20 Mar 2013

Private sector debt : $25.0 trillion (US), €15.7 trillion (EU) and £3.2 trillion (UK)

(NOTE added 27th March 2013 : Due to a weird error in the way Excel handles dates, the graphs I originally presented were offset by four years, and so the values were actually those for the end of 2008. Sorry about that. I've recalculated the graphs and discovered that private sector debt has since levelled off, and even dropped slightly in the US and UK. A beautiful demonstration of how the crisis has crippled the economy).

On the 18th of March, the Bank for International Settlements released a new dataset that compiles figures on Private sector borrowing in 40 different countries. There's a webpage about it here. It's an impressive set of numbers that can be downloaded as an Excel file here. And there's a document that goes with the data called "How much does the private sector really borrow - a new database for total credit to the private non-financial sector".

I took the numbers for the US, the UK and the Eurozone countries for which figures are available, and plotted how the numbers have increased over the years.

For the US, where the figures go back to 1952, you can see that the increases has been totally spectacular. The level of debt has doubled in the space of 9 years to reach a peak of £25.2 trillion at the end of 2008. It then dropped a bit and has since increased again to reach $25.0 trillion at the end of the third quarter 2012.

For 12 of the Eurozone countries, where the figures go back to 1971, you can see that again it only took 9 years to double the amount of debt, reaching an impressive €14.3 trillion at the end of 2008. Since then, the amount of debt has increased more slowly to reach a total of €15.15 trillion at the end of the 2nd quarter 2012 (15.69 trillion if all 17 countries are included).

Finally, for the UK, where the numbers go back to 1963, it's a similar story except that it  only took 7 years to double the amount of private debt in the run up to the peak of £3.18 trillion at the end of 2008. Since then, it has been wobbling around, with the latest value of £3.12 at the end of the third quarter  2012.

Impressive. And when you think that all that debt has interest charges attached, is it any wonder that the entire global economy is on its knees. Lets be generous and assume that this debt is only being charged compound interest at 5% per year. Even on that figure, it means that in the US, about $1.2 trillion is being paid out by the private sector (households and companies) to the financial system every year. In the Eurozone, the figure will be around €800 billion a year. And in the UK, we can assume that the number will be £150 billion.

And that's without taking into account that a lot of the private debt is on credit cards that will happily charge up to 20%. And some of it will be debts toward payday loan companies that can sometimes charge over 14,000% interest.

It goes without saying that this insanity has to stop. Remember that the banks that lend the "money" to the private sector don't actually have the money to lend. They create it out of thin air, and then have the nerve to charge interest.

But they only do that because we let them. Money creation should be done Debt-Free by central banks. If the system is not changed, then those three graphs will just keep on going up and up. As will the graphs for the other thirty odd countries whose private sector debt levels are detailed in the BIS dataset. Nobody is going to get out of debt. Not individuals. Not companies. And not even governments.

It is time to change the system.


  1. Thanks for the graphs Simon. They look kind of exponential don't they ...?

    Are you in a position to plot debt against GDP? (or show GDP on the same graph, or however you would prefer to show it? Debt to GDP ratio, perhaps.

    Playing devil's advocate for a moment: although making money-creation debt-free would be a good thing, this would not of itself do away with private debt.

    Best wishes, Mike Ellwood, aka Montmorency

  2. As a fraction of GDP things seem more balanced, but still we see a large increase recently.
    Too much cheap borrowing and too many people doing it without thinking.
    See the movie "Queen of Versailles" then you realize even billionaires borrow like the bottom portion of the populations...

    What do you propose Simon? Convincing people to stop borrowing?
    I say that if even 30% interest on credit card did not stop that, than what will?

    Too bad some people are sucked into it because the lose jobs or for health reason here in US.

    Borrowing need to be regulated, interest has to be very low especially for low-income people...

  3. Actually, the paper from the BIS that accompanies the dataset has some graphs of Private debt to GDP ratios. It's Graph 1 - which shows that in advanced economies, the mean ratio is about 150% of GDP, but that in the UK, it is over 200% and over 300% for Ireland. Other countries also have high values - Denmark and Sweden are both around 250%, Norway and Switzerland around 200% and Japan around 160%. Multiply those numbers by the average interest rate and you get an idea of how much of GDP is going straight to the bankers and their allies (politicians, economists, journalists.....).

  4. Hmmm - what would I do? Well, lots of things. I would make creating money as interest bearing debt a criminal offence. I would make all money creation debt free and the responsability of Central Banks. I would allow Central banks to provide newly created money so that elected governments can spend the money directly into the economy by financing infrastructure, but also public sector salaries and pensions. And I would maybe specifically target using newly created debt free money to pay off the debts to the banks. Give everyone who can show that they are paying excessive interest rates £1000 a year to pay off debt (not borrow more money). I could probably go on.... but that's not bad for starters ;-)

  5. Thanks for the graph pointer Simon.

    To Eugenio's 30% comment, I believe it has been shown that interest rates generally do not have a good correlation with money supply or growth, even if the conventional orthodoxy for a long time has said that they do. I don't see why the same should not apply to credit cards.

    The only way to control credit card borrowing is direct controls - of available balances related to the person's income and other outgoings. Of course people under pressure will be tempted to use them, but the way they work means that it's far too easy to make a bad situation worse. What seems to be a lifeline ultimately drags you under, and you don't realise until too late.

    Personally, I think they should be banned.