
Global Wave of Debt Is Largest, Fastest in 50 Years - hhs
https://www.worldbank.org/en/news/press-release/2019/12/19/debt-surge-in-emerging-and-developing-economies-is-largest-fastest-in-50-years
======
cs702
The full report, titled “Global Waves of Debt,” is available at
[https://openknowledge.worldbank.org/bitstream/handle/10986/3...](https://openknowledge.worldbank.org/bitstream/handle/10986/32809/9781464815454.pdf)
\-- it is easy to read and follow. Do yourself a favor and read at least the
_Foreword_ and _Overview_. I also find the advance reviews from prominent
economists in the initial pages of the report illuminating.

The report documents four major waves of debt accumulation in emerging and
developing countries since 1970:

* The first such debt wave ended in the Latin American debt crisis of the 1980s.[a]

* The second such debt wave ended in the the Asian financial crisis of the late 1990s.[b]

* The third such debt wave ended in the global financial crisis of 2007-2009.[c]

* The fourth such debt wave started in 2010, and is the fastest rising as well as the largest.

\--

[a]
[https://en.wikipedia.org/wiki/Latin_American_debt_crisis](https://en.wikipedia.org/wiki/Latin_American_debt_crisis)

[b]
[https://en.wikipedia.org/wiki/1997_Asian_financial_crisis](https://en.wikipedia.org/wiki/1997_Asian_financial_crisis)

[c]
[https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80...](https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%9308)

~~~
elfexec
> The fourth such debt wave started in 2010, and is the fastest rising as well
> as the largest.

It's largest because unlike the first 3 regional debt waves, this one is
global. US, EU, China, Japan and every major economy just printed money to
kickstart growth since 2009. Should be interesting to see how this one
resolves itself.

~~~
onlyrealcuzzo
Well, anything later should be larger just because of time and inflation. Is
it larger proportionally, and if so, how much?

~~~
ksec
>Is it larger proportionally....

It is hard to measure, if you only measure Debt Per GDP Ratio, you ignore the
interest rate which may be very low or even zero. May be _Interest_ per GDP
Ratio would be a better metric, which I have yet to see any numbers of figures
given out. ( And I cant be bothered to work it out myself )

Then there is the Debt Per Asset. For example while China has on the surface a
huge debt problem, they also have much more asset ( on paper, assuming it can
be trusted ) in their book.

There are also other things like those previous Debt Crisis were trigged by
bubble, which was the result of people taking debt into those bubble and
bursted. We dont have a bubble right now. Everything is ridiculously stable in
relative terms, growth is low compared to previous decade, and nothing much to
bet against. S/P 500 P/E are still in 20s despite it being in record high.
Most companies have very decent cash flow. And most of those cooperate debt
were if money if so cheap why not take it. Apple has 150B debt, people didn't
freak out because they are still 100B Net Cash positive.

I just dont see another crisis happening yet.

------
ping_pong
For a blueprint as to what will happen, there's really 2 scenarios: 1)
hyperinflation 2) deflation. If hyperinflation is the possibility, which the
Fed will favor much more than deflation, then you want to own as much debt as
possible, in the form of property. Then your debt will hyper-inflate away and
you'll be left with a ton of property.

If the Fed loses control and we end up with deflation, you want to own as
little debt as possible and as much cash as possible. If you are lucky enough
to be with a life partner, you can arrange all your debt to be with one
person, and all your assets to the other person, and then get a divorce if
need be. Then the person holding the debt can claim bankruptcy in the case of
global deflation, which would then wipe the slate clean.

~~~
QuesnayJr
There's a more likely third scenario, which is 3) neither hyperinflation nor
deflation. The US hasn't seen serious deflation since the Great Depression,
and has never seen hyperinflation. Hyperinflations tend to go along with some
sort of political or military disaster.

A big wave of defaults is only a serious threat to the US economy if it leads
to a banking crisis. That's why the global financial crisis was so much worse
than the deflation of the NASDAQ bubble.

~~~
IgniteTheSun
I've seen the current national debt situation compared to the U.S. national
debt situation following WW2 a number of times (e.g., national debt to GDP
ratios), but there is a key difference between now and the past: past episodes
of rapid national debt increases were limited to only a very few years and the
government then moved to reduce debt. For example, most of the expenses
related to WW2 occurred in under a decade and the national government
immediately started taking measures to start paying it off. Instead of taking
measures to reduce our national debt, the federal government currently is
actually increasing it to the tune of a trillion dollars a year in an economy
that's only approximately 20 trillion (GDP). People hear the word "deficit"
and they think that means "national debt" when in fact the deficit is how much
is being added to the national debt _each year_. Politicians never talk about
reducing debt - only reducing the deficit. Do you think Congress or either
party has the self discipline to eliminate the deficit entirely and to
actually meaningfully reduce the actual debt? It will be a lot more painful if
they do that during an inflationary crisis than today. (If you aren't familiar
with it, look up the Misery Index and talk to someone who dealt with the
inflation in the 1970s.)

What's actually happening currently is that the Fed is monetizing a larger and
larger part of the debt as (1) other nations are reaching the limit of how
much they will put into US gov bond purchases and/or even starting to plan to
scale back their purchases in future years, and (2) the deficit continues to
grow.

As Milton Friedman pointed out, inflation is always a monetary phenomenon.
There are a number of deflationary forces at play as well, but these types of
inflationary forces seem to be stronger - and hyperinflation doesn't seem as
far fetched as it used to.

------
littlestymaar
As always when talking about debt, this article only discusses the right side
of the balance sheet (debt) but ignore the left side (asset): every piece of
debt created is someone's else asset. And if the amount of debt is rising, it
means that the amount of debt security is rising also. Who owns it, and why
some institutions and people are able to hoard such an increasing amount of
assets should be as important to the discussion than how much debt there is,
yet it remains undiscussed. (Yes QE/central banks is part of the answer now,
but it only came after the previous crisis, which where caused by too much
debt, so it's not at all the full answer)

~~~
ThrustVectoring
IIRC, the answer is largely pension funds. Baby Boomers are starting to
retire, and in order to do so they need to either own a bunch of debt
securities or have a pension or retirement fund that does so on their behalf.
In my view, this is pretty much entirely responsible for a large secular trend
in indebtedness over the last several decades - retirees will need to sell off
financial assets later, so the aggregate dollar value of their current
financial assets has to rise as they save up for it.

~~~
jbob2000
Actually, of the $55 trillion in global debt, China owns $20 trillion. Much of
this debt is going to developing countries. The rest is a mixture of private
equity and governments, which would include pension funds, but they are not
the largest debt holders by any means.

~~~
littlestymaar
There's a big confusion here:

\- your $55 billions is only _public_ debt.

\- the private debt is way higher (more than $130 trillions).

Sources:

\- public debt:
[https://www.economist.com/content/global_debt_clock](https://www.economist.com/content/global_debt_clock)

\- total debt: [https://blogs.imf.org/2019/01/02/new-data-on-global-
debt/](https://blogs.imf.org/2019/01/02/new-data-on-global-debt/)

------
roenxi
Real wealth is a bit like a grain silo - if the owner stops filling it with
grain but takes a cup of grain out every day to cook with then they might not
run out for years.

Any metrics they care to use - apart from the level of the silo - will also be
really rosy. They are doing less work (no need to find grain to refill the
silo!) and potentially get much more benefit (instead of finding grain for the
silo, maybe the owner can go and learn to play a Ukulele; so they get grain,
fun and fullfillment).

This illustrates the problem with a building wall of debt - if there is a
problem, by the time the problem is revealed at the point in time when options
disappear and a crisis is forced. Until the moment of crisis life has been
going on the way it has been for a while and everything seems work or maybe
even to be getting easier.

In the real world wealth doesn't behave like my imaginary grain silo, but by
golly it makes me nervous watching people invest so much energy into billion
dollar cash-burning machines like Uber while debt levels keep climbing. If
people with money think that is acceptable, are they actually investing in
building up real wealth? iPhones are lovely, but they are pretty small in the
grand scheme of what is needed for physical comfort.

~~~
lotsofpulp
> iPhones are lovely, but they are pretty small in the grand scheme of what is
> needed for physical comfort.

I disagree. The ability to securely communicate with anyone around the world
instantaneously, take pictures and video, and access almost all information
online is pretty valuable.

~~~
dredmorbius
A/K/A the "Maslow's Smartphone" fallacy:

 _There 's nothing innate to the iPhone itself which provides for basic needs:
water, food, shelter, clothing. It can play a role in the procurement or
execution of task, but does not of itself provide them.... Pulling Maslow's
hierarchy into this really hammers home the disconnect: poverty is defined by
access to the necessities of life.

Toys by definition are not necessities._

[https://old.reddit.com/r/dredmorbius/comments/2vwfb6/maslows...](https://old.reddit.com/r/dredmorbius/comments/2vwfb6/maslows_smartphone_the_role_of_technology_in/)

~~~
AstralStorm
Generally phones are communication. Historically people deprived of
communication (relatively speaking) had economical trouble and not just
because they couldn't afford it.

It opens opportunities.

iPhone might be a toy, but an old PC with web and email and an old phone with
voice and SMS are much needed these days. Heck, there are very cheap and
usable smartphones out there.

Density and latency are important though to a point. If you cannot download
video due to bad ISP, you won't have access to certain educational
opportunities. If your connection is accessible only once a week, you might
miss something as simple and critical as accurate weather predictions.

I think next step would be integrating the communication device with body
either via haptics or implants, to even further open bandwidth and reduce
latency.

Obviously you cannot directly escape poverty with just information. But you
can network locally, which can be even better solution. Networking, especially
longer range, has a way of making big problems solvable.

~~~
dredmorbius
"Opens opportunities" != "substitutes for necessities".

The usual form of the fallacy, and the one made by @lotsofpulp here, is that
the capabilities of infotech toys are intrinsically valuable and sufficient.

They're not.

~~~
AstralStorm
Most of everything is optimization indeed on top of our basic human
capabilities, thus not strictly necessary.

But there is intrinsic value in fast long range audiovisual communication
itself. The easier they are to use and more available, the higher this value,
because now people can use them.

It's exactly as if you're arguing that advanced farming tools have no
intrinsic value. But without them starvation is the only outcome. The value of
them is conditional, but not extrinsic.

Mind you, communication is not as critical. We have instant local
communication built in, speech and body language. And it is very easy to write
or paint. Harder to distribute it for sure.

Transportation is communication too, just higher latency but much more useful.
We have that built in as well, it's walking, and can go quite some range of
hundreds of kilometers. It's just slow and low carrying weight.

Whether modern comms allow us to do something useful and otherwise impossible
remains to be seen. Transport and farming already have done it.

~~~
dredmorbius
What is the value of communications if you cannot access air, water, food,
clothing, shelter? The basic necessities at the base of Maslow's Hierarchy?

Does technology create a treadmill of necessity?

~~~
AstralStorm
You definitely cannot access resources you don't know about - and that is the
value of communication. It also optimizes trade, travel and work including
worker allocation. On its own, it does not solve any problem but makes big
problems more tractable. Organising on bigger than village scale with any
semblance of speed. There are problems you cannot even begin to attack on
local scale.

Even in ancient days, hunters communicated where to hunt for best results.
Farmers taught methods that worked.

And then there's the basic social need of belonging. Though our impersonal
modes of phone and net do not exactly work, they make face to face easier to
set up.

On the other hand, whether low latency broadcast communication is needed
remains to be seen, or what it affords us if anything.

Usually mail, press/radio is good enough, cheap too. Books for more in depth
learning. Phone is good enough for emergencies, including text. Video is
situationally useful.

The main gain here is that you can access the needed information on demand
rather than wait for it to become available and potentially miss out.

Computing power is a different matter entirely, you can solve optimization
problems if you want, guess weather, predict climate, population and economy.
That is somewhat difficult but not impossible to run on a smartphone
reasonably. But you can always use a phone as a thin client to access such
data.

~~~
dredmorbius
It's a lot easier to answer hard questions by changing them to different ones.

That's not what I asked.

And there are alternatives to mobile phones for comms. Sufficiency of those is
also a different question.

------
grok2
What does this mean for a lay-person in the so called "emerging and developing
economy"? How do they prepare for any fallout?

~~~
koheripbal
The real take here is 'it depends'. The important number is the debt-to-GDP
ratio for each country, and which countries we're talking about.

The biggest debt growth has been with China that now has a debt-to-GDP ratio
of 255%. Does that number spell doom for China? Not really. It's high, but
China can handle it. If it continues to grow in an uncontrolled fashion, it
might be a different story.

So in each case, each country is different story, and you have to look at them
individually.

~~~
Aperocky
The numbers are thrown around with nobody really understanding what they mean.
China have a collective debt to GDP ratio of 255%, which means all persons,
corporations, local government, and central government have a debt that
collectively sum up to 2.5 times the GDP. The Central government itself have
debt amounting to 47.6% of GDP.

Meanwhile, US federal government have debt approaching 100% of American GDP,
and guess what? Private people and corporations in US hold more debt, I have
yet to find a comprehensive collective debt to economy ratio for the US, and I
would very much appreciate that number since we can then compare apple to
apple.

Also, honorary mention to Japan, whose public government debt exceeded 200% of
their economy.

~~~
QuesnayJr
Wikipedia claims close to 300%:
[https://en.wikipedia.org/wiki/Financial_position_of_the_Unit...](https://en.wikipedia.org/wiki/Financial_position_of_the_United_States)

~~~
Aperocky
> The financial position of the United States includes assets of at least
> $269.6 trillion (1576% of GDP) and debts of $145.8 trillion (852% of GDP)

From the first paragraph.

~~~
QuesnayJr
It says 279% in the second paragraph. (And in the third paragraph it says
350%.)

------
lottin
Note that when they exclude China, that has predominantly domestic debt as
opposed to external, it doesn't look nearly as bad.

~~~
onlyrealcuzzo
Well, they said emerging countries debt is raising nearly as fast as China's
(which is up 72 points since 2008).

I wonder who has the most exposure to this debt. My understanding is that a
lot of foreign emerging debt is owned by China.

------
ilaksh
It's absolutely not just emerging or developing economies. This article is
extremely misleading in that regard and its very dangerous.

Do some research on your own. Many if not most wealthy countries are in
serious trouble including the US and China.

Take a look at what Ray Dalio says about it. He says that this is part of a
pattern of long term debt cycles, it looks like 1937 and implies there is risk
of a global depression, dollar losing its status and even WW III.

My opinion is that at some point there will need to be a new paradigm
introduced deliberately if we are going to avoid the terrible natural
conclusion of the existing one.

~~~
sunseb
In 1933, there were 80 millions young German. Today, most inhabitants in the
western world are too old to fight in a WW3, but at the same time, there is no
more need of a massive army to trigger a WW3. :-/

~~~
bosie
I don't know where you got that number from. Germany had a population of
around 65M in 1933, so probably closer to 10M young Germans?

------
m0zg
A mandatory reminder: if the economists could actually predict the future,
they'd all be ultra-rich. That is evidently not the case. So take any
prognostications with a boulder sized grain of salt.

~~~
ksec
The thing I learned over the years are economists are actually historian, they
explain the past, and judge the future with historical patterns.

~~~
m0zg
Most other people never learn this bit of common sense.

------
markvdb
Looks like yet another warning sign of dirty work afoot.

Do you have a strategy to deal with economic black swan events?

I'm looking for reasonable, affordable measures that could shield my partner
and myself should black swans ever strike. I'm NOT looking for alarmist
prepper style rabid craziness...

~~~
linkregister
I disagree with the other posters about buying real estate if you think it's
the peak of the bubble. The price of real estate is strongly correlated to
that of other assets, such as stock. Unlike stock, it can be illiquid in
downturns. Undeveloped land is especially difficult to sell at market value
even during good times.

~~~
Gustomaximus
The difference to consider here is in 'crisis'.

Banks can fold. Companies can and will go bankrupt. But land will be there.
And it's not just about the crisis event, it's riding the bounce after. Sure
you might buy at the peak today, but it will return to growth on the other
side of the cycle plus have more security of most other assets.

A friend of mind manges investments for high net worth individuals. I said
once do they all come to you and look how big your past returns are? They said
no, most come to them and say 'how can I make sure I'm never poor'.

~~~
AstralStorm
Depends on whether the crisis results in war or not. If it does, land is very
hard to move or recover.

See, it's almost 100 years past World War 2 and some property disputes are
still alive...

So it can be a part of a strategy but not whole of it. Especially any
undeveloped land is extra problematic. (It will fall to whoever developed it
by law most of the time, requiring a buy out at most.)

And if the emergency is something requiring immediate liquid assets land is
especially worthless. There are many such emergencies.

------
sunseb
It's kind of ironic that the more a society is efficient and productive, the
more it's subject to a overproduction crisis and massive unemployment. We need
to change the model.

~~~
QuesnayJr
This is a kind of nineteenth century understanding of the economy. You can
only have overproduction and massive unemployment if you have a shortfall in
aggregate demand, which the government and the central bank have the power to
correct.

------
zxcb1
More like a tsunami with the epicentre at the 2008 US Fed; propagating as
unevenly distributed hyperinflation, eventually reaching those furthest away
from privileged access.

------
rolltiide
Money is free for the credit worthy.

And by credit worthy that has nothing to do with your social/credit score.

~~~
vladimirralev
At the same time the business media can't stop talking about both US and
global savings glut being the issue. The Fed says the average American doesn't
save enough. Every few hours talking heads turn around and say something
completely different with no change in fundamentals.

The whole system has turned into a joke. We get to see Powell answering the
same questions with less sophistication than a fifth grader. While serious
analysts actually do the math and __prove __policy makers ' models diverged
from their stated goal decades ago.

~~~
QuesnayJr
The saving glut and the wave of debt are the exact same phenomenon. Savers can
only save if someone else is borrowing.

Collectively low US savings rates show up in the current account deficit --
the US attracts savings from abroad.

~~~
vladimirralev
> The saving glut and the wave of debt are the exact same phenomenon. Savers
> can only save if someone else is borrowing.

I've heard this before and it doesn't go far to explain any of this. The
modern plumbing between savers and borrowers makes this almost meaningless.
There is the fractional reserve system to begin with. Savings are only a tiny
fraction of the money actually borrowed out there. On top of that, the
collateral is historically overvalued while rates are low. I don't know if you
are suggesting that savings = debt, that's a subject to interpretation but the
way most economists understand it that's not true in this system by a long
shot.

> the US attracts savings from abroad

I assume by savings from abroad you mean foreigners buy dollars to buy stocks
and (to a lesser extent) bonds. I don't think this refers to actual cash which
is the savings from "the savings glut".

~~~
skybrian
Leaving banking to one side, here are the key facts about foreign investment:

1) Nobody sells stuff for free. This includes foreigners selling us imported
goods. They will always be compensated somehow. 2) Investors try not to lose
money. This includes foreign investors. 3) The U.S. has been running a trade
deficit for decades.

The result is that foreign investment in the U.S. keeps going up. As long as
imports don't balance exports, the difference becomes an increase in foreign
ownership of US investment assets.

There are two ways for foreign investment to stop increasing. Either the trade
balance reverses (fewer imports and more exports) or foreign investors lose
their investments and write them off.

This does happen sometimes; consider the Saudis, Softbank, and WeWork. In a
way, this is good from the US point of view, because foreign losses mean we
did eventually get some of our previous imports for free. It's a good trade!
But, usually investors learn from their mistakes, so this can't be guaranteed.
Not wanting to lose money (but not wanting to spend it either) means there is
a high demand for _safe_ investments like Treasury bonds. This drives interest
rates down.

In the meantime, more imports fuel ever more demand for apparently good
investments. This is part of the demand side of the "global savings glut" (it
doesn't mean actual cash). Many countries would like to increase exports and
own more foreign investments. Much of Wall Street financial innovation comes
from attempting to give these investors what they think they want. Some of the
things they come up with may actually be good investments and others might
just look good.

This trend can keep going as long as there are countries trying to become
richer via export-led growth, foreign investors don't lose confidence, and
foreign consumers aren't empowered and encouraged to buy enough international
goods to match their countries' exports. Even troubled times might not cause
investors to stop investing in the more stable countries due to lack of good
alternatives. Instead there is a "rush to safety".

~~~
vladimirralev
> more imports fuel ever more demand for apparently good investments. This is
> part of the demand side of the "global savings glut" (it doesn't mean actual
> cash)

Can you clarify what else other than cash it means?

~~~
skybrian
"Cash" is often used broadly to mean any low-risk, stable investment that
could easily be exchanged for cash.

So for example a reporter might write that Google has "over $100 billion in
cash", but if you look at the balance sheet, "total cash" includes both "cash
and cash equivalents" and "short term investments." These investments might
include short-term government and corporate bonds.

~~~
vladimirralev
Sure but then the savings reference breaks down. Bonds and corporate bonds in
particular shouldn't be considered "savings" because the money is being
circulated. I am sure everybody has a different definition but in the "global
savings glut" phenomenon those savings shouldn't include bonds?

~~~
skybrian
Yes, this is a matter of definitions, but it looks like the people writing
about "global savings glut" are including short-term corporate bonds.

But the reason there is a choice of definitions is because all lending creates
money if the debt is considered reliable and can circulate like money. It's
quite similar to the reasons that bank deposits are considered money.

You can use a stricter definition that doesn't include bonds but I'm not sure
why you prefer it?

