$250 Trillion in Debt: The World’s Post-Lehman Legacy

If there&#x27;s one single life-encompassing economic event this decade, it will be the emerging market financial crisis. The chart in the article clearly shows emerging market ex China going from 16 trillion to 29 trillion in 10 years. And China has incredibly gone from 7 trillion to 40 trillion debt in 10 years - 300% debt to GDP (not even counting another 20 trillion shadow debt, which would make it incredibly 450% debt to GDP!!) ((and if you take into account fake GDP that Chinese provinces have reported, and that authoritarian governments typically fake their economic growth, and reduce the reported GDP by 20%, it&#x27;s a jaw dropping 600% debt to GDP !!!))<p>The emerging market crisis will accelerate pretty quickly, as soon as one or two more fed rate hike occurs, or as soon as more tariffs get levied on China from US, or any of the other black swan event that may occur (hyperinflation in other emerging markets, internal politics struggle or death of Xi Jing Ping in China, etc) . Interesting times we live in. Stay safe.

Reminder: $250t debt is $250t assets on someone else&#x27;s balance sheet. The money is not owed to aliens but to other humans.<p>Finding who is is owed to is harder. A big chunk is pension funds, insurers and so on, where one person&#x27;s debt is another person&#x27;s retirement savings. Which must increase overall as life past retirement does.<p>But a large chunk is assets of financial industries and the super wealthy, and in order for it to be net paid down <i>they have to get poorer</i> - or at least be forced to reallocate to equities.<p>(Note also that as interest rates drive ever lower debt naturally expands too. If they can be driven <i>negative</i> it becomes an advantage.)

I don&#x27;t even really understand how to hedge my bets anymore. It&#x27;s not like there&#x27;s an industry that will be left unaffected by the current economic climate and... well, the climate. What exactly am I supposed to be working on&#x2F;towards if the system itself seems broken?<p>I&#x27;m down to &quot;Hope the problems don&#x27;t really precipitate in my lifetime, and don&#x27;t have kids&quot;. I don&#x27;t feel like that&#x27;s a solution.

This is an alarmist article that ignores lots of important details and vastly oversimplifies things.<p>For example, few people realize that one of the largest owners of US Treasuries and US government sponsored enterprise (i.e., Fannie, Freddie, and Ginnie Mac, or collectively the GSEs) debt holdings is... the US government itself, via the Federal Reserve. As of yesterday, the Fed <i>owns</i> and <i>is earning interest income</i> on $2.3 trillion of treasuries and $1.9 trillion of GSE debt.[a]<p>In other words, the US federal government and GSE-guaranteed borrowers owe $4.2 trillion to... the US federal government itself.<p>Among other things, this means the US treasury is currently paying annual interest on $2.3 trillion of US treasuries to the Fed, and at the end of the year the Fed hands over all that earned interest to the US treasury, in perfectly circular fashion.<p>This startling fact is just one of <i>many</i> -- many! -- important details about modern monetary systems that are generally poorly understood by the public and which are utterly ignored by this article. Don&#x27;t waste time reading it.<p>[a] <a href="https:&#x2F;&#x2F;www.federalreserve.gov&#x2F;releases&#x2F;h41&#x2F;current&#x2F;h41.htm#h41tab1" rel="nofollow">https:&#x2F;&#x2F;www.federalreserve.gov&#x2F;releases&#x2F;h41&#x2F;current&#x2F;h41.htm#...</a>

I&#x27;m sure I&#x27;ve complained about this before, I&#x27;d love to read a similar article to this that compares two quantities that share the same unit. Debt is in dollars and GDP is in dollars per year. Those are different units.<p>For example, tax revenue versus debt service payments -- or where are the debt service payments actually going? Or future debt service vs future tax revenue under different scenarios. Or for that matter, what are the actual constraints to borrowing and how can they change.

<i>After all, how can officials from the Federal Reserve to the Bank of Japan even pretend to know how to reverse what they’ve done over the past decade?</i><p>As I understand the US Fed plan, treasuries bought under QE would be allowed to mature without buying replacements. These assets were purchased with a variety of maturity dates. In other words, the bonds simply disappear on their own - not all at once but gradually.<p>The problem in Japan is much worse because the central bank has bought ETFs directly and is now a major holder.<p><a href="https:&#x2F;&#x2F;asia.nikkei.com&#x2F;Economy&#x2F;BOJ-is-top-10-shareholder-in-40-of-Japan-s-listed-companies" rel="nofollow">https:&#x2F;&#x2F;asia.nikkei.com&#x2F;Economy&#x2F;BOJ-is-top-10-shareholder-in...</a><p>Any unwinding of the BOJ position would lead to major disruptions.

Wow. I assumed global deficits were approx $50T in the QE-era. With Global World Product (GWP) ballpark $75-100T. And annual global growth rates averaging 3-4% in good times.<p>Even with old numbers. And the assumption interest rates will remain below historical means. There is the possibility creditors can never be paid back.<p>But with these new estimates of 3X leverage? Time has come to think seriously about debt relief and cancellation. Not top down this time, but bottom up. Starting with direct injection into student loans, home mortgages, medical, small business loans, etc.

this is a bad article<p>it harps incessantly on debt, throwing out scary, big numbers ($250T! $40T in china!) but doesn&#x27;t explain why increasing government debt is an issue<p>there is a reason to worry if the interest rate on the government debt is larger than the growth rate of the economy<p>currently that average interest rate is below 3 percent [1], so for any countries with &gt;3% economic growth, it really doesn&#x27;t matter - they&#x27;ll be able to make their interest payments to one another (most big holders of gov debt are other govs themselves)<p>financial and household debt is down across developed economies, and corporate debt is about the same as it was in 2008<p>furthermore there is no discussion of what could trigger a debt collection death spiral&#x2F;meltdown, other than &quot;the world&#x27;s second largest economy is now coming to terms with rising corporate defaults&quot;, backed up by 0 context or data<p>the real worry would be continued slowdown in GDP growth ala &quot;secular stagnation&quot; that many prominent economists are exploring - if you&#x27;re not growing your income, you can&#x27;t pay down your debt, and you have to start cutting costs (healthcare, education, defense)<p>debt has a bad connotation and is easy to sensationalize, so articles like this get attention, but there&#x27;s no news, argument, or takeaway to be had from reading it<p>[1] <a href="https:&#x2F;&#x2F;www.nytimes.com&#x2F;2018&#x2F;09&#x2F;11&#x2F;opinion&#x2F;on-the-debt-non-spiral.html" rel="nofollow">https:&#x2F;&#x2F;www.nytimes.com&#x2F;2018&#x2F;09&#x2F;11&#x2F;opinion&#x2F;on-the-debt-non-s...</a>

I see no intention from governments of ever paying off that debt. All I see, worldwide and US is more and more spending. At one point in the future we won&#x27;t be able to pay for it anymore. So, what happens if everyone finds out they&#x27;re not getting their money back? i hope we never find out.<p>30% of US debt is owned by intergovernmental agencies: like Social security&#x2F;medicare&#x2F;military retirement funds - so that might go down the tubes.<p>The other 70% of US debt is public debt, of which almost half is owned by foreign governments and investors.<p><a href="https:&#x2F;&#x2F;www.thebalance.com&#x2F;who-owns-the-u-s-national-debt-3306124" rel="nofollow">https:&#x2F;&#x2F;www.thebalance.com&#x2F;who-owns-the-u-s-national-debt-33...</a>

The current system seems extremely fragile to me; it&#x27;s as if the tiniest miscalculation in terms of government debt versus economic growth could set a country on an irreversible course to hyperinflation (with respect to other countries&#x27; currencies). It seems ridiculous that governments have the power to seal the financial fate of their citizens in this way; irrespective of the actual economic output of those citizens. I think this makes a strong case for cryptocurrencies; citizens should be allowed to choose a currency which reflects their own level of financial discipline (and not that of their government).

The difference between debt-money and value-money is that debt-money is supposed to originally be backed by cashflows of value-money but is really paid back by an ever expanding amount of debt-money.<p>In other words, things are getting more and more leveraged. The amount of money to actual goods and services is exponentially increasing. So the value of money steadily decreases and we get inflation.<p>The danger is that this money evaporates as people default on loans.<p>As long as interest rates are low, people don’t default very much, but as they rise, the defaults happen.<p>Why do central banks need to raise interest rates at all? It just leads to a bloodbath as some loans get renegotiated.<p>Why not just have one predictable interest rate like Milton Friedman spoke about?<p>It seems to me that the central banks fix the next crisis by QA and low base interest rates. Why not just keep them low and let people default for actual reasons, instead of having a terrible time taking out a loan during high interest rate season?<p>If our money supply is going to be so debt based, why raise base interest rates? To “reload” so you can swoop in and save people from a money supply crunch you induced?

&gt; Because of that, the fretting about the Fed’s current balance-sheet runoff plan is almost comical. There’s simply too much debt in the system and no clear path to truly paying it off. Not even central bank officials are pretending they’ll shed all their holdings — estimates fluctuate around ending at $2.5 trillion.<p>I thought that the plan was to eventually inflate the debt away. But maybe that&#x27;s just cynical conspiracy theory.

I remember the national being a huge issue in the 80s (and probably before). This send like important and scary reporting but I&#x27;m not sure how this time is different from all the other alarm bells over the past 40+ years.<p>Is this a case of people calling wolf or is this a real crisis just decades in the making?

Debt relative to GDP according to the chart shown in the article went up 14% in a decade from 280 to 380 trillion, which does not seem that bad imho. Relative debt is more important than nominal debt.

This is a bit older but good background presentation by Richard Duncan: <a href="https:&#x2F;&#x2F;vimeo.com&#x2F;101487179" rel="nofollow">https:&#x2F;&#x2F;vimeo.com&#x2F;101487179</a><p>PS: Ignore the title

&quot;The system is insolvent. No one knows what to do next — except repeat the insanity till the next bubble blows. That&#x27;ll be the one. The big one.&quot;<p>— Gekko, Wall Street 2, 2010<p>#thewayoutisup

Would it work if all debts on Earth were simultaneously erased by creating the relevant amounts of money?

Why is there no mention of India?

Isn&#x27;t that $35K for every man, woman and child alive? How can that be?

To truly understand how bad it is, we would have to analyse the 250T figure in more detail.<p>There is a &quot;free debt&quot; component to it which was generated via seigniorage[1] and &quot;real debt&quot; to people, companies and other economic actors. It seems to me that many commenters here see only one part of it.<p>To illustrate it, let me give you an example how &quot;free debt&quot; can be generated by a government. Imagine for a second that we have one world government (WG) and one world currency. And assume that we are in a peace time when collective world productivity grows 3% every year. World&#x27;s central bank (WCB) targets 2% inflation. Also assume that velocity of money[2] is constant and in general people&#x27;s behave the same in time. This effectively means WCB can &quot;freely print&quot; 5% of new money without causing any real problem. But who should get the new money? Instead of simply printing it and directly giving it to someone, they have pretty sophisticated&#x2F;obfuscated mechanisms how to introduce the new money to the system. Typically part of that new money is given to the WG in exchange for WG&#x27;s bonds. The new money is effectively introduced as an interest-bearing debt. But please note that this debt is &quot;free&quot; for WG. WCB will never want to repay the debt (by allowing WG&#x27;s debt to always roll over). And also note that WCB is part of WG. That means the collected interest WG formally paid to WCB is then given back to WG.<p>Of course WG can also sell bonds to people, companies and other actors. This debt is the &quot;real debt&quot; which must be paid back. But let&#x27;s assume WG is prudent and does not do that.<p>You can observe that WG can continue this as long the world productivity is growing better than -2%<p>The problem with &quot;free debt&quot; comes when the growth is even worse (e.g. in war times) or when velocity of money gets faster suddenly (or there are other inflation pressures or shocks). WCB should reverse this mechanism in this bad case. It has to &quot;pump excess currency out of the system&quot; by selling its bonds and destroying the currency to hit the 2% inflation target (technically it would do it by not allowing complete rotation of WG&#x27;s debt).<p>Of course real world scenario is much more complex than that. And real governments additionally take &quot;real debt&quot; where usual rules apply. The question for us is how big part of those 250T is the &quot;real debt&quot;.<p>[1] <a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Seigniorage" rel="nofollow">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Seigniorage</a> [2] <a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Velocity_of_money" rel="nofollow">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Velocity_of_money</a>

What a wonderful article. I think that there are two sides to this coin: the nature of the debt and the nature of the repayment. Even the smallest and most well mannered debt is a problem if there is no path to repayment. And even large, nasty debt is ok as long as the people borrowing have done their homework and have a solid plan to repay. So this article did a great job of profiling the debt but it didn’t go into enough detail about the borrowers. If interest rates have been so low, and the borrowers have been somewhat lucid, even this large debt can be paid off without any crisis?

Using 150k tonnes of above ground gold, if all of it was minted into currency, would equal +- 100M dollars. Probably not more than 10% is minted currency coins - .999 isn&#x27;t for currency use. So there is about 10M dollars in existence.

Before you read the article, keep one thing in mind, Money IS debt. If there is no debt, there is no money. Another way of looking at government debt is private sector savings.