Global Debt$250 Trillion and Rising
Please note that Global debt surged to a record $250 trillion in the first half of 2019, led by the US and China.
What about Global GDP?
Global GDP
Global GDP Numbers from the World Bank.
To get a $1 rise in GDP it takes about a $3 rise in debt.
Things keep pointing back to 1971.
I have written about the importance of 1971 many times, most recently in Nixon Shock, the Reserve Currency Curse, and a Pending Dollar Crisis
Dollar Crisis
A reader asked the other day what I meant by “dollar crisis“.
What I meant to say was “currency crisis” and the above title is now changed.
Since the dollar is still rising (thanks to European, Japanese, and Chinese tactics), It may take even bigger US deficits before something major breaks.
On that score, both political parties in the US are poised to deliver increasing deficits as far as the eye can see.
Meanwhile, negative interest rates are destroying the European banks. For discussion of this important issue, please see In Search of the Effective Lower Bound.
US Picture
Currency Crisis Awaits
$250 Trillion in debt. How will that be paid back?
I expect an uncontrolled collapse of a major currency, debt market, or bank system that cannot be funded. It is hard to say where it starts but I doubt it starts in the US.
Chinese and European banks are in far worse shape than US banks. European banks are getting hammered by negative rates.
Japan still struggles with decades of Abenomics.
The Fed and Central Banks brought this on by refusing to let zombie banks and corporations go under and insisting on cramming more debt into a global financial system choking on debt.
But this all has its roots in 1971. Central banks are the enablers, but Nixon Shock set things off.
A currency crisis awaits but the timing and conditions of the crisis are not knowable. It can start anywhere but I suspect the EU, Japan, or China as opposed to the US.
Ponder even paying the interest on $250 trillion, let alone the principal. What interest rate will it take?
Meanwhile, please reflect on gold.
Gold is Not a Function of the US Dollar Nor is Gold an Inflation Hedge
In the link below I post charts that make a mockery of the claim gold is some sort of inflation hedge or tied to movements in the US dollar.
But if Gold is Not a Function of the US Dollar Nor is Gold an Inflation Hedge, what is it?
Here’s the answer.
If you think central banks have everything under control, gold is not where you want to be.
If you think otherwise, gold is where you want to be.
Do central banks have everything under control?
Addendum
My friend Pater Tenebrarum at the Acting Man Blog just pinged me with this pertinent thought: “The answer is of course: It won’t be paid back. And since every debt is someone else’s asset, you can imagine what that ultimately means. A great many people are a lot less wealthy than they think. It is all phantom wealth that can disappear in an eyeblink.”
Mike “Mish” Shedlock
I’ve got one problem with your “no one loses” scenario. If I worked and saved $1,000,000 and loaned it to someone who, through poor decisions or bad luck, cannot repay it and declares bankruptcy, I only receive the current value of his assets. Bankruptcy generally occurs during difficult economic times, thus the value of his assets could be down 50% or maybe much more.
Your thesis says that the assets he hands me are somehow “valuable”, and I agree to an extent. That’s the same theory of returning to its rightful owner. But I have lost 50% of my $1,000,000 of purchasing power at the time of the exchange. How do I recoup the $500,000 of lost time and effort that I put into accumulating the $1,000,000 that I loaned the bankrupt? Perhaps the assets will go on to become very valuable, but that’s not the bargain I entered into when I loaned the money. If I wanted equity, I would have made equity investments myself.
I’ve come to the conclusion that if you are a lender, you are in business with your borrower, like it or not. The only borrower who has the ability to pay you back with a guaranteed 100 cents on the dollar is the Federal Government, due to it’s unique franchise ability to manufacture new “dollars” whenever it needs them. Of course, that very ability is what erodes the purchasing power of the currency received.
Question : (and no I don’t think it will be paid back..) but that’s an aggregate number right so couldn’t the actual amount to pay back much less? I.e: if 20 people all were in debt to one another 100k. The first pays off his debt to the second . The second person in turn pays off his debt to the third with the same 100k and on and on . Like the money multiplier right? What am I missing?
SO WHAT ? When you come to think of it, within the context of todays’ ongoing Ponzi scam , the difference between a billion and a trillion is merely TR….innit ?
The gold price reflects the majorities confidence in GOVT, not just CB’s. The Fed could be eliminated tomorrow, but if the same corrupt govt remains, the decline in confidence will cause hording in hard assets, like gold.
Wont be paid back but probably wring us dry in an attempt. I usually turn off the politicians that talk about paying the debt off. What that means is slashing their costs, raising taxes etc in order to prolong the game and keep their sorry ass in a high paying job that much longer along with prestige and limo rides.
“Things keep pointing back to 1971.”
Things in 1971 point back to things before 1971.
In the space.
I believe this: “The wicked borroweth, and payeth not again: but the righteous sheweth mercy, and giveth” (Psalm 37:21). In contrast, most Americans have trusted the wicked, who will not repay. They have trusted the wicked to show mercy and give.
Good analysis and the next question is what will governments and central banks do when something does break?
The two basic choices are print and bailout, or allow the defaults to happen.
My guess it is the former. The problem with the latter is it is easy to see how the real economy just seizes up as all of the banks go down as everyone tries to withdraw what money they can. Without enough money to fund the productive part of the system, the collapse could be society ending.
The problem is that they cant print forever without completely destroying money itself. So that strategy will also need to include bringing about a balanced budget and sensible interest rates, and the end of supporting bankrupt banks. Could anyone trust politicians to do the right thing though?
NO ‘you can t trust politicians to do the right thing’, they are mostly totally worthless, opportunistic profiteers with a short term view, viz the next elections !
You need to think out of box: governments can keep increasing debts forever and do not need to pay back interests and debts! Debts ate just 0s and 1s in your imagination!
And here’s the GDP graph in a less misleading logarithmic form:
What are you going to do with gold when something does “break”? Where are you going to store it? Let others store it? You think governments cant take it? How are you going to use it? Can you eat it? I don’t have good answers to these questions and nor does anyone else when things do come unhinged. It strikes me in a major collapse of debt that the best you could really do would be cold hard cash in a safe in your basement. I like gold, I just don’t know what I would do with it in a world where the rules are made by someone else and assets like gold can be taxed to infinite and/or made illegal. Gold is not a function of the US dollar, nor is it a hedge on inflation. NOR is it a hedge on what governments are capable of.
Power is the only asset really worth anything.
By power, I don’t mean electricity, I mean the ability to force other people to do what you want.
And hence why the class of privileged, commensurate leeches with little else to recommend them, have been at war with the 2nd from as far back as anyone can remember.
“I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”
― Thomas Jefferson
Agreed. I don’t understand why the current banking cartel system based in the BIS cannot simply be wiped out, including much of the City of L and the Fed Reserve and so forth. Just cancel all those debts.
I read years ago that 98% of German tax receipts go to pay debt to the cartels (aka ‘Central Banks’). Arguably the most successful country per capita has to borrow every year to fix potholes and run schools. It’s ridiculous.
Why cannot all this debt simply be wiped out and proper national credit re-established without these cartels?
I’m very surprised household debt grew more slowly than any other category. Corporate debt is my pick for the needle that pops the bubble. Corporations have been borrowing for share buyback and leveraged buy outs. Little new corporate debt is being used to grow the business; therefore, corporate debt is not self-liquidating.
It depends on 250 Trillion WHAT. 250 Trillion grains of sand? 250 Trillion bookkeeping entries? 250 Trillion PonziBlockChainCoins? 250 Trillion Zimbabwe or Venezuelan “dollars”. Easy peasy! Owe all you want, we’ll create more out of nothing – literally since currency is virtual.
Now if they owed more gold than was available in storage, or in mines, or in the Earth’s crust, earth, local planets, within 30 parsecs… it would be a problem. Or if they owed even grains, pure water, or something else tangible.
If an asset can’t be hidden or moved it’s an easy tax target.
Next up, attempts to reclaim some of the value of bid up assets via tax take. Any asset, it won’t matter what type.
Will start with the super wealthy and then slide down to the plebs. Once the genie is out if the bottle there’s no going back.
You can plow your dollars into assets but then you eventually need to cash them out at some point. If it’s in real estate, you may end up getting taxed to death as local pensions become due… try and sell at that point and you have no decent bidders. Physical gold if you can protect it from the FDR type politicians that will need it to back another fraudulent money scheme.
No pitchfork or currency collapse is going to do most of us any good. Rephrasing one of Mish’s axioms about the Fed: every crisis, big or small, is going to be used by the powers that be to transfer as much of the remaining wealth and power as possible to themselves. … The only good way out is for US voters to wake up, end the Fed, balance the budget, and legalize gold as money. The Tea Party movement was handed a golden opportunity to move in that direction, but it’s been 10 years and we still can’t even get an Audit the Fed bill passed. Instead the Fed-government is executing a stealth takeover of the entire banking system, while the whole country is going full libtard and talking about socialized medicine, without even the sliver of courage required the call it that.
Always comforting to think that there really is no endgame here, they’re going to keep printing until the pitchforks and torches come out around the world. Even if they can keep these “markets” green, they can’t mask what’s happening in the real world. So much for the Greatest Economy Ever!
The silver lining is that central bankers won’t let the scheme fail soon, so we all still have time to prepare for the inevitable.
Maybe that’s what the so-called “stock market” is trying to tell us, when its total market capitalization is growing 23 times faster than the underlying economy. There may be a hyper-inflationary event waiting to happen, sometime fairly soon.
Any country whose debt is denominated in their own currency can pay it back….once. They can just issue create new money, and pay it. That, of course, has two ramifications. The first is a huge inflation from creating so much money at once. The second is that no one will want to take debt denominated in their currency again, at least for awhile. The problem is that, unless they are running a surplus, paying it off once does no good, as they will be back in debt quickly, and the next time, the debt will be denominated in something other than their own currency.
As for countries whose debt is denominated in something other than their own currency, when they try to issue more currency to pay the debt, their currency loses value, and they get nowhere. The result is hyperinflation.
It will end the way it always does- with a new currency and with old debt terms rewritten to pay it off at deep, deep discounts.
This is a shell game but most of that debt is already monetized by central banks around the world. The game will continue with central banks taking on more “assets” on their books. At some level it is simply numbers in a spreadsheet and not real money. If any entity ever tried to get its debt out the system there would be multiple bank runs around the world. This is why they limit transfer and withdrawals and continue the repo interventions. The entire global banking system is reliant directly on central banks which have the authority of central governments around the world.
All people have to do is look back at history, even recent history, to see what worked and what didn’t work. I cannot recall even one instance of a debt problem being solved by more debt.
That’s one reason why President Nixon is known as “tricky dick”
I still believe that a potential way out is to go back onto a pre-1933 Gold Standard with Gold re-valued astronomically higher. This would have the effect of raising the general price level significantly, thereby reducing the debt burden on households and governments. I just don’t see any other way.
And then start borrowing like crazy again. Since, after all, the “revaluation” “astronomically higher” is just another way of saying that those who over borrowed got bailed out, and now own everything the over borrowing bought them, without any of the debt attached anymore. Talk about ultimate handout to banksters and other profligates….. And of course, since profligacy worked so well, let’s try again….
The only resolution to a debt problem which can even possibly work, is the only way which have ever worked, for millennia: Simple, old fashioned bankruptcy. Those who over borrowed, get their debt cleared, but hand everything they own over in the process. Those who lent money out, get whatever the debtor owns, but nothing more. Case closed. There are two reasons why bankruptcy has survived in every society ever as a debt reconciliation mechanism: 1)It works. 2)Nothing else does. No childish, naive tricks aimed at avoiding bankruptcy cooked u by some illiterate, self serving thiiiis-tiiime-iiiis-diiiiferent dunce. Nothing!
Hence, don’t revalue. Peg Gold where it was before The Fed, and let the chips fall where they may.
The upside is, and I can;t for the life of me see why this is so darned hard to recognize: No real value is lost in the whole process. No farms. No factories. No roads. No knowledge. No skills….. No Nothing. Society is just as wealthy as before, despite darned near everyone being bankrupted overnight.
All such a bankruptcy of “everyone” does, is get rid of the debt, as well as get rid of all wealth obtain solely on the back of the unsustainable, and per any reasonable definition fraudulent, debt and inflation ramp in the first place.
And since, remember, no systemic wealth is lost, hence every penny the current debt and inflation beneficiaries end up losing, has to, by logical necessity, result in a gain for all those who have not benefited from the debt increase and theft by inflation (there’s Bastiat’s unseen again…..). Which is about as ideal a resolution to the whole mess as anyone could want. At least anyone other than the rabble enriched way beyond their meager talents by nothing more than the debt increase itself, that is.
You know as well as I do that an outright default (as in refusal to pay) is out of the question. The eventual, inevitable default will take place via sudden debasement of the currency.
Let’s just cross our fingers and hope we’re subjects of the Caliphate before that happens. Lesser of two evils and all that…..
The total amount of gold ever mined is estimated at about 190,000 metric tons.
Let’s assume that it’s all available as bullion to simplify the math. Some of it is used in space satellites, or for gold teeth, which makes it unavailable to pay off debts, but let’s keep it simple.
Round it up to 200,000 metric tons to make the math easier. One metric ton is 1000 kg or a million grams. That’s 200 billion grams. Divide $250 trillion in debt by 200 billion grams. It’s $1,250 of debt per gram of gold. The current price is about $47 per gram.
Round that up to $50 per gram to simplify the math. $50/$1,250 = 0.04, or 4% backing of debt by gold, if every gram is used to back the debt. The other way around, it’s about $25 in debt for every $1 worth of gold. Or, we need gold to increase in value by about 25 times to have a match between debt issued and gold value.
In reality, the assumptions made are all in favor of a lower gold price, so the true valuation to get a 1:1 ratio is even higher.
This also only would cover “debits”, and completely ignores all “credits” such as currency in circulation, bank deposits, etc., which should also be covered by a new gold standard.
Is the price of gold a floating price? In which case the market is revaluing it all the time.
Of course it is. Al prices float.
But it is not “The Market” who performs the valuation, as that particular dude only exists in the same universe as Santa Claus.
Instead, ever single market, for every single product in every single situation, independently revaluates the price of money in terms of whatever else is involved, in the course of every transaction.
The reason Gold performs so well in that role, is that this dynamic valuation/revaluation is simplified, hence made cheaper and more accurate, by it existing in a “fixed” quantity, has great divisibility/recombinability, is scarce hence value dense, and is durable.
Old newspaper clippings, with or without Washington’s head printed on them, don’t share all those properties. And are hence grossly inferior when pressed into service as money. No matter how convenient they may be, for that one specific task of robbing productive people for the benefit of useless leeches of all stripes connected to and/or favored by the money printers.
Powell recently testified that the debt does not need to be paid back. The only thing needed is that economic growth of the private sector needs to increase faster than growth in government borrowing, and the rest will take care of itself. He also said it is up to Congress to figure out how to achieve this before the Fed put expires. (The Fed is kicking the can on asset prices with QE and artificially low rates.)
Meanwhile, public sentiment that makes people willing to overpay for richly valued assets using borrowed money is obviously not ever going to shift. So, everything is fine, right? RIGHT?
Government spending is growing 7 TIMES faster than the economy right now. For us to ever “grow our way out of debt” it would have to be the other way around – for decades. So forget it.
I meant my comment to be tongue-in-cheek. Thanks for proving my point.
Debt and interest rates are in a vicious feedback loop. By lowering the interest rates, more debt is piled on, which in turn requires still lower interest rates to prevent this scheme from collapsing. How long can this go on?
True that Nixon started it, but the ball started rolling later under Greenspan’s “leadership”.
Globalization and liberalization of finance made the situation more precarious due to interest rate arbitrage. There’re no lifeboats.
The PT addendum is scarily spot on.
The P.T. addendum is a reminder that “you haven’t made a penny until you sell.”
I can interpret in differently as promises won’t be kept – and lots of folks will be surprised.
Nixon did not start it, he officially recognized what was happening anyway. LBJ made no pretense that he or anyone in Washington was good for US debts.
FDR was the first President to formally default on US debt.
Woodrow Wilson and Teddy Roosevelt created both the Fed and income taxes.
That’s what I was thinking: it will never be paid back (as in, down to nothing). It’s really just a big Ponzi scheme, borrowing new money to pay off the old debts. It is kicking the can down the road. It is making it someone else’s problem in the future.
la la la
“Gold is money. All else is credit.” – J. P. Morgan
Apparently, J.P. Morgan has not read Bernanke. GOLD IS NOT MONEY.
Youtube link Paul vs Bernanke (2011): https://www.youtube.com/watch?v=NQc8iPxG8v4
Bernanke is a monetary crank, flim-flam man extraordinaire and charlatan, as you well know. Thanks for the laugh, though.
Ben Bernanke – Gold Is Not Money
Ron Paul – but why central banks hold it ?
Ben Bernanke – well it’s tradition long term tradition
I tend to agree with Bill Still on gold. While gold is likely to rise dramatically should fiat currencies fail, an event that I have come to believe will be a controlled event anyway, it is an extremely finite commodity which means that it can easily be manipulated especially by the owners of the world’s private central banks who have unlimited funds.
250 trillion in debt on one side and 250 trillion in assets on the other. Overall world debt is owed to the world. It’s not like another planet has loaned the money and is going to collect. If some of the debt is bad then the lenders will suffer. I don’t see how the total matters at all. Each individual debt has very different risks associated with it. This makes the case for less integration of economies.
#MMT
I admire your confidence in the USD. I’m not very keen on fiat currencies in general but wouldn’t want to choose one over the others.
Intriguing. Thanks, Mish.
Could you explain the $250T vs $72.8T?
How much of the global debt is USD denominated?
Chinese debt is mostly in yuan, EU debt mostly in Euros, and UK debt mostly in pounds, etc.
My understanding is those are dollar equivalents at current exchange rates. I have not seen additional breakouts but perhaps they exist somewhere.
If the central banks in other countries are offering negative interest rates why doesn’t the US just borrow $22T from them? The other question that seems never to asked is why should we pay back the debt? Those who lent the money created it out of thin air after all. Why pay debt on what really amounts to counterfeit money. Why can’t the US Treasury print debt free money? I never seem to see the “experts” address this.
You mean like a “perpetual non-maturing zero-interest Treasury Bill in whatever amount is needed whenever”?
Such a move would lead to a complete loss of faith in credit, as debt free money would imply that the money has no value. Creditors would run for the exits tanking the whole market.