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.
From 1957 to 2017, per capita GDP in China grew from $68.24 to $8830.17. That's over a thousand times more productive. You can angst about faked numbers or whatever all you like, but the trends are plainly obvious here. China's economy has grown consistently at an extraordinary rate for a long time now, and there's no obvious evidence that a collapse is just around the corner.
"Debt, we've learned, is the match that lights the fire of every crisis. Every crisis has its own set of villains - pick your favorite: bankers, regulators, central bankers, politicians, overzealous consumers, credit rating agencies - but all require one similar ingredient to create a true crisis: too much leverage."
Firstly as mentioned there has been a lot of real economic growth. I was there around 1983 when GDP per capita was about $300, there were almost no cars and hardly enough food. Now they are the worlds largest economy by PPP GDP with 4WDs, air pollution and the like.
Secondly the debt is mostly in Yuan which the government can print. 3rd world countries typically go bust when they borrow in foreign currency. With China I believe it's the other way around - they hold a lot of US bonds so the US effectively owes dollars to China, not the other way around.
Thirdly the socialist system for better or worse means the government can just delay paying debt. In the west if developers borrow billions to build empty flats them and or the banks that lent to them go bust, in China they just give them another decade to pay. This can lead to misallocation of capital - all the resources going to useless empty flats rather than productive stuff but seeing the first point about GDP it can't be too bad.
The above is economic reality. Some stuff does keep going up - entropy, US GDP per capita with occasional blips and maybe Chinese GDP with blips also.
499 of them have ended in a financial crisis. Most in minor debt crises, a few in larger events (like 1929 or 2008).
This one will end just like all others. There will be a financial crisis to end it.
I mean, this has been happening for so long the Bible talks about it. Trust me, trust economists, or trust the lord: it will happen.
There is another pattern. Crises, from one to the next, tend to get worse and worse until they cause really large scale collapses. The Roman Empire encountered worse and worse financial crises until finally the republic was destroyed by the empire, and eventually because the provinces broke away. The 1929 crisis ... perhaps this is a bit simplifying, but not really ... caused WWII.
On the other hand, the 1979-1982 crisis was pretty severe and yes was followed by a large expansion and a mild, at worst, crisis ended that one.
But this is not a stretch at all:
1) economic expansion (in China, the US, and elsewhere) WILL end (100% chance). And it will end soon (China, and the world for that matter, are in one of the longest continuous economic expansions in the history of the world. Meaning right now it's already very exceptionally long, if not THE longest)
2) it will restart. Maybe it'll take a war, maybe (1 in 100 chance at worst) even collapse. But it will restart. Now that's easy to see, but 1 year into the crisis that will inevitably occur that's not going to be so easy to see.
8830/68 = 130, not 1000. And is that $68 in 2018 dollars or 1957 dollars?
Also, I realize I meant a thousand percent, not a thousand times. My bad on that one. China is merely 130 times more productive (in 2018 dollars) than they were 60 years ago. Which I don't think disproves my point.
People are assuming the numbers weren't inflation-adjusted because it's so hard to believe. But it's true.
China could get stronger after a crash as it’s economy gets dosed with realism, or depending on how the government manages it, it could be in for a Japan-style lost decade or two.
No one significant predicted the biggest economic collapse since the great depression either.
Collapse precludes a recovery in the near term, and means some sort of government or dynastic change. Collapse language is used in contrast to a much normal crash.
What matters is 'do they have more to grow'.
And even if that answer is 'yes' (and I think it is), the next question is 'how level will that be'?
Because the bag will change hands many times. There can be pops and bubbles.
There could definitely be crashes where some lose their shirts - and the system is broken enough that they are unable to actually achieve all of that growth that we know they can do.
Maybe other countries ramp up on manufacturing quicker than we thought.
Maybe factory automation outpaces china.
Maybe there's a conflict that pops a bubble, or internal unrest.
Heck - maybe Trump's trade war really pulls the rug out.
Maybe that doesn’t agree with your politics. How about all the people harmed by China’s wars? What about its own victims, like victims of the Great Leap Forward? The latter happened within its borders, but that reduces the denominator.
A one child policy reduces the denominator too. What would China’s population be today, its per capita GDP, if the denominator was larger?
Fine, don’t angst about faked numbers. But do you seriously believe that the GDP per capita isn’t massively hacked to the benefit of the CPC? And even then, is the average Chinese still being below the American poverty line something to celebrate?
Just because the number has grown doesn’t mean it would not have been higher in a free society.
China today is better than China yesterday is a fact. Their economy is growing, rapidly, and life is improving for the average Chinese person. This is also true.
Your last statement, that China would have improved under a different (better) organizational system might also be true (its one I happen to agree with). But that does not, in any way, mean the previous paragraph of this response is any less true.
On an enterprise value basis the US looks more expensive than both international and emerging markets.
Turkey is in a classic emerging market debt crisis, whereas Venezuela is a somewhat special case where oil prices are high and they have enormous reserves but they’re terribly mismanaged (to provide a huge understatement). Not saying you’re wrong about Venezuela, but they’re not the typical textbook case of an emerging market debt problem.
We'll see if interest rates stay low long enough.
Disclaimer: 2008 GFC experience (company folded, had to walk away from primary residence, etc, took 8+ months to find another job while burning through mortgage payments, medical/living expenses). Experience described in this comment and those below are so others can make more informed decisions than I did.
I dont live in a place where I can afford a home, and Im actually seeing that as an advantage at this point- my investments are relatively liquid compared to a house, especially in a depressed/shocked market. It's not an asset until its sold- no mortgage, no problem.
Liquidity is a sliding scale when the economy is melting down. Fool me once.
I still have a couple of gold sovereigns from the last financial crisis, at roughly the same value I bought them. Mostly as a reminder to ignore the goldbugs.
The point being if economy goes to shit that beautiful $100 bill you can spend to feed your family with lobsters will be worth as much and only as much as the paper it was printed on (hint - close to zero). In such times we will revert back to hard currency - gold and coins. But don’t buy gold bullion - it will be hard to buy bread with a 15gr gold bullion bar and noone will care to give you change. Hence best are 80% silver bags as a form of daily purchasing power.
Honestly how can you say that? A piece of crude that comes from Earth (not government printer) that is in somewhat limited quantity, always kept its value, whether governments raised or fell.
Here is a good read for you:
The reason why bitcoin and other crypto currencies are not usable as a substitute is because they have massive volatility.
whatever we put our faith in has value, and I envision our future generation putting their faith behind BTC. Of course, the normies will prob use something else - prob another crypto backed by BTC.
Unless you have other valuables, such as a nice watch or necklace silver in general will be a value you can exchange for first needs stuff such as bread, meat, water.
Finding who is is owed to is harder. A big chunk is pension funds, insurers and so on, where one person's debt is another person's retirement savings. Which must increase overall as life past retirement does.
But a large chunk is assets of financial industries and the super wealthy, and in order for it to be net paid down they have to get poorer - or at least be forced to reallocate to equities.
(Note also that as interest rates drive ever lower debt naturally expands too. If they can be driven negative it becomes an advantage.)
$100,000 sounds like a lot until you do the figures on what a responsible person needs to save if they don't want to wear the risk of the social welfare system comes under sustained attack while they are trying to retire. That sort of possibility is ugly, but you'd be mad not to acknowledge it as a potential threat.
I suppose the ultimate point is that when debt becomes unpayable, someone has to wear the losses of assets suddenly ceasing to exist. Anyone with meaningful savings is at risk in a big system-wide events because even if you understand the situation very well the rules can change in a crisis, making it very hard to control risk.
The numbers are bigger now, wages aren't that much better, savings are as low as ever. If 2008 was bad, the next one could be worse in terms of wiping out wealth. Scary time to be facing retirement.
It's only an asset when people believe they are to be repaid. It's not uncommon for a debt holder to value debt lower than the amount.
So in a perfect world debt = assets, and then some. This conversation is about a possible stressed system. In this scenario it's not fair to say debt is equal to assets and therefore all is ok.
The problem was really that the prize was too big. Russia had the oil production. That made it worthwhile doing whatever was necessary to steal control of the money flowing from it.
(Perhaps a more salient question is how and whether the US can be prevented from turning into a mafia state; will the ongoing prosecution roll up the network, or will the network roll up the prosecution?)
The problem is there is no guarantee that those assets on the balance sheet are actually real. This is a global aggregate which is owed from humans now to humans in the future, and using micro-scale accounting identities isn't appropriate.
Those graphs are indicating that real production is insufficient to meet future consumption. When that happens, there are serious consequences.
Those consequences can take the form of deflationary writedowns, an inflating currency, or a combination of both. Whatever the case, the the people of the future don't get the results the people of the present have promised.
Do you have better data on the super rich? My impression was that they typically own companies and stocks, not T-bills. So if the top 10% don’t own the debt, it’s the next 40% (middle class) that will have to get poorer to reduce debt.
The US government was in debt since this country started, and will remain in debt in the future. The government being in debt is no problem, it's not a household. Government debt is not a problem, private sector debt is.
The original money did change hands though. It just ended up with builders, flippers, and real estate agents.
For example, if 10 people borrow $10 from Alice, she is owed $100. If she packages that as 10 separate loans with one dollar of debt from each person and sells them for $10 each to 10 other people (Bob, Billy, Blake, etc), she's no longer owed anything, but the people downstream she sold it to are. In this case, her reselling has resulted in no additional total debt, but it is harder to tell whether the loan contains deadbeat non-payers or not. If the second set resells again, the obfuscation is even greater.
If Alice or some downstream seller sells for less or more than the original loan for some reason (or with different interest, which can't be forced upstream?), then the total debt amount might change.
In any case, it's still all down to whether the original loans are secure or not. If the people default, and there's no collateral, the end result is no different how many times it's been resold (if no amount has changed), it's just a matter of who is affected and how easy it is to tell whether the loans are of good quality or not.
Although, if I'm mistaken about or missing something, I would definitely like to know.
Also, loans can help with liquidity. I'd rather have $1,000,000 cash and $999,999 in debt than $1 to my name. You can work with a million dollars in ways you can't with $1, even if your net worth is the same.
An asset has enduring value, it remains on the books year after year.
An expense however, is only on the books for the current year, then it gets rolled into owner equity. Expense shrinks owner equity. In fact, owner equity can go negative in extreme situations.
A portion (I'm not sure how much) of the $250t in debt was certainly spent on expense. There is no way to get that portion back...the funds do not exist.
I thought age expectancy is starting to drop now.
I'm down to "Hope the problems don't really precipitate in my lifetime, and don't have kids". I don't feel like that's a solution.
In practical terms, you should recognize that this feeling is fear and it is in fact a feeling, and you can choose to own it rather than let it own you. Stay away from the particular enterprises that everyone says are about to collapse, and double-down on whatever assets nobody is paying attention to. Life goes on, and people have to do something, so own the things that people will be interested in over the next few years. It's all a bubble, just do your best to ride it.
There were a few asset classes that were clearly looming bubbles in 2008: housing, CDOs, most hedge funds, Web 2.0 startups. If you were invested in them at the beginning of the year you probably lost your shirt. Meanwhile, if you invested in Bitcoin or mobile or sharing economy startups in 2009, you're likely a millionaire several times over. Housing itself started to become an attractive investment once the crash was over in 2010, with many landlords making 10%+ returns annually since then.
This is false. It is the hallmark of the current economic order that our systems are very efficient, very interconnected, and very fragile.
I shouldn't care whether or not provincial Chinese governors are faking their economic reports or making bad loans - but of course, I do, since that could have a ripple effect that makes my business suffer. I shouldn't be fragile to that but I am.
Making the system less fragile would require removing some of the interconnections and the efficiencies. Growth and returns would be lower, but failures would be localized and less "interesting".
> This is false. It is the hallmark of the current economic order that our systems are very efficient, very interconnected, and very fragile.
What evidence do you have to support this? Even in 07 an index-weighted fund only took 3 years to recover. If you were 50% in bonds, 1 year to recover.
OP was encouraging you to separate your fear from the evidence-backed likelihood that while you may lose a bit in deliveraging, there are also gains to be had in the 10-year term.
If you're feeling that things are fragile right now, adjust your allocation to something more conservative, take a two week vacation, listen to some mindfulness podcasts to calm down, and then think through where it might make sense to put 10% of your bets on 10yr+ plays.
Sometimes people discuss things at a systemic level, rather than a personal level. The person you are lecturing to deleverage may be debt free, with $5M in Gold in a vault, but still be wistful of a less fragile world economic system.
The financial system is quick to ask for less regulation/less red tape but when comes the time to own their mistakes, they are really happy to get some of that taxpayer money from the government!
We are living today in the biggest bubble of all times.
It is the everything bubble. The stock market is hyperinflated with valuations that are completely disconnected from the real economies of the world.
Most of the major economies are so indebted that to even think they would ever repay their debts is just a pipe dream.
Most emerging economies have been having huge political and economic issues in the last few years as well.
Housing bubbles are popping up all over the globe. Major resources are dwindling and our ecosystem is starting to crumble while we are day by day emitting more and more carbon emissions in the atmosphere.
Finally using bitcoin as an example of a great investment is more than dubious. Bitcoin was a gamble in 2009 and is still a gamble today.
To protect the bankers?
Here's a fun data point for you. From 1997 to 2017, the global extreme poverty rate (people living on less than $2/day) dropped from 29% to 9%. Two thirds of the people at the bottom got out of that bottom, in the past twenty years alone. That's amazing.
So, while all is amazing, all can be very non amazing on the receiving end of the liquidity removal.
If the U.S were to systematically purge their most productive industries (think Finance, Tech etc.), the US economy wouldn't last very long either.
Of course the Bolivar tanked. You can use a dollar to buy anything in the world. You can't use the bolivar to buy diddly squat.
We have a long, colorful history of punishing latin american nations for embracing redistributive social policies and decolonisation.
Never forget: https://www.democracynow.org/2013/9/10/40_years_after_chiles...
Like many former colonies, they suffer from a resource curse. Nationalizing their primary, non-renewable, extractive industry is the only way to ensure that their economy didn't centralize and stagnate, to ensure they didn't remain a vassal state. Norway did it and they're a thriving, economically diversified, socialist state with an enormous sovereign wealth fund. Libya did it to pursue the same societal goals and we exterminated their ruler and destroyed their state to such an extent that slavery reemerged.
I wonder what the difference was.
Venezuela is refusing international aid. There are sanctions on their government bonds, but the lack of private sector trade is basically caused by
- the lack of private sector industry,
- a lack of hard cash now, and
- trade barriers implemented by the Venezuelan government
not punitive American trade barriers or them somehow being turned into a "pairah".
All aid from the IMF comes with punitive strings attached. Enforced austerity from abroad. A painful, unwarranted contraction of the economy primarily felt by the people most at risk.
>There are sanctions on their government bonds
You sanction a government bond and guess what happens? Debt becomes expensive, development becomes impossible. You are unable to cushion economic shocks like the threat of sanctions by a major economic superpower. The threats become liable to throw the entire economy into chaos, sending investors, domestic and international, fleeing for less risk.
We're keeping their oil cheap for a reason.
How you think we're all better off just because we're enjoying eating our seed corn I do not understand. Next year we will simply starve.
Food productivity globally has skyrocketed, to the point where we are supporting the largest population in history, with the cheapest food prices and lowest rates of malnutrition and famine in history. Climate change is a serious problem, but it's unlikely to end civilization, and even more unlikely to end the human race. At this point, I'm pretty sure the world would recover well even from a full-scale nuclear war between the US and Russia (which hasn't happened in 70 years anyway). That's because it wouldn't affect everyone directly, and massive, vital infrastructures are in place - the paved roads, power lines, working vehicles, communications systems, and most importantly, the documentation and literacy to read it. We could rebuild. We would rebuild.
Population growth has stabilized at the beginning of the process, where it matters. Right now, there are two billion children in the world. In a hundred years, there will also be two billion children in the world. The growth in global population right now is coming from the drastically increased lifespan of previous generations - adults that were once children who, contrary to human history, weren't struck down by disease or famine or war.
The biggest "seed corn" is fossil fuel, but we're moving toward a clean alternative energy future at a fine pace. By the end of the 21st century, clean wind and solar power will dominate, and fossil fuel will be a thing of the past. With a tremendous supply of clean energy, free information, and health... a lot changes.
The more pragmatic advice however is to hedge in real transactional things, food production, logistics, real estate, and manufacturing, Etc. That part of the economy that operates on barter if it has to because people need these things to live.
Land in good climates. Don’t even worry about the houses.
Good education and shelter is pretty close, but not at all commodified or fungible. Real estate is complicated I guess.
Replacing the current system with something better.
I for one think that the systemic and intentional divisiveness separating peoples and pushing them to war with one another than their opressors will also spur any attempt at improvement in the aftermath of coming disasters. We won't unite for the better, we will tear ourselves apart with blame and ire.
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 owns and is earning interest income on $2.3 trillion of treasuries and $1.9 trillion of GSE debt.[a]
In other words, the US federal government and GSE-guaranteed borrowers owe $4.2 trillion to... the US federal government itself.
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.
This startling fact is just one of many -- many! -- important details about modern monetary systems that are generally poorly understood by the public and which are utterly ignored by this article. Don't waste time reading it.
Roughly 20% of US government debt is held by itself.
How do we know that the US isn't just printing this money out of thin air (as in money that is not declared to have been printed)? The system seems extremely complex which worries me that such things might be going on.
As the global reserve currency the US has way more power than a country like Venezuela and in my view could be getting away with printing extra money.
edit: It is a 30 minute video by Ray Dalio, founder of Bridgewater Associates, one of the largest and most profitable hedge funds.
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.
In the US you can compare federal debt and debt payments easily if if you use "percent of GDP" as a unit.
(a) Federal Outlays: Interest as Percent of Gross Domestic Product, Percent of GDP, Not Seasonally Adjusted (FYOIGDA188S)
(b) Federal Debt: Total Public Debt as Percent of Gross Domestic Product, Percent of GDP, Seasonally Adjusted (GFDEGDQ188S)
The result: https://fred.stlouisfed.org/graph/?g=lcpR
ADDEDUM: Part of those interest payments is paid for the Federal Reserve who then pays them back to Treasury. In 2017 Treasury paid something like $262 billion interest and Fed pays $80 billion back to Treasury. Debt from government institution to another is not really worrying or 'real' debt. It's just accounting trick.
And it's a valid point. The units are wrong for them to be compared.
And yet, it's only half of a valid point, because the only thing people are doing with that ratio is comparing it to the same ratio for other years or other countries. The number can be dimensionally wrong and still be useful to use in that way.
Why would the number be useful to use in that way? Well, it seems intuitively reasonable to say that the bigger an economy is, the more debt it can carry without the debt burden being any more of a strain. The US can carry more debt than Vanuatu can, and not because the US government is more credit-worthy. So scaling the debt by GDP makes some sense.
And, in fact, dimensional analysis can make sense of this. Let's say the GDP is $10 Trillion. Well, it's not really $10 Trillion, it's $10 Trillion/year. If the debt is $30 Trillion, then the ratio is $32 Trillion / ($10 Trillion/year), which equals 3.2 years. That's how long it would take to pay off the debt using 100% of the GDP (which of course never happens, but it's still a measure of how much of a load the debt is). So when you see them report that debt is 320% of GDP, what they're really saying is that the debt load is 3.2 years.
But it's not as easy to interpret as you say. The currency, maturity distribution and interest rate of the debt are all important. If the average maturity is 20 years for 1%, it's completely different from 3 years and 5 percent.
Differentiating debt in foreign or domestic currency is even more important. In the US and Japan all government debt is in local currency. It's completely different problem from countries like Venezuela or Argentina that have also debt in foreign currency. Hyperinflation occurs only in countries with large debts in external currencies.
Let's say debt is equivalent to the mortgage on your house.
You compare an individual exposure by their monthly repayment against their income, not income against mortgage amount! Why is it any different for this?
Usually in France, it's customary to allow this ratio to be 30%. With median income at 20k€, this leaves about 5k€/y, or 410€/month.
At current rates, mortgage size of 100k€, total cost of 150k€. The "debt to GDP" is thus 150/20=750%.
Apples to oranges?
I think of it as the higher the debt to GDP ratio is the longer/harder it will be to repay the debt.
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.
The problem in Japan is much worse because the central bank has bought ETFs directly and is now a major holder.
Any unwinding of the BOJ position would lead to major disruptions.
That's just pushing the inevitable. A lot of stocks went up because of debt. Those stocks needed to come down. In a real capitalist system, the companies with declining stocks would be replaced by new ones. But BOJ intervened (for good reason) and now they are in a painful slow decline.
Pull a bandaid quick vs pull it over time!
Even with old numbers. And the assumption interest rates will remain below historical means. There is the possibility creditors can never be paid back.
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.
it harps incessantly on debt, throwing out scary, big numbers ($250T! $40T in china!) but doesn't explain why increasing government debt is an issue
there is a reason to worry if the interest rate on the government debt is larger than the growth rate of the economy
currently that average interest rate is below 3 percent , so for any countries with >3% economic growth, it really doesn't matter - they'll be able to make their interest payments to one another (most big holders of gov debt are other govs themselves)
financial and household debt is down across developed economies, and corporate debt is about the same as it was in 2008
furthermore there is no discussion of what could trigger a debt collection death spiral/meltdown, other than "the world's second largest economy is now coming to terms with rising corporate defaults", backed up by 0 context or data
the real worry would be continued slowdown in GDP growth ala "secular stagnation" that many prominent economists are exploring - if you're not growing your income, you can't pay down your debt, and you have to start cutting costs (healthcare, education, defense)
debt has a bad connotation and is easy to sensationalize, so articles like this get attention, but there's no news, argument, or takeaway to be had from reading it
What does 3% economic growth mean? Is it measured in terms of that country's own currency? But isn't that currency's value inversely proportional to the amount of money which was borrowed from the Fed?
So the higher the interest rate is, the more new money the government has to borrow from the Fed in order to pay back its old debt, the less the currency becomes worth, the less meaningful this 'economic growth' percentage becomes (because that growth is measured in this fast-deflating currency). This seems to be mind-numbingly complex.
No. The obvious makes that a useless measure. GDP is used, modified to ignore what government factions like to conveniently manipulate or modify. Lumping in tech stocks and pharma was the latest trick in the USA.
The question is whether these problems are limited to those countries with high dollar debt or whether it could cause a regional capital outflow that reduces economic growth in neighboring countries or trade partners.
30% of US debt is owned by intergovernmental agencies: like Social security/medicare/military retirement funds - so that might go down the tubes.
The other 70% of US debt is public debt, of which almost half is owned by foreign governments and investors.
It is a house of cards, but it isn't one with a clear winner and loser. A loss of faith in international credit destroys all economies.
money requires no interest payment.
Of course, there are critics of this view and it's not necessarily 100% correct, but it does seem plausible.
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.
The danger is that this money evaporates as people default on loans.
As long as interest rates are low, people don’t default very much, but as they rise, the defaults happen.
Why do central banks need to raise interest rates at all? It just leads to a bloodbath as some loans get renegotiated.
Why not just have one predictable interest rate like Milton Friedman spoke about?
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?
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?
I thought that the plan was to eventually inflate the debt away. But maybe that's just cynical conspiracy theory.
Is this a case of people calling wolf or is this a real crisis just decades in the making?
It sounds like the author is nervous about the rise of US debt as well.
PS: Ignore the title
— Gekko, Wall Street 2, 2010
There is a "free debt" component to it which was generated via seigniorage and "real debt" to people, companies and other economic actors. It seems to me that many commenters here see only one part of it.
To illustrate it, let me give you an example how "free debt" 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's central bank (WCB) targets 2% inflation. Also assume that velocity of money is constant and in general people's behave the same in time. This effectively means WCB can "freely print" 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/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's bonds. The new money is effectively introduced as an interest-bearing debt. But please note that this debt is "free" for WG. WCB will never want to repay the debt (by allowing WG'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.
Of course WG can also sell bonds to people, companies and other actors. This debt is the "real debt" which must be paid back. But let's assume WG is prudent and does not do that.
You can observe that WG can continue this as long the world productivity is growing better than -2%
The problem with "free debt" 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 "pump excess currency out of the system" 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's debt).
Of course real world scenario is much more complex than that. And real governments additionally take "real debt" where usual rules apply. The question for us is how big part of those 250T is the "real debt".
5,760,000,000,000 USD, except for the fact that Troy ounces are slightly different than normal ounces. Too lazy to look up.