders get scared and try to
| get their loans repaid and stop making new loans.
|
| If that happens is becomes much more difficult for people to
| buy a house, car, college tuition, construction loan. That
| could cause a recession which causes businesses to do layoffs
| and spend less because they are worried about future income.
| PragmaticPulp wrote:
| This article is about total global debt, which includes the
| private sector. Many of the comments here have misinterpreted
| this as government-only debt, which is not correct.
|
| Only about 1/3 of the debt is government debt right now (a
| little under $100 trillion globally).
|
| If you look up where your federal tax dollars go, there is a
| significant line item for servicing debt. Those interest
| payments go to holders of the government debt, which range
| from US citizens to foreign countries. You can find charts
| and estimates of who holds that debt if you want to
| understand where it goes.
|
| The popular narrative about governments printing free money
| isn't really true in the simplified meme-style presentation
| that we hear online.
| rsync wrote:
| "Those interest payments go to holders of the government
| debt, which range from US citizens to foreign countries."
|
| ... and also the fed[1] which, currently, holds more than
| 10% of the US debt[2].
|
| "The popular narrative about governments printing free
| money isn't really true in the simplified meme-style
| presentation that we hear online."
|
| Perhaps - but it is getting more true all the time. In the
| case of the ECB it is getting more true all the time _in
| the absence of any oversight, transparency, adherence to
| constitutional law or democratic processes_ [3].
|
| [1]
| https://www.nytimes.com/2020/12/16/business/economy/fed-
| dece...
|
| [2] http://www.crfb.org/blogs/fed-buying-our-new-debt
|
| [3] https://www.lrb.co.uk/the-paper/v43/n01/perry-
| anderson/ever-...
| [deleted]
| EGreg wrote:
| Let me explain. The PUBLIC SECTOR is in debt. It won't be
| able to continue borrowing on the same terms unless it prints
| more money (leading to inflation unless done during a crunch
| of the money supply due to defaulting private sector loans
| etc).
|
| Even before this pandemic, by cutting taxes the US Government
| got larger deficits under Trump (after Bush's $1.5T a year
| deficit, Obama era got it down to $500B only, and then
| Trump's and Republican budgets ran it up again.) The public
| sector deficits add up to the debts.
|
| The northern cities - forget about it, they can't even print
| their own money, and they shus down their businesses - they
| are screwed.
|
| Now, everything is relative, so US sovereign debt instruments
| compete against, say, China's in the open marketplace. But,
| there are alternatives to US treasuries - like Bitcoin and
| cryptos and gold etc.
|
| If banks start to keep those as reserves, then the public
| sector and central banks will have decreasing power unless
| they FORCE the banks to have higher reserve requirements of
| base money that they print.
|
| Btw in the USA, the vast majority of dollars is issued by
| banks (to businesses whose cashflows back this money supply,
| so bailing out businesses is a priority for the economy).
|
| People are taking all that fiat money being sent by the
| government created by banks and plowing it into assets, which
| the government doesn't have laws to seize, dilute the value
| of, etc.
| dragonwriter wrote:
| > We owe ourselves
|
| Well, no. Yes, this is the sum of what everybody owes, which
| is also the sum of what everybody is owed.
|
| But not everyone is equally on both sides of that equation.
| fuoqi wrote:
| One's debt is other's asset. In my understanding, such large
| ratio of debt to GDP means that the world's economic system
| is highly interconnected without enough slack in it, which
| increases risks of avalanche effects. Meaning that someone's
| failure to service his debt with increasing probability will
| cause a ripple effect of bankruptcies throughout the system.
|
| Note that this view does not include the existence of the
| money printing press, which currently runs at full throttle.
| In theory it would mean destruction of the debt via inflation
| (i.e. debt yield will be smaller than inflation), thus
| preventing the avalanche effect, but this approach is by no
| means a free lunch.
| AlanSE wrote:
| But is inflation a realistic debt-reducing tool in the
| modern economy? Inflation rates are very low, particularly
| when considering the debt load. We could quite simply
| increase the target inflation rate from 2% to 4% inflation,
| but this would only affect the servicing of the current
| loans, and the next round to refinancing will
| correspondingly increase the borrowing rates.
|
| There's still the matter of principal. The US government,
| for instance, could absolve itself of almost all debt
| liability by going into high-inflation mode, erasing the
| burden of most T-bills. Again though, this is a one-shot
| thing. It could eliminate most of the current debt, but
| would do nothing about the deficits. As long as large
| deficits remain (and are politically intractable), it
| doesn't seem workable in any meaningful sense.
|
| The working quantity of cash out there is also fairly
| small. The entire point of a bank is that it minimizes the
| cash in the system by balancing deposits against loans.
| That means that changing the cash supply will affect the
| price levels more violently than what would otherwise be
| expected. That just means that there's less cushion to
| absorb large amounts of new cash that government issues,
| again, kind of reducing the benefit of "free" money.
| runako wrote:
| > But is inflation a realistic debt-reducing tool in the
| modern economy?
|
| Yes, when you consider that we don't need actual CPI
| inflation in order to reduce the debt. Economic growth
| works just as well. In hard terms, we can inflate money
| so the debt is smaller. We could also all get richer so
| the debt is proportionally smaller.
|
| Pro-growth policies like the strengthened safety net we
| in the US are experimenting with as pandemic response
| could have the impact of increasing overall growth to
| make debts more easily serviceable.
| bubbleRefuge wrote:
| what burden of T-Bills ? T-Bills are a private sector
| asset(a good thing) and a public sector liability which
| doesn't matter since the treasury can just issue new
| T-Bills in order to 'fund' debt service ad-infinitum.
| Never ever has funding(i.e. US treasury account balances)
| prevented government spending from occurring in the
| modern era. I think we spend 6 Trillion in 2020 on
| stimulus programs, etc. Where do you think that money
| came from ?
| willcipriano wrote:
| > Inflation rates are very low, particularly when
| considering the debt load. We could quite simply increase
| the target inflation rate from 2% to 4% inflation.
|
| You probably mean CPI, not inflation. Inflation is really
| only loosely correlated if at all with the price of goods
| that consumers actually buy. Things like hedonic quality
| adjustments leave CPI largely up to whims of the
| regulators.
| ls612 wrote:
| No, that isn't what it's doing. All it's doing is saying
| that we aren't going to announce a 99.99% deflation in
| hard drives because now they are measured in TB instead
| of MB in the 90s, and things of that nature. In a
| platonic ideal the CPI aims to measure an unchanging
| basket of goods, but when this becomes impossible in
| reality something needs to be done.
| willcipriano wrote:
| The trouble is CPI is not generated in a transparent
| enough manner to prove your or my assertion.
| dragonwriter wrote:
| > The trouble is CPI is not generated in a transparent
| enough manner to prove your or my assertion.
|
| It's obviously a complicated domain, but I think it is
| dishonest to say that it is transparency issue. It's not
| like BLS keeps adjustment methodologies secret.
| willcipriano wrote:
| Methodologies sure, I can pull up some of the formulas
| they use. The dataset on the other hand, that is secret.
| A independent party cannot calculate CPI and end up at
| the same result as BLS. For something as important as
| inflation, and for this to be considered remotely
| scientific, the results need to be repeatable by
| independent parties.
| fuoqi wrote:
| Yes, it is. There is nothing magic about modern economy,
| increase supply of something more than there is demand
| for it and eventually it will lose its relative value.
| Many argue that real yield of T-bills is already
| negative. This is why the Fed has to buy them itself
| (thus effectively it prints money out of thin air), since
| there is not enough domestic or foreign investors which
| are willing to invest into them on such conditions.
|
| I think we don't see big inflation (relative to the
| amount of the injected money) for two reasons:
|
| - Slow velocity of money due to the effects of the
| pandemic. It's a temporary effect and we already see
| raises of oil and steel prices.
|
| - Money distribution. The Fed (and the US government in
| general) policy mostly benefits the rich. Thus we do see
| inflation of real estate and financial assets (including
| cryptocurrencies). It works well for now (well, let's
| forget about the moral aspect of such policy for now),
| but such capital is very mobile and it can migrate to
| other jurisdictions very fast on the very first signs of
| danger, thus aggravating the situation which has caused
| this migration even further.
|
| A bigger factor from which the "magic" comes in my
| opinion is the reserve status of the dollar, highly
| disproportionate to the global share of the US economy.
| There are signs that this status gradually being lost,
| which in 10-20 years probably will lead to big tectonic
| shifts in the global economy. I think that in 20-30
| years, the US economy will be far more "normal" than
| currently, i.e. it will not be able to exploit the
| reserve status anymore.
| ddalex wrote:
| > We don't owe this money to some foreign planet with a
| death-star pointing at us
|
| It's borrowed from the future. Literally, we owe the money to
| our future selves, like in human race.
|
| To oversimplify it, we expect that the productivity (ie. the
| amounts of material possessions and services that are
| available to humanity as a whole) will grow in a geometric
| rate.
|
| Those future money are an instrument on how this growth is to
| be directed, basically relying on the wisdom of the crowds to
| determine investment strategies. The opposite - direct
| planning of growth - was vastly tested (in communist
| countries) but it didn't go anywhere.
| goatinaboat wrote:
| _What is the worst that can happen? We don 't get our own
| money back from ourselves?_
|
| Our future selves find that the cupboard is bare because our
| present selves squandered it all. Printing money now is a
| gamble that the real economy of goods and services will
| expand at that rate over the long term. It's not by any means
| certain that it will.
| Cthulhu_ wrote:
| You say "we" and "our", but both you and the article assume
| the world is one whole; looking a bit further, it's countries
| that are indebted to one another.
|
| Now, I'm no economist or anything so this is all armchair
| stuff and bits I've picked up over the year.
|
| One concern: Being indebted means favors. China could offer
| to waive some of the US's debts in return for a favor, e.g.
| Chinese companies having more of a presence in the US (or the
| other way around). The US owes China nearly 1 trillion, Japan
| 1.2 trillion. (https://howmuch.net/articles/foreign-holders-
| of-us-debt-2020)
|
| Another concern: Credit worthiness / rating. Currently, the
| US is looking very good and they have a AAA credit rating
| with various organizations that measure it
| (http://www.worldgovernmentbonds.com/credit-rating/united-
| sta...). But, if the US fails to pay interest and down
| payments because they're too deep in debt or their GDP drops
| for whatever reason, these companies may opt to lower the
| credit rating (which actually happened in 2011:
| https://www.bbc.com/news/world-us-canada-14428930). A lower
| credit rating means that they will have to pay higher
| interest rates, and that requests for loans may actually be
| rejected. If the US depends on loan to e.g. pay for
| government employees (and they do, given that the US's
| expenses are higher than their income:
| https://en.wikipedia.org/wiki/United_States_federal_budget,
| revenue is $3.5T, expenses are $4.4T, so they're borrowing
| $900B from somewhere to make ends meet).
|
| Mind you, I get the impression most countries have a budget
| deficit and compensate by taking out loans: https://en.wikipe
| dia.org/wiki/List_of_countries_by_governmen... has a good
| chart. The US tops the list though, in terms of deficit. The
| countries that aren't running a deficit - only ten of them -
| are pretty small countries, who I think may not have the same
| credit rating as others.
|
| TL;DR I have no clue what is going on or what I'm talking
| about. It's a big borrowing circlejerk that is probably self-
| balancing.
| michael1999 wrote:
| Debt is the other side of savings. Some fraction of this debt
| is the current savings of people older than you. As the last
| boomers retire over the next 5 years and start to draw down
| their savings instead of accumulating, we'll see how it all
| shakes out. "Keep government hands off my medicare!" protest
| signs are only the start.
| snarfy wrote:
| We will get the money back. It won't have the same value
| though. 100% of work results in 356% money = inflation.
| mattchew wrote:
| I think this is a sincere question.
|
| It's quite possible this ends in a global depression that's
| worse than what we had in 2008, maybe even worse than what we
| had in the 1930s.
|
| There are a lot of states that are not very solvent: states
| collapsing financially is also a possibility. Very bad for
| the people who live there, and sometimes their neighbors.
| betterunix2 wrote:
| "We" do not owe "ourselves." Governments, businesses, and
| individuals owe other individuals, banks, and governments.
|
| What is the worst that can happen? A government defaults on
| its debts, and then cannot secure the loans needed for some
| other very important work. Large numbers of defaults will
| cause interest rates to rise, and everyone suffers as a
| result. The "contagion" effect is also possible: a bank sees
| too many defaults from its clients, and then finds itself
| unable to repay its own loans, triggering more defaults
| elsewhere.
|
| If the obvious answer is, "Can't we just forgive the debt,"
| the answer is, "Sure, but we need to be careful." Forgiving
| all debt would break the markets, because it would remove the
| negative consequences of investing in bad ideas. Sometimes a
| business has to be allowed to fail. So the better answer is
| that central banks would have to buy _some_ of the bad debt,
| just enough to prevent a cascade of defaults and other worst-
| case scenarios, but leave creditors holding enough bad debt
| to feel some "pain" when the defaults happen (in some cases,
| allowing creditors to fail entirely -- as long as it is not
| too many too quickly).
| nly wrote:
| You're forgetting the variable of time. The current
| generation is borrowing from the next generation.
| nomercy400 wrote:
| Exactly this. A loan of 30 years isn't paid off in a year.
| hfsp wrote:
| You are exactly right you don't take a 25 year loan during a
| war to build a mall. You devalue your currency by firing up the
| money printer.
|
| Look up money printing at times of war. Weimar republic.
|
| Also look up money printing over the last year. FRED is gov
| resource on this metric.
|
| Debt is fragility.
|
| Debt is a no-no in Christianity, Judaism, and Islam.
| reedf1 wrote:
| 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.
| Someone wrote:
| Government income is lower than GDP, often a lot lower.
|
| As an example, the US federal budget is under $5 trillion, US
| GDP over $20 trillion (getting a good view is extremely
| difficult, as states, counties, cities, etc. also have income,
| and borrow money, and that situation differs by country)
| rawtxapp wrote:
| What happens if you lose your job and can't find another one in
| time to make your mortgage payments? Leverage introduces risks,
| higher leverage means more risk.
| maxwell wrote:
| Repayment at the micro level seems dependent on age and health
| factors.
|
| At the macro level, it's not about governments per se, it's
| about demographics.
|
| Govs have some effect, e.g. car seat regulations lowering the
| birth rate in the U.S., but legislative/regulatory priorities
| reflect the wider culture.
| ak217 wrote:
| Even if we take that study at face value (they basically
| overfitted a model with so many free parameters, they could
| tune it to give any result they want), car seat regulations
| have at least two orders of magnitude less effect than any of
| immigration, healthcare, tax, or labor regulations policies.
| no_wizard wrote:
| For what its worth, the aside comment here about car seat
| regulations lowering birth rate in the U.S. is a reference to
| this study: https://poseidon01.ssrn.com/delivery.php?ID=81707
| 80781160050...
|
| It's also a _correlation_ study, and I 'd hesitate to quote
| it as fact currently.
| Bakary wrote:
| To paraphrase and mangle a certain quote, if you owe a few
| hundred thousand dollars to a bank to purchase your home,
| that's your problem. If a government owes 356% of trillions of
| dollars, that's not just their own problem anymore.
| qeternity wrote:
| There is one correct answer to this: collateral. Your mortgage
| is secured by the value of your house, which can be repossessed
| and sold to recoup loan proceeds. Of course, the housing market
| can decline, but it provides a very real backstop to your
| ability to repay that loan. You might be inconvenienced to sell
| your house, but ultimately it can be repaid relatively easily
| even if you default.
|
| Government debt on the other hand is uncollateralized and
| "secured" by two intangible things: tax receipts and central
| banks. Taxes are obviously a significant headwind for economic
| growth, and while necessary, should be as low as possible. So
| increasing taxes is not desirable. The second way is through
| inflation vis-a-vis Central Banks (so called debt
| monetization). Inflation is an implicit tax on everyone, and as
| we know, like taxes, too much inflation is a very bad thing.
|
| Governments have three ways to retire their debt, and all are
| pretty bad: 1) they can raise taxes which impedes growth and
| done in the extreme can cause a recession, which then reduces
| taxable income in a negative feedback loop 2) they can debase
| their currency causing inflation so that the money they have to
| pay back is worth less, which is also really bad when done
| excessively 3) or they can either default which unlike your
| house, is catastrophic because there is nothing for creditors
| to repossess
|
| And the above is without getting into the topics about utility:
| your house will provide utility for decades whereas most debt
| has been accumulated to fund social programs which need
| continuous funding, unlike your house which is funded once and
| amortized over decades.
| dragonwriter wrote:
| > Governments have three ways to retire their debt
|
| But very little reason to retire debt; there are arguably
| good reasons to try to manage the debt-to-GDP ratio within
| broad parameters over the long term, but mostly that is about
| trying to constrain the long-term growth rate of total debt
| below long-term economic growth rate, not reducing debt on an
| absolute basis.
| MuffinFlavored wrote:
| > Governments have three ways to retire their debt, and all
| are pretty bad:
|
| What does this mean for our deficit long term? Does the
| deficit even matter? To what degree? Everything you said is
| true. It makes it seem like we will most likely never live in
| a time where the government is cash flow positive (some kind
| of surplus that is used to pay down debt).
| lightgreen wrote:
| You can always sell your property while you have it replayed
| mortgage yet and get a lot of money.
|
| The government has nothing to sell.
|
| Better analogy is that you have 600% GDP in student debts, and
| you don't have a realistic plan to repay it because you studied
| liberal arts.
| JumpCrisscross wrote:
| > _government has nothing to sell_
|
| Governments have assets and the legal right to others' assets
| ( _e.g._ taxation).
| lr4444lr wrote:
| You have a re-possessible and appreciable asset leveraged. You
| also aren't renewing your debt. 600% of your salary in credit
| card or student or medical debt is dire.
| jopsen wrote:
| > appreciable asset
|
| The fact that a home goes up in value over time does not seem
| natural to me.
|
| In 30 years time, won't people prefer to buy a house that is
| 10 years old, compared to one that is 40 years old?
|
| Why is it normal that housing prices go up?
| dharmab wrote:
| The 40 year old house is probably in an area that has been
| developed for 40 years with schools, business and
| recreation.
|
| Anecdote, but illustrative: Myself and a friend bought
| houses in 2020 of comparable size. My friend bought a build
| in a new neighborhood (technically put the money down in
| '19), I bought a 30+ year old house in an older
| neighborhood.
|
| Thanks to COVID, none of the businesses to support that new
| neighborhood actually materialized. My friend has to drive
| to the nearest convenience store, and has to hop on the
| highway to go to any other business. I can (and do) walk to
| my local convenience store, pharmacy, grocery store, pizza
| joint and mechanic. And I can bike or e-scooter to various
| parks, restaurants and healthcare.
|
| Accordingly, my old fixxer-upper of a house is worth quite
| a bit more than my friend's brand new house.
| bitshiftfaced wrote:
| The structure requires repairs and maintenance over time.
| If the owner keeps up with this cost, there isn't as much
| reason for the structure itself to decrease in value. Some
| homes can be outdated and need a remodel, but that gets
| baked into the price as well.
|
| Land is finite, and becomes more in-demand as the
| population increases. When homes appreciate in value over
| time, I reckon that's mostly the result in land being more
| in demand and/or asset inflation.
| jopsen wrote:
| But population isn't set to go up in any industrialized
| countries.
| dharmab wrote:
| It is when you consider immigration.
| bitshiftfaced wrote:
| But it has consistently grown:
| https://tradingeconomics.com/united-states/population.
|
| Don't forget the other part I mentioned: asset inflation
| (here the asset is the land and structure). Money supply
| has grown over time:
| https://fred.stlouisfed.org/series/M2
| jopsen wrote:
| > asset inflation
|
| That makes sense.
|
| But then other investment vehicles should also do fine.
|
| I suppose it then comes down the fact housing can have a
| higher leverage than any other investment vehicle.
|
| So buy a house, but don't pay it off.
| ffggvv wrote:
| GDP isn't equivalent to salary. GDP is the measure of the
| economy's production as a whole. not the governments cut. If
| you compare tax revenues, which is their salary the picture is
| much more stark.
|
| (in this situation GDP is more like the value you create for
| your company whereas salary is like tax revenue)
| mytailorisrich wrote:
| For a start, while your annual income can indeed be thought as
| your "GDP", a country's GDP is not the same as the
| government/state annual income.
|
| Second, a mortgage is a secured loan used for capex: You have
| borrowed a lot but you used that money to buy an assert worth
| as much or more so your personal balance sheet still looks fine
| and the lender can repossess the asset if you don't pay.
| Basically for debts you need to look at 2 things: balance
| sheet, i.e. how the debts/liabilities stack up against assets,
| and cash flow, i.e. whether you can service the interests on
| the debts.
|
| The issue with government borrowing is that it is largely used
| to finance a level of spending that exceeds income. So instead
| of a mortgage I think a more apt comparison with personal
| finance would be if you used your credit card to finance a life
| style above what your income allowed. The difference is that
| governments can get away with much more of that than
| individuals can, but it will still come back and bite them at
| some point.
| ashtonkem wrote:
| 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.
| PragmaticPulp wrote:
| This story is about global total debt, not global government
| debt.
|
| It includes private sector debt as well.
|
| If total government debt was 356% of GDP, we would be in huge
| trouble. Fortunately that's not what this number indicates.
| ashtonkem wrote:
| This makes the mortgage analogy worse. Global debt is not
| the same as personal debt. It's even _more_ complex than
| government debt.
|
| Again, maybe it's good and maybe it's bad. But we can't
| tell that by making analogies to a single mortgage. They're
| just different beasts.
| MuffinFlavored wrote:
| > we would be in huge trouble
|
| Could you ELI5 why? Is it because we wouldn't be able to
| keep up with interest payments on the debt given the fact
| that we're actually already cash flow negative as is?
| nikitaga wrote:
| Pretty much. You get into such insane levels of debt by
| borrowing more and more every year, by leading a
| lifestyle that you can't afford.
|
| "Lifestyle" in case of government spending being the
| levels of healthcare, education, social services, war,
| tax & tariff rates, capital controls, etc.
|
| If you don't want to be crushed by interest payments,
| eventually you'll need to pay up, and that means
| inflation, possibly hyperinflation, and a crash of a lot
| of systems that we take for granted.
| maxerickson wrote:
| 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).
| mschuster91 wrote:
| > If people conspired to pay banks less
|
| There will always be people rich and liquid enough to buy
| houses in cash without ever involving a bank.
| throwaway20875 wrote:
| The line of thinking behind this comment is exactly why
| we're experiencing rapid decline - zero ability to consider
| the root causes behind issues and how to address them at a
| fundamental level. "Hit back at the banks" is the kind of
| cable-news-hot-takes-style solution that only address
| issues caused by prior solutions.
|
| Every single asset class has experienced significant
| inflation over the last 50 years. Banks created 30 year
| mortgages because of demand. Demand occurred as a result of
| actions by the federal reserve. The FHA, not really a bank
| but rather a government entity, started the trend.
| maxerickson wrote:
| My comment isn't an attack on banks though, it's just
| where mortgage interest more or less goes, into the
| banking system.
|
| I suppose 'bank' can be bad shorthand for mortgage
| lenders, but whatever.
| chii wrote:
| > 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 wrote:
| Then it becomes attractive for the neighbour to sell
| their house. There are two sides to a market.
| rsync wrote:
| "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."
|
| Can we - all of us - graduate a bit in our sophistication
| here ?
|
| I agree with your statement and don't need any of this
| explained to me - there is, in fact, a too-simplistic, oft-
| made analog to personal, household finances. People would do
| well to understand what governments (particularly sovereign
| issuers borrowing in their own currency) can do that they, in
| their household, cannot.
|
| Yet at the same time, I grow tired of the pedantic scolding
| of the "dummies" that don't understand modern finance.
|
| I - a relatively sophisticated, learned observer - have a
| hunch that _at the very margins_ government finance collapses
| all the way back down to the simple rules of household
| finance.
|
| I hope to never be vindicated in this hunch ...
| enraged_camel wrote:
| >> I - a relatively sophisticated, learned observer - have
| a hunch that at the very margins government finance
| collapses all the way back down to the simple rules of
| household finance.
|
| On what exactly do you base this hunch? Because it hasn't
| held true, ever.
| rsync wrote:
| "... because it hasn't held true, ever ..."
|
| Argentina has given us _two_ examples of it just in the
| last 20 years. Not a perfect example as the Argentine
| debt was not denominated in a currency they could print
| ...
|
| I would further point to the "Nixon Shock" as an example
| where a country (the US) that can borrow in its own
| currency was forced by (global) economic realities to
| undertake what some would label a "soft default".
|
| I am on my way to lunch and am limited by what comes to
| mind in just this fleeting moment - I beg your pardon for
| my dearth of examples.
|
| [1] https://en.wikipedia.org/wiki/Nixon_shock
|
| [2] https://www.livemint.com/Money/57inMm5EbLi1soOnOrMk1J
| /Did-th...
| jnwatson wrote:
| Both situations demonstrate almost the opposite of your
| point. The Nixon shock was abandoning of gold as a base
| currency. Your household cannot abandon your base
| currency.
|
| If Activision-Blizzard borrowed its debt in World of
| Warcraft gold, they would never be in default. The same
| applies to countries that print their own currency.
| rsync wrote:
| Like I said - a hunch.
|
| I hope we can indulge one another with such things here.
| samsonradu wrote:
| I share the same hunch.
|
| I believe that in the very long run (many decades) the
| growing debt cripples the the government, hurting its
| productivity along with trust on its proper functioning.
| (Japan, Italy are around here)
|
| Growing debt is not a good sign even for governments,
| unless the money goes fully into investments for the
| future. Many times though it goes into liabilities.
|
| Eventually, currency gets hurt and global capital moves on,
| leading to its failure. There is always competition, other
| govs might be doing things a little better.
| [deleted]
| 015a wrote:
| I think the broader point as to why that comparison doesn't
| work is in situations where its trying to communicate the
| point "I can't do this, so the government can't do it."
|
| In this situation, its "I'm able to do this, so why not the
| government?"
| cjfd wrote:
| Presumably you are young and you hopefully have your whole
| working life to pay this mortgage back. A country as a whole
| consists of people of all ages. If they borrow as much as the
| young could they are enlisting future generations, who get no
| say in whether they enjoy this, in paying back these debts. One
| can ask ethical questions about that. On the other hand, one
| can argue that covid is an exceptional situation....
| notahacker wrote:
| Much of that 281t debt _is_ private debt payable which the
| person or organization that took it out has plenty of time to
| repay though. Many debtors will expect substantial financial
| returns on that borrowing, and all of them will have borrowed
| with the expectation (rightly or wrongly) that the share of
| GDP they earn in a given year will be greater than the share
| of debt repayment they owe that year. The details of who owes
| what under what time frame and whether they are likely to be
| able to repay matter much more than debt /GDP ratio or the
| absolute size of the debt burden.
|
| It is possible for the debt-to-GDP ratio to be sub 100% and a
| financial ecosystem to be on the brink of collapse because
| the people borrowing the money earn too small a share of GDP
| to repay, and it is possible for the debt to GDP ratio to be
| well over 400% whilst consisting entirely of people borrowing
| money to make sensible, easily repaid long term investments.
| The reality is somewhere in between.
| alberth wrote:
| Because economists know that if you're leveraged too high you
| won't be able to service your debt.
|
| Using your analogy, the rule of thumb in real estate is that a
| property shouldn't cost more than 356% of your GDP (yearly
| salary). Said another way, your mortgage is no more than 28% of
| tour gross monthly income.
|
| https://www.moneyunder30.com/how-much-house-can-you-afford
| fedreserved wrote:
| Unless you shrink the interest rate to 0. The real danger
| isn't the debt per se, but the destruction of the currency
| (for the usa at least)
| andy_ppp wrote:
| Depends - you could have a very high salary and want a really
| nice house, that might mean you can't afford three holidays
| per year, nicest food or the latest technology but it's a
| tradeoff you could choose to make.
| lazide wrote:
| While true - 'traditional' underwriting would not allow
| that kind of risk, as the lack of slack to be able to take
| a vacation means another life challenge (6 months without a
| job?) would likely result in a default at the worst time
| for selling the asset - when a bunch of other people are
| out a job.
|
| Same with requirements for large downpayments (20%
| traditionally) - more skin in the game for the buyer, along
| with more cushion for the bank to make their money back if
| the market is down when a default happens.
|
| Thinner margins, higher leverage happens near the top of
| debt cycles (typically) as lenders get desperate for
| return, and amp up risk. The type of leverage it allows
| also inflates asset prices, as money is 'easier' and people
| who want asset x can leverage higher to get it, increasing
| demand.
| boringg wrote:
| Said another way, your mortgage PAYMENTS shouldn't be that
| high. I.e. what the debt repayment terms are of the overall
| debt of the economy is the important part not the total debt
| (yes it is important but not nearly as much as the repayment
| terms).
| sudosysgen wrote:
| Your salary is not your GDP. What you contribute to GDP is
| significantly higher than your salary.
| lordlimecat wrote:
| Your mortgage is backed by collateral, which is a pretty big
| difference.
| ianai wrote:
| Using percent to make the "bigger" number more dramatic is not
| helpful. Especially with the publics little knowledge about
| international trade.
| zozin wrote:
| 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.
| bubbleRefuge wrote:
| 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.
| johanneskanybal wrote:
| 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.
| dgudkov wrote:
| 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.
| CuriousNinja wrote:
| 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?
| Reason077 wrote:
| 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?
| hourislate wrote:
| 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 wrote:
| > _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.
| kryogen1c wrote:
| 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?
| xirbeosbwo1234 wrote:
| Not really. That's about 10% of the current debt.
|
| Also, it's not a stimulus package. People need to stop calling
| it that. A stimulus is intended to get people spending money
| because they're all scared and keeping their money in savings.
| This is meant to keep people afloat because they have no
| income.
| dragonwriter wrote:
| > 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?
|
| GDP increase at a greater proportional rate than debt increase.
| notahacker wrote:
| > why did debt skyrocket but debt% of gdp go down?
|
| Because world GDP grew faster than world debt. The debt growth
| is also smaller than it appears from the graph (the y axis
| starts at 200trillion rather than zero)
| rayiner wrote:
| > 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 wrote:
| Dead cat bounce - goosing the accelerator was going to catch
| up to him
| rayiner wrote:
| 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 wrote:
| 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.
| laretluval wrote:
| > Most economists agree once you take into account
| retaliatory tariffs they're bad for the economy.
|
| How much real predictive signal is there in economists'
| consensus?
| pc86 wrote:
| The stimulus plan is proposed, and until it's enacted it
| probably _shouldn 't_ be included. And it's barely 2.1% of
| global GDP so it's not exactly like it would make a huge impact
| to the numbers. It seems completely reasonable on both counts
| to keep it out.
|
| As 16-18, if debt increases and debt % of GDP decreases, the
| only thing that could cause that is GDP increasing more than
| debt.
| kryogen1c wrote:
| > It seems completely reasonable on both counts to keep it
| out.
|
| Yes. I didnt mean to imply the article was wrong for
| omitting. however, USD being the global reserve makes it a
| little more relevant than other countries.
|
| > As 16-18, if debt increases and debt % of GDP decreases,
| the only thing that could cause that is GDP increasing more
| than debt.
|
| i wonder how much of this is obama policies and how much is
| trump policies. also im not sure debt is a fine-grained
| enough metric to be meaningful. some debt can drive the
| economy forward and some is rent-seeking wealth destruction.
| NeutronStar wrote:
| > this is, as the kids say, an oof.
|
| 1.9T on top of 281T is barely a drop in the bucket. So now
| instead of 356% it's at 358.5% . Barely an oof.
| exabrial wrote:
| 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.
| imnotlost wrote:
| 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.
| c7DJTLrn wrote:
| 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 wrote:
| The money, credit, and banking system is an under-appreciated
| wonder.
| BurningFrog wrote:
| 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".
| rthomas6 wrote:
| 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 wrote:
| 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
|
| Everything is fine.
| rthomas6 wrote:
| 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 wrote:
| > 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) ??? "
| pokot0 wrote:
| 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 wrote:
| Yes agreed - debt repayment is more important that total debt.
| People always confuse this stuff (understandably).
| dnadler wrote:
| Yes, that's a good point. We should also consider that a lot of
| the interest rates are negative in real terms.
| CraigJPerry wrote:
| >> 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.
| Werewolf255 wrote:
| It's almost like there's a global emergency happening.
| PragmaticPulp wrote:
| 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.
| thoughtstheseus wrote:
| 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 wrote:
| 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.
| ThalesX wrote:
| Just throwing in my two cents. I have a friend that got a
| 750.000EUR credit to buy a house and a Tesla.
|
| Myself, I'm rather well off in terms of money, but not so
| wealthy, and I kept away from getting credit. What would happen
| in case of this pardon? Would he get to keep his assets thus
| increasing his wealth by almost a million euros just like that?
| WhompingWindows wrote:
| 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]
| PragmaticPulp wrote:
| > 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.
| neals wrote:
| I've always wondered if this website (axios) is related to the
| NPM package for http requests. Anybody?
| [deleted]
| __float wrote:
| Not related -- "The site's name is based on the Greek: axios
| (axios), meaning "worthy"".
|
| "Just" a Greek word, that's all.
| realPubkey wrote:
| Yes me. Every single time is see something posted from axios.
| ffggvv wrote:
| 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
| boringg wrote:
| 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.
| TLightful wrote:
| I'm willing to chip in a fiver.
|
| Anyone else want to setup a gofundme for the global economy?
| d--b wrote:
| 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 wrote:
| Pension funds would be massacred.
| radium3d wrote:
| 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.
| tppiotrowski wrote:
| > 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 wrote:
| It's not. It's an increase of "35 percentage points" and not
| "35 percent"
| pif wrote:
| 356 - 320 = 36
|
| "up 35 percentage points" does not mean the same as "a 35%
| increase".
| chalst wrote:
| 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 ).
|
| There might be a real issue here, but this is bad reporting.
| cs702 wrote:
| 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 wrote:
| 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 wrote:
| > 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.
| inglor_cz wrote:
| 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 wrote:
| >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.
| squibbles wrote:
| 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
| m12k wrote:
| 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 wrote:
| 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 wrote:
| For the US (only), you go here:
| 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
| singron wrote:
| 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 wrote:
| A 45 percentage point increase in a year is phenomenally, mind-
| bogglingly huge.
| [deleted]
| mywittyname wrote:
| 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.
| robjan wrote:
| 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 wrote:
| 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 wrote:
| 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.
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