
Taking Stock of the World’s Debt - prostoalex
https://www.wsj.com/articles/taking-stock-of-the-worlds-debt-11545906600
======
panarky
_> The world has never had as much debt as it has right now_

Since Earth doesn't owe money to Mars, it's not at all clear that world-level
debt is good or bad.

Every dollar or euro liability for someone is an asset for someone else.

For example, I own US treasury bonds, so for me that's an asset. They pay
interest and they're extremely likely to get paid back in full.

For me, debt is good. It allows me to consume less than I produce right now so
years later I can consume more than I produce.

Obviously when a family or a company takes on too much debt it can bad for the
debtor (interest payments compete with rent and food) and it's bad for the
creditor if the debtor can't pay it back.

But at the world level, it's just some of us choosing to consume more than we
produce right now, and others of us choosing to consume less than we produce
right now.

~~~
dnautics
> But at the world level, it's just some of us choosing to consume more than
> we produce right now, and others of us choosing to consume less than we
> produce right now.

I don't think it is that simple. 1) If the world is overleveraged you wind up
in a situation where the insolvency of one debtor dominoes over to the lender,
who is then unable to pay the next debtor, etc. In one sense some leverage
means we are interconnected, which is good because we are likely to pay
attention to each other, but if it gets too much, that _the effects of bad
events can spread_.

2) By the nature of compounding interest, having a system that depends on
leverage (as ours does now) puts a societal requirement on growth that is
enforced through fiscally punitive reinforcement... So that is a fundamental
reason why there is a lot of consumption, environmental destruction, and
energy demand, even when we try to be active towards conservation -- our
current economic structure (and i'm not talking about 'capitalism') simply is
not compatible with those goals writ large.

3) when a individual cannot pay their debt, it is because they consensually
took on that debt. When a sovereign nation cannot pay its debt, often times
the effects are _generational_ , and very much nonconsenual. The current
generation cannot go back in time and vote against the profligate spending of
the previous generation. One wonders if this is ethically tenable, yet every
government does it. Moreover, when a government overspends, the ill effects of
that overspending typically hurt the poorest the hardest.

~~~
pjc50
> When a sovereign nation cannot pay its debt, often times the effects are
> generational, and very much nonconsenual. The current generation cannot go
> back in time and vote against the profligate spending of the previous
> generation. One wonders if this is ethically tenable, yet every government
> does it.

I do think this might be one of the big questions of the 21st century. Stable
society requires long-term commitments (debt, investment), but people demand
the ability to swing policy back and forth on 4 or 5 year timescales.

> Moreover, when a government overspends, the ill effects of that overspending
> typically hurt the poorest the hardest.

This is usually inflicted on them by the lender of last resort, the IMF.

~~~
votepaunchy
>> Moreover, when a government overspends, the ill effects of that
overspending typically hurt the poorest the hardest.

> This is usually inflicted on them by the lender of last resort, the IMF.

Is what way? I’ve never heard of the IMF demanding this. The method of
“austerity” or reducing a deficit could very well include taxes on the rich.
It is a local choice to hurt the poor instead (and then blame the IMF).

~~~
pjc50
> I’ve never heard of the IMF demanding this

Not to be rude, but that can only mean you've not been paying attention.

Stiglitz wrote an entire book on the subject, "Globalization and its
discontents":
[https://www.theguardian.com/business/2002/jul/06/globalisati...](https://www.theguardian.com/business/2002/jul/06/globalisation)

The IMF were notorious for providing the same advice to different countries
with only the name changed (and in one anecdote of his, forgetting to do the
search and replace).

They are still at it: [https://www.taxjustice.net/2018/07/06/the-damage-of-
internat...](https://www.taxjustice.net/2018/07/06/the-damage-of-
international-monetary-fund-conditionality-call-for-urgent-rethink/)

Currently going on in Jordan:
[https://www.alaraby.co.uk/english/news/2018/6/3/thousands-
pr...](https://www.alaraby.co.uk/english/news/2018/6/3/thousands-protest-in-
jordan-over-imf-backed-austerity-measures)

> reducing a deficit could very well include taxes on the rich. It is a local
> choice to hurt the poor instead

No, the IMF demands specific changes as part of the loan conditionality.

~~~
317070
Hey, do you have a source for this:

> and in one anecdote of his, forgetting to do the search and replace

I would be very interested in that (but could not find it myself).

~~~
pjc50
[https://www.globalpolicy.org/component/content/article/209-b...](https://www.globalpolicy.org/component/content/article/209-bwi-
wto/42760-what-i-learned-at-the-world-economic-crisis.html) (2000)

"Critics accuse the institution of taking a cookie-cutter approach to
economics, and they're right. Country teams have been known to compose draft
reports before visiting. I heard stories of one unfortunate incident when team
members copied large parts of the text for one country's report and
transferred them wholesale to another. They might have gotten away with it,
except the "search and replace" function on the word processor didn't work
properly, leaving the original country's name in a few places. Oops."

------
panarky
[https://outline.com/fLWtht](https://outline.com/fLWtht)

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otalp
Wonder what HN thinks of Modern Monetary Theory[1] which posits amongst other
things that government debt is consumer surplus - and not inherently a bad
thing, and also that printing fiat currency specifically to pay for domestic
programs does not itself increase inflation

[1] - [http://neweconomicperspectives.org/2014/01/diagrams-
dollars-...](http://neweconomicperspectives.org/2014/01/diagrams-dollars-
modern-money-illustrated-part-1.html)

~~~
robertAngst
> that government debt is consumer surplus and not inherently a bad thing, and
> also that printing fiat currency specifically to pay for programs does not
> itself increase inflation

Sounds like when cigarette companies funded studies to 'prove' cigarettes were
safe.

They even went full 'USA Freedom Act' by throwing the word Modern in the
title.

Those are two non-political red flags. I'll save my personal ideas on
economics as this gets into politics.

~~~
otalp
Both MMT advocates and critics have agreed that MMT isn't particularly new; it
seems to be a rekindling of Neo-Keynesianism.

And generally people do have a misconception that printing more money =
inflation. For example in the last 2 decades the amount of Chinese currency
has increased by more than
800%([https://webofdebt.files.wordpress.com/2018/12/m2-for-
China-F...](https://webofdebt.files.wordpress.com/2018/12/m2-for-China-
FRED.png)), but inflation remains at 2.2%.

~~~
pixl97
At what rate has Chinese production increased. Money supply does need to
increase in some situations.

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AndrewDucker
Rather than thinking in terms of "How much is owed", it's far more sensible to
think about liquidity "How much of my income goes towards servicing debt?"

There's a huge difference between "I owe £10k tomorrow" and "I owe £10k over
the next 20 years with 1% interest."

When you start thinking in terms of liquidity it makes a real difference to
how you think about money.

~~~
lsd5you
Not a financial expert, but is that really such a difference, and is that what
liquidity really means? At the end of the day most short term debt can be
converted into longer term debt possibly with some associated cost.

------
chadcmulligan
Is this a valid back of the envelope sort of calculation?

World Debt is $250T

World GDP is $80T [https://www.visualcapitalist.com/80-trillion-world-
economy-o...](https://www.visualcapitalist.com/80-trillion-world-economy-one-
chart/)

Central bank interest rates are around 1 or 2% for the west (
[https://au.investing.com/central-banks/](https://au.investing.com/central-
banks/) ), a lot higher for others

So at the moment servicing that debt is doable - for the west anyway. If
interest rates go up then things might get tricky.

However the debt seems to keep going up, so if the debt keeps increasing and
the interest rates go up then things will turn nasty. There are no doubt some
countries now that are effectively dead man walking and if interest rates go
up could start crashing which could collapse the whole house of cards. I
suppose rampant inflation will remove the debt.

Total wealth of the world is $317T
([https://en.wikipedia.org/wiki/List_of_countries_by_total_wea...](https://en.wikipedia.org/wiki/List_of_countries_by_total_wealth))
so everyone could liquidate and have some money left over.

So as long as the assets of the world make enough to service the interest on
the debt things will keep chugging along. The real problem I suppose is how
much of the world has to work to service the interest bill.

Or is that ridiculously naive?

~~~
trashtester
Real interest rates after inflation vary from negative (parts of Europe) to
much more than 1-2%.

As long as real interest rates remain negative, it is clearly self-sustained.

Countries that control their own currencies can always negate all debt by
printing money (through fractional easing).

However, if inflation starts to increase again, printing money is only a short
term solution if there is a budget deficit. If the budget is run at a deficit
in a high inflation scenario, printing more money will cause Venezuela style
hyperinflation.

In the case of the US, it would be interesting to see how the government would
react if the dollar was put under this kind of pressure. Early austerity would
result in mass unemployment and heavily slashed welfare. Looser policies would
create high inflation, cutting savings by half or more and also collapsing
salaries for public sector employees.

Hopefully, the US would be able to avoid hyperinflation, but with the current
tendency towards populsm (on both the left and the righ), I don't feel so sure
anymore.

~~~
pjc50
I think hyperinflation is best understood as a forex phenomenon: since you
can't print foreign currency, if your economy is importing much more value
than it exports (including FDI!), then the value of the local currency
declines relative to the rest of the world and you end up with hard currency
shortages and people handing over increasingly large bundles of notes to pay
for hard currency.

Normally the commodities which cause this problem because they have to be
imported no matter what the price are the global staples: oil, food,
pharmaceuticals.

So you'd have to ask exactly how the US could get into this state. It exports
all three of those staples. It's a major inward investment destination. It's
the owner of the dollar, widely recognised everywhere else as "hard currency".
It would take _extraordinary_ mismanagement to lose those advantages.

Venezuela's dire situation is mostly because its oil industry has been
chronically mismanaged and production has collapsed. One consequence of this
is that oil is being imported (bought at global prices in dollars) and sold at
local pre-collapse subsidised prices (in worthless Bolivars).

Similarly Zimbabwe's collapse was mismanaged "land reform" expropriation of
profitable agriculture, and Weimar Germany was ruined by the need to export
gold to France for reparations.

~~~
trashtester
Well, hopefully US institutions will be able to prevent mismanagement at the
level of Venezuela or Zimbabwe.

But imagine the following scenario: 1\. Some left- or right- wing populist
(worse than Trump) is president, and is backed by congress. 2\. A 1929 size
crack hits the market. 3\. The deficit is increased to 2B/y, following the
doctrines of most populists due to stimulus policies combined with reduced tax
incomes. 4\. The market for US treasuries collapse, making them almost
unsellable. 5\. Fed buys all treasuries, both the ones needed to cover the
deficit and to roll over existing debt as well as rotten private sector debt.
6\. Inflation follows the money supply increase, and then some. 7\. Massive
strikes/protests hit the country as purchasing power for imported goods and
goods created from imported materials. (Think French yellow shirts x3) 8\. The
government caves in, and increases wages by decree to match the inflation.

(Repeat steps 5-8 ad infinitum)

What would the inflation be after 5-10 years of such policies? Probably less
than 1000%, but quite possibly more than 20%

~~~
pjc50
4 is a _really big_ stretch - what's safer to put cash in?

5 essentially already happened with QE

7 Americans don't really do this on any scale

And finally.... 20% inflation is hardly a nightmare. The US hit 14% in '79\.
The only thing that can take it back there is an external oil shock.

~~~
dragonwriter
> 20% inflation is hardly a nightmare. The US hit 14% in '79.

Er, ’79 was widely regarded as a nightmare, and inflation was a huge part of
the reason. ’79 was the center of the “night” implicitly referenced by
Reagan's “Morning in America” reelection image that contrasted the time after
his election to the time immediately preceding.

> The only thing that can take it back there is an external oil shock.

An economic shock, but no reason it would have to be an external oil shock (in
fact, the US is more resistant to that particular kind of shock than it was in
the 70s.)

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ww520
Consumer debt level had dropped sharply post 2008 and slowly came back up
along with wage and saving rises. That's good.

Corporate debt level has risen sharply due to low interest rate. Corporate
bond coming due will be re-financed at higher rate now. Bad for earning.

Government debt level rising is just new money creation to fuel the economies.

~~~
quadrangle
Government debt _is_ new money, but money isn't economic _fuel_ , it just
manages economic _distribution_.

If you make more money, it has zero productive impact directly. What it does
is designate wealth claims to whoever gets the money at the expense of whoever
doesn't get the new money.

So, if the government gives every citizen a billion dollar check, besides
causing inflation, that drastically dilutes the relative purchasing power of
Jeff Bezos. It's not that different from the government simply taxing out of
existence a good portion of the money held by the wealthy. Either way, it's
redistribution. And it's a powerful and important tool for carrying out
political agendas which themselves may be good or bad based on your political
values.

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JDiculous
Dumb question - why does the central bank need to raise interest rates if
everyone says that doing so will likely cause a recession, and virtually every
recession in the past has been preceded by a central bank raising interest
rates?

