Global Debt Worries. How Will This End?

[ronwagn + 6,290]

https://www.scmp.com/comment/opinion/article/3039970/huge-public-corporate-and-household-debt-looks-new-normal-global

I am not saying that China has a greater debt problem than the United States but some think it does. What do you think about debt problems worldwide? How will this end? All I can predict is inflation, but I don't see it and I have been expecting it for years. I do see taxes rising steadily to meet promises made to government employees and the rest of the population however. Those promises and lack of facing reality will eventually cause economic disasters of some kind I am sure. This is especially concerning when Democrat candidates want to double our federal spending (wild guess). RCW

[Papillon + 485]

I believe the figure of global debt currently sir is the equivalent of over $30,000 per man, woman and child on the planet. The potential for economic disaster you reference will occur before 2022 in my opinion. 

[Rasmus Jorgensen + 1,169]

10 minutes ago, Papillon said:

I believe the figure of global debt currently sir is the equivalent of over $30,000 per man, woman and child on the planet. The potential for economic disaster you reference will occur before 2022 in my opinion. 

I agree on the impending disaster, but why within the next 2 years? Serious question.

[Rob Plant + 2,616]

10 minutes ago, Papillon said:

I believe the figure of global debt currently sir is the equivalent of over $30,000 per man, woman and child on the planet. The potential for economic disaster you reference will occur before 2022 in my opinion. 

Yep agreed, I think Gerry Maddoux has been saying there is an almighty recession around the corner  for a while now which I think is more than likely.

Scary times

[Papillon + 485]

2 minutes ago, Rasmus Jorgensen said:

I agree on the impending disaster, but why within the next 2 years? Serious question.

With respect sir, how long would you consider these types of figures to be feasible globally? To use your term of 'impending', that suggests your knowledge of the slowing growth and countries already verging on a recessionary state I imagine, so this status quo cannot remain indefinitely. Therefore I simply propose the 'disaster', however we choose to define this, as within the shorter term. Merely opinion sir. 

[Rasmus Jorgensen + 1,169]

1 minute ago, Papillon said:

With respect sir, how long would you consider these types of figures to be feasible globally?

I actually think that it can continue for a lot longer - look at Japan. 

2 minutes ago, Papillon said:

To use your term of 'impending', that suggests your knowledge of the slowing growth and countries already verging on a recessionary state I imagine, so this status quo cannot remain indefinitely. Therefore I simply propose the 'disaster', however we choose to define this, as within the shorter term. Merely opinion sir. 

Agree.  We may already be in a recession and just refuse to acknowledge it. 

[Rob Plant + 2,616]

3 minutes ago, Rasmus Jorgensen said:

Agree.  We may already be in a recession and just refuse to acknowledge it. 

Recession is defined as 2 quarters of falling GDP so a country is either in recession or it isn't.

A government can try to "fudge" the figures where possible but not ad infinitum.

Some European countries are already in recession along with several others around the globe. I would agree with a 2 year timescale but it is my best guess

[Rasmus Jorgensen + 1,169]

2 minutes ago, Rob Plant said:

Recession is defined as 2 quarters of falling GDP so a country is either in recession or it isn't.

I should have been clearer. What I meant is that we may well be experiencing the "symptons" of a recession globally, although the numbers suggest otherwise. 

[Ward Smith + 6,615]

Quote

There is no such thing as a medium of exchange. 

A sale and purchase is the exchange of a commodity for a credit. 

Credit and credit alone is money.

The monetary unit is an abstract standard for the measurement of credit and debt. It is liable to fluctuation and only remains stable if the law of the equation of credits and debts is observed.

A credit cancels a debt; this is the primitive law of commerce. By sale a credit is acquired, by purchase a debt is created. Purchases, therefore, are paid for by sales. 

The object of commerce is the acquisition of credits.

A banker is one who centralises the debts of mankind and cancels them against one another. Banks are the clearing houses of commerce.

A coin is an instrument of credit or token of indebtedness; identical in its nature with a tally or with any other form of money, by whomsoever issued.

The issue of money is not an exclusive privilege of government, but merely one of its functions, as a great buyer of services and commodities. Money in one form or another is, in fact, issued by banks, merchants, etc.

The depreciation of money in the middle ages was not due to the arbitrary debase­ment of the weight and fineness of the coins. On the contrary, the government of the middle ages struggled against this depreciation which was due to wars, pestilences and famines - in short to excessive indebtedness.

Until modern days, there never was any fixed relationship between the monetary unit and the coinage.

The precious metals are not a standard of value.

The value of credit does not depend on the existence of gold behind it, but on the solvency of the debtor.

Debts due at a certain moment can only be off-set against credits which become available at that moment.

Government money is redeemed by taxation.

The government stamp on a piece of gold changes the character of the gold from that of a mere commodity to that of a token of indebtedness.

The redemption of paper money in gold coin is not redemption at all, but merely the exchange of one form of obligation for another of an identical nature.

The "reserves of lawful money" in the banks have no more importance than any other bank asset.

Laws of legal tender promote panics.

The governments of the world have conspired together to make a corner in gold and hold it up at an excessive price.

The nominal value of the dollar coin exceeds the market value of the gold of which it is made. Coins can only remain in circulation for any length of time if their nominal value exceeds their intrinsic value.

The issue of coins in exchange for gold at a fixed and excessive price, without pro­viding taxes for their redemption, causes an inflation of government money, and thus causes an excessive floating debt and a depreciation of government money.

Large reserves of "lawful money'' in the banks are evidence of an inflation of the government currency.

The inflation of government money induces a still greater inflation of credit throughout the country, and a consequent general depreciation of money. 

The depreciation of money is the cause of rising prices.

Written in 1913, the year the Fed was created, published in 1914, and even truer today since gold is out of the picture. 

From The Banking Law Journal 1914

[Marcin + 519]

1. Sovereign states can solve any debt problems, provided that debt is denominated in the domestic currency of the state. Solution chosen by the United States, European Union and Japan is to diminish debt by NIRPs (Negative Interest Rates Policy, real rates after deducting inflation). It is a feasible solution but eliminates very important market force mechanisms related to price of money. Money is scarce when it has price. When money is free: bad business or government decisions could be made, with punishment still present but prolonged to the detriment of the economy and society.

2. China is the only economy among the 10 largest to still keep positive real interest rates (I am not 100% sure about Brazil but their inflation is unstable often above 5%. Base rate in China is 4.15% at present and never was lower than 4.15% during last decade, and always higher than inflation rate.

3. Problems occur when debt is denominated in foreign currency (Turkey) or need to be financed by foreign lenders (US). Before that moment all is more or less cool.

[canadas canadas + 136]

On 12/2/2019 at 4:55 AM, Papillon said:

I believe the figure of global debt currently sir is the equivalent of over $30,000 per man, woman and child on the planet. The potential for economic disaster you reference will occur before 2022 in my opinion. 

It is interesting to note that most men, women and children in the world do not have anywhere near the equivalent of $30,000 each.  It appears that parties that are owed this money might foreclose on government debts and try to take over everything that the government owns especially resource rich public lands. It would be interesting to note who is owed all of this money mostly. For the U.S. there is a breakdown of this. I believe that different parts of the U.S. government owes money to itself mostly. 

Some 70% of the national debt is owned by domestic government, institutions investors and the Federal Reserve. A shade under 30% is owned by foreign entities, according to the latest information from the U.S. Treasury.

The U.S. debt was $22 trillion as of February 11, 2019. Most headlines focus on how much the United States owes China, one of the largest foreign owners. What many people don't know is that the Social Security Trust Fund, aka your retirement money, owns most of the national debt.

Edited December 7, 2019 by canadas canadas

[Jan van Eck + 7,558]

On 12/1/2019 at 8:57 PM, ronwagn said:

I do see taxes rising steadily to meet promises made to government employees and the rest of the population however. Those promises and lack of facing reality will eventually cause economic disasters of some kind I am sure.

Ron, that is only true on the State level, and unfortunately for you, your State of Illinois pretty much leads the pack as to total indebtedness and overall State insolvency.   Illinois has spent itself into oblivion, with a debt load of some $62,000 per citizen  (New Jersey and Connecticut are nipping at your heels, with some $59,000 and $51,600 each). Those are actual debts that actually have to get paid, and the only way to do that is through more taxes - lots of taxes. As to the federal debt, that will never be paid.  But the Feds have an "out," they can print more Federal Reserve Notes, the IOU's of the Federal Reserve System, which can create new credits by issuing them. 

As Dick Cheney once famously said, "Don't bother me with talk of deficits.  You're fired."  (That was to his Secretary of the Treasury, Paul O'Neill.  It was an interesting moment in history, to be sure.  You really had to be there to appreciate it.)   

[ronwagn + 6,290]

Jan, very true about the states you mentioned and I think California is right there too. As far as the federal level we can print lots of funny money and the fed just came up with trillions more to "meet the needs of up the bankers to loan out more capital". I don't know how this all ends but it makes me very concerned. Social security, medicaid, and spending in general are all blowouts. 

Maybe you can explain why inflation is not more apparent. I just figured out that the average vehicle now costs about 14 times what I paid for my first car. Ten times was my prior guideline. Gasoline seems cheaper than ever on that scale though, even if you allow for tax increases. 

https://usdebtclock.org/

[Zhong Lu + 845]

Japan has a larger debt problem then both the US and China combined (when it comes to debt to GDP ratio).  And yet every hedge fund manager that's tried to bet against Japanese government debt has lost their shirt.  

All debt is manageable as long as the people holding it believe its manageable.  

https://www.capitalandconflict.com/japanese-bond-market-crash-widowmaker-trade/

Edited December 8, 2019 by Zhong Lu

[Zhong Lu + 845]

Japan, with its population of 127,185,332, has the highest national debt in the world at 234.18% of its GDP, followed by Greece at 181.78%. Japan's national debt currently sits at ¥1,028 trillion ($9.087 trillion USD). After the stock market crashed in Japan, the government bailed out banks and insurance companies and provided them with low-interest credit. Banking institutions had to be consolidated and nationalized after a period of time and other fiscal stimulus initiatives were used to help reboot the struggling economy. Unfortunately, these actions caused Japan’s debt level to skyrocket.

http://worldpopulationreview.com/countries/countries-by-national-debt/

[Zhong Lu + 845]

So if want to have an actual discussion about debt, let's first talk about Japan.  

[Wombat + 1,028]

2 hours ago, ronwagn said:

Jan, very true about the states you mentioned and I think California is right there too. As far as the federal level we can print lots of funny money and the fed just came up with trillions more to "meet the needs of up the bankers to loan out more capital". I don't know how this all ends but it makes me very concerned. Social security, medicaid, and spending in general are all blowouts. 

Maybe you can explain why inflation is not more apparent. I just figured out that the average vehicle now costs about 14 times what I paid for my first car. Ten times was my prior guideline. Gasoline seems cheaper than ever on that scale though, even if you allow for tax increases. 

https://usdebtclock.org/

Ron, the reason inflation not prevalent is that Western world is in "debt-deflation" trap, same as Japan. For deeper understanding of "debt-deflation" pls look up the work of Prof Steve Keen. He is on Facebook and Twitter.

 

[Wombat + 1,028]

1 hour ago, Zhong Lu said:

Japan, with its population of 127,185,332, has the highest national debt in the world at 234.18% of its GDP, followed by Greece at 181.78%. Japan's national debt currently sits at ¥1,028 trillion ($9.087 trillion USD). After the stock market crashed in Japan, the government bailed out banks and insurance companies and provided them with low-interest credit. Banking institutions had to be consolidated and nationalized after a period of time and other fiscal stimulus initiatives were used to help reboot the struggling economy. Unfortunately, these actions caused Japan’s debt level to skyrocket.

http://worldpopulationreview.com/countries/countries-by-national-debt/

I think Japan would be "back on track" now if it were not for the Tsunami/Fukushima disaster. I estimate that has cost them $2 trillion USD!

[Zhong Lu + 845]

They got more issues then that.  Their population is dying off because no one wants to have kids and Japan hates immigration with a passion.

[ronwagn + 6,290]

19 minutes ago, Wombat said:

Ron, the reason inflation not prevalent is that Western world is in "debt-deflation" trap, same as Japan. For deeper understanding of "debt-deflation" pls look up the work of Prof Steve Keen. He is on Facebook and Twitter.

 

https://en.wikipedia.org/wiki/Steve_Keen

[canadas canadas + 136]

11 hours ago, Jan van Eck said:

Ron, that is only true on the State level, and unfortunately for you, your State of Illinois pretty much leads the pack as to total indebtedness and overall State insolvency.   Illinois has spent itself into oblivion, with a debt load of some $62,000 per citizen  (New Jersey and Connecticut are nipping at your heels, with some $59,000 and $51,600 each). Those are actual debts that actually have to get paid, and the only way to do that is through more taxes - lots of taxes. As to the federal debt, that will never be paid.  But the Feds have an "out," they can print more Federal Reserve Notes, the IOU's of the Federal Reserve System, which can create new credits by issuing them. 

As Dick Cheney once famously said, "Don't bother me with talk of deficits.  You're fired."  (That was to his Secretary of the Treasury, Paul O'Neill.  It was an interesting moment in history, to be sure.  You really had to be there to appreciate it.)   

Raising taxes for everyone except for the rich and cutting back with austerity measures for those that need them the most.  Neoliberalism.

[Meredith Poor + 883]

One enormous driver of lax credit standards is to 'keep factories humming'. This began in the manufactured home market (in the early 2000's), where 'anyone' could finance a manufactured home. As this took business from more conventional home builders, they found that they could also finance 'anyone', and did so to keep selling houses.

According to someone I know who ran a manufactured home park, he had tenants that moved in with brand new homes, only to abandon them three years later when a conventional home builder offered to sell them a conventional house, even though the builder knew that the new homeowner was going to welsh on the earlier mortgage.

The automobile industry is currently suffering from overproduction, leading to abandoned airports holding tens of thousands of unsold cars. There is vast incentive to 'move this product', including dirt cheap rates to questionable borrowers.

Builders and car manufacturers have become ruthlessly efficient in production - the sum of progressively higher productivity, better products, and pursuit of, when possible, lower labor costs. If this is traced back to the investors, it is common to find that the manufacturer stockholder is also the lender to the consumer. In such a circumstance the creditor/stockholder weighs the value of moving product against the risk of not getting paid.

If the profit on a $80,000 manufactured home is 50% at 'full retail' then the builder pockets $40,000 from the sale. If this is packaged as a mortgage then the $80,000 is recognized as income in one set of books, and a 30 year mortgage, with associated interest income, on another. This $80,000 house 'now' results in an additional $150,000 cash flow over 30 years, at least in theory.

In a circumstance where the borrower makes their payments reliably for 3 years, the mortgage can be packaged and sold for net present value. In this circumstance the home builder is 'home free'. They've made their money and cashed out.

Assume, for purposes of discussion, that the investor that buys a package of these mortgages is a multi-billionaire. 5% per year interest income times 20 years is 100% principal recovery. The 'family fortune' is, say, 100 years old, so this cycle has played out five times over, each time with a geometric increase in assets. An 'economic collapse' results in $5 billion being reduced to $2.5 billion (Bill Gates lost $20 billion from one peak to one trough ($80 billion to $60 billion), but is now back up to $110 billion). So what? As long as people are working and buying houses, they will need mortgages. Over a span of 100 years, there have been a few haircuts. We're still here.

To put a real perspective on it, take an institution like the Catholic church that has been acquiring and managing assets for 2000 years. The same goes for various royal families, including in particular the House of Windsor. These people are visible. There is also a lot of 'off-shore' funny money that falls roughly in the same category.

[canadas canadas + 136]

From taxes and death to loneliness and debts.

[Gerry Maddoux + 3,627]

On 12/2/2019 at 2:07 AM, Rob Plant said:

Yep agreed, I think Gerry Maddoux has been saying there is an almighty recession around the corner  for a while now which I think is more than likely.

You are correct about me. It comes not from any preternatural vision of the future, but from examination of leadership. In full disclosure, I am a Republican. However, I believe in good fiscal hygiene. We are building up a massive national debt. Personal debt in America is the highest ever. Despite perhaps the greatest stock market ever, the overnight lending rates have been lowered. The president just called the Chairman of the Federal Reserve a "bonehead" for not "lowering interest rates to zero or below, like other countries are doing." There is no reigning in by the Senate--the only legislative body capable of doing so. This is an untethered executive doing what it wants. Taking this as a composite, I don't see how in the world this ends well. The soaring stock market has lured in many people who cannot afford a big hickey. The bond market has done worse: scads of people are fleeing the stock market for the bond market and so far they've been right. Jeffrey Gundlach, the "Bond King," says that the next recession is going to be much worse than the last one. I am no doomsdayer, but there's a possibility that he's right. The mind, they say, is a funny thing. One can allow the ego to tread the same tracks until it has nowhere else to go, so the grooves become deeper and deeper until it closes the mind to anything else. In that case, it's rumination, using the regrets of the past and the fears of the future--there's no living in the present time (as New Age and banal as this may sound). Perhaps it's better just to live in the present, enjoy the falling rates, buy a few bonds, a few stocks, let the good times roll. The problem is that if and when the carousel stops--and though I cautioned against looking backwards, we know that it will--then there will be so many people heading for the exits that it's going to feed on itself. And despite my admonition to look into and fret about the future, it's going to get ugly. I am not trying to convince the rest of you because, truth be told, I have no credentials in this field whatsoever. But the tracks of my childhood, listening to my father tell of the Great Depression, run deep despite my best intentions. And my fear for the future lies not in global warming, which I think is a bunch of malarky, but in global financial meltdown. Try as I may to live in the present, the past keeps roaring in, and so does the future. My fervent concern is that we as a society are spending so much time and money on this "climate change" hoax, crowning young Greta in the process, buying in, that we are overlooking a valid energy policy. In the United States of America, despite having as Energy Secretary a native-born Texas close to the oil and gas kings, we have yet to put into place a bonafide energy policy: appropriations to fossil fuels, wind and solar, possibly nuclear. As a country, we're spending more time siding with the Europeans than checking to see what is really happening. We're going to have a surplus of energy due to DUC's and Argentina's Vaca Meurta, then we're likely to have an oil shock. This doesn't have to happen. But when it does, since we haven't shifted but 10% to renewables and therefore have no other viable options to keep surgeries going, people warm or cool, run the cars, I fear that we will indeed have the depression from hell. There, I've said my piece.

[Wombat + 1,028]

On 12/2/2019 at 11:57 AM, ronwagn said:

https://www.scmp.com/comment/opinion/article/3039970/huge-public-corporate-and-household-debt-looks-new-normal-global

I am not saying that China has a greater debt problem than the United States but some think it does. What do you think about debt problems worldwide? How will this end? All I can predict is inflation, but I don't see it and I have been expecting it for years. I do see taxes rising steadily to meet promises made to government employees and the rest of the population however. Those promises and lack of facing reality will eventually cause economic disasters of some kind I am sure. This is especially concerning when Democrat candidates want to double our federal spending (wild guess). RCW

How will this end? That is a damn good question and it depends on politics and the bond market. If Warren becomes POTUS, and introduces MMT (Modern Monetary Theory), the bond market will explode and US will become giant version of Venezuela thru hyper-inflation. If Trump wins again, another "Great Recession" with actual deflation that will persist even longer. I know what I wld prefer