Today we learned from the IMF that World Debt Hits $152 Trillion.
That’s a record breaking amount. It’s also more than two times the size of the entire global economy.
The problem is: It’s simply not enough.
How do I know it’s not enough? Paul Krugman, Larry Summers and other Keynesian economists tell us that.
Not Enough Debt
Paul Krugman tells us Debt is Good.
Krugman says … “Believe it or not, many economists argue that the economy needs a sufficient amount of public debt out there to function well. And how much is sufficient? Maybe more than we currently have. That is, there’s a reasonable argument to be made that part of what ails the world economy right now is that governments aren’t deep enough in debt.”
Too Much Savings
Larry Summers speaks of The Age of Secular Stagnation.
Summers says … “The core problem of secular stagnation is that the neutral real interest rate is too low. This rate, however, cannot be increased through monetary policy. Indeed, to the extent that easy money works by accelerating investments and pulling forward demand, it will actually reduce neutral real rates later on. That is why primary responsibility for addressing secular stagnation should rest with fiscal policy. An expansionary fiscal policy can reduce national savings, raise neutral real interest rates, and stimulate growth.”
There you have it. Despite being $152 Trillion in debt, we actually have too much in savings.
How Much Additional Debt Do We Need?
So, how much debt do we need? It’s hard to say. Perhaps another $200 trillion would be enough. To be safe, perhaps a quadrillion dollars in new debt is necessary.
Then again, perhaps Krugman and Summers are trapped in academic wonderland or some alternate universe.
Those in the real world may wish to consider the distinct possibility debt is the problem, not the solution.
Mike “Mish” Shedlock
I just love the “secular stagnation” excuse. To paraphrase Jeff Deist from the Mises Institute last week, these “economists” like Krugman and Summers don’t understand what money is, they don’t understand what interest rates are, they don’t understand what inflation is… and so they are completely helpless to explain the business cycle. It’s just a mysterious force that they don’t even have the tools to analyze. So they come up with this silly “secular stagnation” notion, which is basically saying, “We have no theory whatsoever to explain the reality we are seeing, so we guess that things will just generally be bad for some unknown reason.”
“How We Lost Economics”
Money is an accounting scheme-which the financial system uses to create wealth-which is primarily used to make the wealthy wealthier.
Money is also asset valuation, especially when you lever against it and derivative it 100x over. Everything is money if it has street value. Bonds,babes, BBQs, homes, cash, derivatives and all sorts of shit.
So, we need more and more debt(which is essentially money in this accounting reality) to drive up asset values so the rich can buy asset then loan money to someone else to buy said asset at a higher price>receive interest(which is even more money.)There is no end to this cycle…except a really BIG reset, which is what your garden variety economist fears to death.
So the banks of the world say we need another 300 trillion in debt(money) to ramp up asset value loss so banks can unload their garbage on people at a profit. The problem for banks is their casino assets have no inherent value and if the game stops they owe too much money on nothingness
Those persons are motivated to bring the country down and make it another third world country, it is quite clear they hate this country. Should be jailed for promoting treasonous ideas and policies IMV Their policies are so blatantly foolish, they depend on the uneducated populace to swallow them whole Yet these are the people the Dems elevated to policy positions
why not double it a couple more times before the jubilee?
Some errors are so ridiculous that they can only be made by those in the desperate grip of ideology too important to be checked against reality.
It’s obvious that this debt will never be repaid and it was never intended to be. So tell me the difference between borrowing and spending and just printing and spending. One, there is no debt repayment overhang and two, there is no tribute paid to bankers for creating money out of thin air to provide us with the use of our own currency.
The only benefits are obfuscation, and that it allows for a scheme where a select few (banks, “leaders”, the previously wealthy and connected, and those closest to them) benefit disproportionally.
outstanding presentation. it’s nice to have a movement that recognizes how the world of social economics works or should work, but even if we get young properly educated economists into politics (where the change would have to be adopted and perpetuated), they will have a great deal of difficulty overcoming the perverted lobbyists and corprotacracy structure that rules the world today….maybe.
You’ve got to believe these Nobel prize winning eCONomists. They really know their stuff.
Just an afterthought; why wasn’t the magic spreadsheet creator, no cash, K. Rogoff included?
Rogoff’s spreadsheet error is a minor point. More important is that he has zero grasp of deficits, debts, etc.
But wasn’t the magic spreadsheet that self-corrected for errors about specifically about government deficits and debt?
Debt IS money. Every printed and digital dollar is money from nothing, but directly money from debt. Fractional banking’s purpose is to create money. They CLAIM that this debt for money is a growth scheme, yet we see as the debt is created, some are getting substantially richer for it, specifically those with the closest relationship to the source (the first ones to get their hands on it). Most recently, that “new” money has gone straight into the most wealthy’s hands (bankers and financial investment companies).
So, this money that has been created through debt has left this nasty little token of indebtedness that someone still has to take responsibility for. For those who use it to buy real assets, the inflationary aspect of increased dollars translates into higher dollar valuations and has real assets to show for it. For everyone else who simply borrows to consume, that debt stays on the books and grows as any real asset value dissipates. If all of our created debt, and its corresponding money actually represented real assets, productive assets that retain value, the debt would be somewhat irrelevant, but instead we find ourselves with effectively “consumer debt” that is uncollateralized with every rising carrying cost. Yes, interest rates are currently low, but the pure weight of the debt is a cost of it’s own. Increasingly we have one small group holding the assets and the rest holding the debt. Government spending and its resultant debt is almost ALL uncollateralized debt and ALL of it is on the population’s back, most with no real assets to balance against….and it is growing like a malignant tumor. We are now creating debt to service debt…Chinese style.
That all said, I fail to see how anything could go wrong.
You’ve all heard this on by the millennial down the street that’s living in his mom and dad’s basement:
“Well, the payments are only…”.
The magic of currency marketing have replaced our value system of money.
I notice Krugman isn’t even talking about the remote possibility of paying back any debt during his lifetime. He will spend like a teenage girl in a mall with daddy’s credit card — some future generation will have to make the sacrifices / austerity to pay the debt back.
Krugman is a deadbeat and a coward. Shame on everyone who thinks this behavior is acceptable.
The fact that Krugman doesn’t mention repayment in the above short quote does not mean he’s never addressed that point. If you study this subject, you’ll find that repayment is a total non problem.
Of course, if you have no intention of ever repaying BECAUSE YOU ARE A DEADBEAT, than repayment is not an issue. Its more a problem for future generations who inherit the debt from your assinine, selfish decisions
Stealing from babies is not something to be proud of
The inheritance of debt would not be nearly so bad if they were also inheriting assets as well, but they are not.
My parents built a nation that I inherited that had real value. I as a boomer am not leaving nearly so much. I personally have tried to be debt free as possible, but the thought of my passing, leaving a national debt in the tens of trillions gives me no satisfaction at all. Especially with the knowledge that not only was the money wasted, but it was spend specifically on destructive agendas, internationally, “interventionally”, and domestically through malinvestments and more importantly education/indoctrination to create a population of entitled self hating slackers who will be mentally incapable of anything productive regarding sustaining this country or even their own existence.
It feels like people are willing themselves out of existence, absorbing this notion that Humans are a virus on the planet that needs eliminating. We are to stop reproducing and promoting our own cultures, instead importing retarded and many times violent and prehistoric cultures from around the world to replace us. We spend billions to prevent our own population growth while saving the starving children of Asia and Africa, as well as any other failed nation state/culture with exploding populations…convinced that their circumstances are our creation and responsibility. We are lead to believe that our self sacrifice is our only path to salvation, almost Islamic style, only lacking strapping on an explosive vest to expedite things. For those not fully imbibed with this koolaid, it is depressing, having an even greater downward drag on our world.
Too dark???
You think money was spent that was not there, but in fact all of that money was saved and deposited in a savings account with the US government (bonds) by people who couldn’t think of a better place to stash their cash. Apparently there are no investments which could increase future production and a better yield. All these bid sky high assets will gradually deflate as the bulge in the demographics liquidate them before passing away.
$152 trillion?
Nah.
Much higher than that.
Bankers want to print debt to the moon because this enriches bankers. However, printing credit is bankers confiscating purchasing power from the people. How can people buy what is produced if their wages and pensions don’t buy much? We need a gold standard to protect us from bank printers. Conflict of interest prevents most bank funded economists (research grants, speaking fees, etc…) from advocating alternatives to debt.
Mish is talking about GOVERNMENT debt, not private debt created by commercial banks!!!!
Government debt is paid by the people in form of tax increases, salary cuts or inflated purchase power.Take your pick.
Nope. Try again.
“At 225 percent of world GDP, the global debt of the
nonfinancial sector—comprising the general government,
households, and nonfinancial firms—is currently
at an all-time high. Two-thirds, amounting to about
$100 trillion, consists of liabilities of the private sector”
http://www.imf.org/external/pubs/ft/fm/2016/02/pdf/fmexs.pdf
The inmates are now running the asylum.
I have a degree from Harvard and recommend a minimum debt level of 1520 trillion….When do I get my Nobel Prize?
They are printing those up as soon as they get done with this last run of trillion dollar bills…..
One day ‘Reversion to the Mean’ will be the scariest ride at the amusement park.
They don’t call it “mean” for nothing.
While the arguments about too high debt is well understood by now, why is there no mention of the actual amount by way of Global savings.
If we are comparing Debt to Savings and concluding that there is too much debt, shouldn’t we also not be mentioning savings and creating a new ratio of Debt to Savings and trying to form some sort of correlation of Debt, Savings and economic performance as a derivative of movement between the two?
Just wondering whether we are looking at only one side of the argument and missing out on the relationship between Debt, Savings and the combined effect on economic growth.
One would assume that for each dollar of debt there would be a corresponding dollar of currency created as well. This currency should reside somewhere and I would think it would be considered “savings” where ever it is. That’s a theory. What is real is much harder to determine. Accounting at this level is highly ethereal and probably can’t afford much scrutiny. Our reality is that we know there is massive debt, held by whom, I don’t know. I think in theory it was supposed to be held by us, in the form of government bonds and such, but I think those bonds are likely concentrated in relatively few hands today, many outside our borders. This is the big question, to whom are we in debt to, and exactly what are the terms of our debt? I mean, who calls the note? If we simply owed it to ourselves…as a collective, then in theory we could just forget the whole thing…like the money I loaned my wife or kids. But I don’t think China or Switzerland or Saudis are good with that.
Too much savings? Only someone as detached from reality as a phd economist could think something so absurd.
You overestimate your ability to see reality. You think the stuff that effects you in particular (how much you have left in your checking account after you did happy hour last night, for example) is also driving the world. For example, while you fret about whether there’s too little or just enough money in your savings account for a ‘rainy day’, sovereign wealth funds, private hedge funds and other vehicles have trillions of dollars sitting in paper assets. It very well can be you in particular would do better if you double your savings while at the same time the world as a whole might be saving at too high a rate.
If your slaves have savings, they may no longer be willing to work quite so hard, for quite so little. To much of that stuff, and they may think of getting uppity.
Much more convenient they are deeply in debt. in this day and age, it’s much more politically correct to force them to work for pennies that way..
Actually, debt was also praised in primitive communities without a monetary system: you are indebted to your mother who breast-fed you, you are expected to provide for your parents in old-age, as they provided for you when helpless, you are indebted to anybody who saved your life while hunting or in war, as they are to you for lending them food and help when they needed it. The longer you lived, the more debts you owe and are owed. The more everybody in the community is in each other’s debt, the closer knit the community. The only people who would try to get out of debt are those who want to extricate themselves from the community. Only in death are the debts owed and owing discharged, as your balance sheet reverts to zero.
Can’t see “pulling demand foward” to boost economic activity ending well there in the village.
Sorry junior, we drank your milk 5 years before you were born.
Don’t bother about the barbarians either.
We blew the wad fighting pretend ones 20 years ago to “kickstart ” the economy.
You’re talking about pulling supply forward.
“Sorry junior, we drank your milk 5 years before you were born”
Errr no, that would be pulling supply forward, not demand. You can’t pull supply forward unless you have a time machine.
It would be more like:
“Sorry junior, I can’t give you milk because 5 years before you were born I borrowed $20 from my buddy to drink beer, now I have to pay him back.”
“Hey, everyone, drinks on me I got my $20 back from my buddy from 5 years ago!”
Instead of supply milk the economy supplies beer. But nothing has really been ‘pulled forward’
So, when Obama dies, poof goes the debts he ran up? Don’t recall that happening wrt Reagan….
The crucial difference between what you are describing and today’s extortion racket, is exactly this: In civilized societies, YOU, not other people’s children (nor even yours), are responsible for the debts you incur. In hellholes like ours, Krugman gets to spend borrowed money on finery to prance around the world in, while someone elses kids has to toil away in coal mines to pay for it.
As I like to quip; the only people responsible for a given debt contract, are the ones whose signatures are on the loan document. Noone else. That’s it. Period. Stick to that, and all current and future debt “problems” are pretty much non problems.
Explain that to me. Let’s say today the gov’t taxes Krugman less and instead borrows $100B by selling bonds. But the Fed comes along and buys that $100B by printing money.
Thirty years from now poor Stuki Jr. toils in a coal mine and pays $100B in taxes because those bonds are due. Ohhh wait, the Treasury collects the $100B but pays it to the Fed since the Fed brought those bonds decades ago. But the Fed is owned by the Federal gov’t so it’s profits revert back to the Treasury….so the Treasury gets the $100B back anyway so there’s no need to tax Stuki Jr.
So explain this idea of yours again by actually tracing the path out precisely.
At what point does the US face a currency debacle under your scam?
Suppose the Fed is printing too much money. Value of US dollar goes down, the price of US goods and services is cheaper relative to other nations, exports go up. Imports (because stuff from overseas is now more expensive) go down. Employment goes up, all else being equal gov’t borrowing will start to fall since this means more people paying tax, fewer collecting unemployment etc.
You will also see interest rates starting to go up as well followed down the line by inflation.
But the point of my hypothetical was to explore what exactly is behind the explosive nouns tossed around here (scam, slavery, etc.) and how that exactly makes any sense given the dynamics involved.
For example, if someone is a slave that means they have to toil for someone else’s benefit. Who exactly is it? If tomorrow someone’s kid will toil in a coal mine who exactly is getting the coal? The Federal Reserve?!
“You will also see interest rates starting to go up as well followed down the line by inflation.”
How / why would interest rates go up?
You’ve intimated Federal Reserve will buy it all into perpetuity (keeping rates down).
So, now you’re saying FR will draw back at some point? … When Fedgov debt is $30 trillion? $40 trillion?
If we go down the road you’re talking, the Federal Reserve will NEVER be able to draw back (no way US will be able to service public debt unless there is a massive tax increase which will wreck economy) … and at some point global “investors” will realize no turning back and $US will crash.
The reason $US strong now is that other countries doing worse (for now) and belief that current debt level manageable.
No Thanks to the scam you’re selling (living beyond your means).
First, at the moment the Fed not buying longer term US treasuries. They are sold at auction in the market and new and older long term treasuries trade all the time. The market is perfectly free to start thinking inflation will rise and/or the value of the dollar will fall in the long term and that would result in interest rates rising. The fact that we don’t see this indicates a lack of evidence for the assertion we may have ‘too much debt’.
Second, just suppose hypothetically the Fed wanted to force down all interest rates *no matter what*. What would happen? Well the Fed could declare all Treasuries will trade at 0% interest and then print as much money as needed to buy them at par value. If the market thought this would make the dollar worth less, holders of Treasuries would sell but the Fed would keep buying and printing until the Fed owned the entire US debt.
But there isn’t a single interest rate, in fact there’s as many interest rates as there are borrowers. Every corporate bond, every auto loan, every loan is its own interest rate. So while the Fed could print and buy up the entire Federal debt, investors would demand higher rates for all those other loans since they would be assuming future dollars will be worth a lot less so more dollars will be needed.
So no the Central Bank doesn’t magically set interest rates. Even with the magic printing press.
The Fed makes no “profits” on the bonds it purchases. If you’re talking about the interest earned, you’d have to discount it with the prevailing “market rate,” which for “risk free treasuries” result in, at best, no “profits.” In reality a loss, since the Fed’s buying ends up lowering the yield to below what the non intervention, neutral rate would have been. IOW, the Fed overpays, hence takes a loss. On purpose. So, aside from the Fed perpetually rolling the debt over, it will have to be paid back (or defaulted on.)
But that’s just formality. Looking at the fundamentals, Krugman gets to spend $100 million on, say, self promotion. Then comfortably go die to the choir of all the glorifying speeches $100 mill in self promotion buys him. But spending $100 million on self promotion, does not make the total economic pie any larger. Hence, someone, somewhere will have to shoulder the burden of creating a corresponding $100 million in value, without receiving the benefits of that work. Whether the $100 mill that is handed to Krugman, is “printed” or “borrowed”, is irrelevant. Neither creating a loan document, nor drawing George Washington’s head on paper pieces, creates any actual value. And neither does the process of handing a stack of paper to Krugman. So, the size of the pie stays the same, but Krugman’s slice just grew by $100 million.
If “paths” were as easy to “trace” “precisely” as your strawman’ish example seems to insist it should be, not even our current, post 100 years of progressive indoctrination, “citizens” would fall for the scam. But the beauty of confiscation by inflation, is exactly that it is virtually impossible, in anything but the most simplistic and contrived worlds, to precisely trace down the exact amounts any one person ends up having confiscated to fund the debasement that benefits some other. But by instead stepping back and looking at the forest, it’s trivial to see that X dollars printed does not increase the total size of the pie. Yet it obviously does enlarge the slice of those receiving the fresh print. Hence, those not receiving it, are necessarily having their slice of the constant size (I’m being generous…) pie shrunk.
As for why slavery is an apt term, imagine Mr. Goldman paying you to do work for him, and Mr Sachs collecting a share of that salary in rent in order for you to have a roof over your head. You’re saving up to buy your own place, and start your own business, so you don’t have to work for the benefit of Goldman and Sachs anymore. But for every penny you get paid, Goldman and Sachs simply prints up a dollar, of which you receive one penny. Then, as your savings grow, Sachs keep outbidding you for every house you are looking to buy (easy to do, as he gets 99c for every one of yours…), and Goldman does the same for every piece of office lease and equipment you need for your business. So, you end up stuck toiling away for Goldman and Sachs, despite nominally getting paid, yet still getting nowhere as far as buying your freedom goes.
First, the Fed makes profits from interest earned on the bonds it holds. The Fed’s expenses are very small (some office buildings, salaries, etc.). Revenue less expenses = profits.
More importantly, when the Fed creates money it creates it out of nothing so follow your example through:
1. Congress gives Paul Krugman $100M, it sells a bond in the market to get the cash.
2. The Fed buys that bond because it has decided to create money.
3. The Fed decides to hold that bond to maturity. Ten years later the bond is due and Congress, let’s say, decides that year to balance the budget so taxpayers ‘slave’ to pay the taxes necessary to retire that bond.
4. The Treasury sends a $100M check to the bond’s owner, since this bond is owned by the Fed, the Fed now has $100M cash plus any additional interest cash it got all along from holding the bond. Let’s say $105M in total. But the Fed doesn’t want to decrease the cash in the economy by $105M. So the Fed now has to put $105M back in so again where is your slaving away?
“How do I know it’s not enough? Paul Krugman, Larry Summers and other Keynesian economists tell us that.”
Well we could look at the market. Interest rates on all terms are rock bottom, which indicates the market does not want more savings but more borrowing is cheaply had.
“Those in the real world may wish to consider the distinct possibility debt is the problem, not the solution.”
Let’s imagine debt is the problem. The market would demand higher interest rates for debt, so where’s the evidence?
Ohhh you say Central banks are holding rates unnaturally low. No that is actually impossible. If it was possible there never could have been hyperinflation ever in history. If the market thought central banks were producing money recklessly, they would simply raise interest rates on everything but what the CB’s are targeting.
So perhaps you could say debt is a problem if you mean saving should come down….but then how exactly do you make that happen?
Who is the creditor?