Monday, October 27, 2014

Global Debt Grows Exponentially While The Income To Support It Does Not

Excellent visual below posted this past weekend at Mauldin Economics showing the growth in global debt to GDP over the last 12 years. While we often focus on the worst offenders here on this site (Japan, U.S., Europe, UK, China) which are the most likely to have a debt crisis/implosion first, it is important to remember that the debt binge that has taken place since the start of this century has been a truly global phenomenon.

Global debt to GDP has grown from less than 165% to over 210% in just 12 years:


If you borrow money today you must sacrifice in the future when the debt must be repaid. Borrowing money turbocharges present growth at the expense of future growth. We are 75 years into the current debt super cycle so many believe it is impossible for a developed economy to face a real debt crisis (2008 was concentrated in just a small sector of the global debt market; U.S. subprime housing).

My guess is there will be a severe crisis from one of these major economies in the next five years:

1. Japan (government debt)
2. China (corporate/real estate debt)
3. Europe (government/financial debt)
4. U.S. (government debt)
5. U.K. (financial debt)

I think the likelihood of them occurring are listed in the order above, but on paper every single one of those debt categories should implode tomorrow morning. The only thing that has stopped that from occurring has been the ability to continuously roll the debt into new loans at lower interest rates. This has been supported by the central banks around the world and investor willingness to continue to buy today and hope there will be a greater fool tomorrow waiting to offload the debt.

For more see:

What If The Stock Market Fell & It Did Not Recover?

3 comments:

  1. There is the Macro view. Period! Nothing else needs to be said. The end result is written.

    I have been reading your articles for years. I have learned a lot and an very thankful for your work and contribution.

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  2. You are welcome. It makes me happy to hear from people around the world that continue to learn from the info here at the site.

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  3. Yet this post is based an an assumption that the debt must be paid back. Or that a crazy idea could not be conceived to make the debt easily relatable...

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