15 Feb 2015

Soaring Global Debt Levels - time for a complete rethink of the system

My thanks to the McKinsey Global Institute for a truly remarkable 123-page report called "Debt and (not much) Deleveraging" that came out on the 5th of Febuary. It hammers home a point that was made last year in another report called "Deleveraging? What Deleveraging?" that I mentioned last month. Both reports demonstrate clearly that there is not even a glimmer of light at the end of the tunnel. Debt is going through the roof. When are economists going to admit that the current is unworkable?

The McKinsey Institute is stuffed full of detailed information showing how the debt crisis is just getting worse and worse. Here are some of the most striking findings.

First, here is a graph showing how total global debt has now soared to $199 trillion, up $57 trillion from 2007, and has now reached 286% of GDP.

Clearly, I'm going to have to update my claim in April 2013 that global debt is about twice the total money supply. That calculation was based on a value for total debt of $138 trillion. The debt levels are actually nearly 50% higher than that, meaning that it is even more impossible to pay off the debt than I had thought.

The next graph shows that the total debt to GDP ratio has increased almost everywhere since 2007, with some countries like Ireland showing an incredible increase of over 170%.
Then we have a detailed breakdown of where the debt is located, with separate numbers for Government, Corporate, Household and Financial Sector debt. The countries are ranked in terms of overall Debt-to-GDP ratio.

This makes particularly sobering reading,  but is full of interesting information.
There's another graph showing that, overall, it is governments that have been picking up the tab.

In contrast, you can see from the following graph that the Financial sector has been getting its debt levels down substantially - especially in the USA. Good for them, I suppose.

What can we conclude from this? Well, it looks to me that there is absolutely no reason to believe that things have improved since the crisis. Those responsible for the crisis - namely the banks, have been getting out of the hole that they created. But the overall picture is worse than ever. And above all, it is our governments who have been taken on debt. And that means that taxpayers like you and me are even worse off that ever.

Doesn't all this mean that what we really need is a complete change in the model? We have to completely rethink the way money works. We need a money system that isn't built on debt.

No comments:

Post a Comment