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The math is simple. The more a country increases its debt to simply stay afloat,
the more like the increasing debt will cause a tightening of credit. The next step is a burst bubble and economic crisis. This is what happened in 1929 and in 2007, and it’s happening now. Past behavior is the best predictor of future behavior.
The original article has been edited here for length (…) and clarity ([ ]) by munKNEE.com – A Site For Sore Eyes & Inquisitive Minds – to provide a fast & easy read.
Global debt has reached record heights without any signs of relief. While central bankers try to explain away the phenomenon of these out-of-control numbers, it’s not much of a mystery. Immediate consumption with the promise of repayment sometime in the future has consequences. Global debt is staggering to the point most of it will never be repaid. Certainly not in our generation. Perhaps by our grandchildren, but as global debt keeps mounting, the picture is doubtful.
The per capita global debt is $30,000. Who, exactly, will be making repayments?
Economists insist that the 2007 financial crisis could not have been predicted yet all the signs of out-of-control credit where there. Today, economists are repeating the same mantra, despite the spiraling world debt. The question is not if the next bubble will strike. It’s a matter of when…
Out-of-control credit will undoubtedly slow down the U.S.’s current economic growth. It probably won’t cause an outright crisis. Other countries may not be as fortunate.
Countries such as China, Belgium, South Korea, Australia, and Canada are experiencing an unprecedented credit bubble, with few systems in place to control it. The resulted inflation or simply write-offs of debts could result in a global financial disaster we have not seen before. The current economic upswing is unlikely to continue.
We may have seen the peak of globalization. Prior to 2007, globalization, the exchange of goods and services between countries, was at its highest level. Since then, globalization has leveled off.
- Emerging countries, benefiting from globalization, have raised their standard of living and cheap goods are no longer crossing borders with the same abandon.
- Countries are instituting nationalistic protectionist measures to protect their own economy. Globalization is giving way to “islandization,” where the movement of capital and good across borders is being limited instead of expanded. This limited global trading, along with rising geopolitical tensions, will negatively affect global economic expansion, while the global debt is still spiraling out of control.
The global economy is also currently suffering from limited growth in productivity. The reasons for this are wide-ranging, from:
- an aging labor force,
- reduced investments,
- neglected infrastructures,
- reduced entrepreneurship
- and the general uncertainty how to resolve these problems.
If a global crisis is to be averted, leaders need to act instead of remaining complacent. Proper skills training and greater emphasis on investments can lead to the productivity growth that can create the global expansion necessary to tame the current debt cycle.
If leaders make the right choices, our grandchildren may not face the economic crisis which currently appears to the only legacy they will inherit.
Related Articles From the munKNEE Vault:
1. History Says Global Debt Levels Will Lead to Another Crisis
Analysts at Deutsche Bank recently released an extensive study that demonstrates the link between debt and crisis. One chart in particular screamed for attention.
2. Record High American Debt Is A Recipe For Disaster!
According to the just-released latest quarterly household debt and credit report by the NY Fed, Americans’ debt rose to a new record high in the fourth quarter on the back of an increase in virtually every form of debt: from mortgage, to auto, student and credit card debt (although HELOCs posted a tiny decline). With interest rates on household credit rapidly rising, and with no savings to fall back on, this is a recipe for disaster.
3. U.S. National Debt: What’s Driving It & When Does It Reach A Tipping Point?
The last time the United States had a national debt level this high (106% debt-to-GDP), it was during the immediate aftermath of WWII in the late 1940s so what’s driving the national debt so high these days and at what point does the situation reach a tipping point that gets people to act?
4. Prepare Your Portfolio From Coming Interest Rate Rises & Global Debt Bubble Collapse – Here’s How
Savers and investors alike need to begin to prepare their portfolios for interest rate rises against a backdrop of crisis-triggering debt levels and unproductive economies. Here’s how.
5. Massive Debt = Dollar Collapse = High Inflation = Likely Depression
The value of a currency is determined by a number of variables. In this article, I will focus on the dynamics of demand, supply, current account deficits, and aggregate government debt.
6. The U.S. Is Flat Broke & Your Personal Share Of the Debt Is $330,000!
We are living in the greatest debt bubble in the history of the world… I am searching for words to describe how completely and utterly insane this [situation] is, but I am coming up empty. We are slowly but surely committing national suicide, and yet most Americans don’t even understand what is happening.
7. To Believe That Debt Has No Consequence Is To Believe In Magic – Believe At Your Own Risk!
America’s national philosophy has become relying on debt to pay today’s expenses. Nothing’s easier than borrowing money, especially at super-low interest rates but believing that debt has no consequence, that the status quo is permanent, that all the promises based on soaring debt can be paid—it’s all an appealing fantasy. Believe at your own risk.
8. Here’s the Timetable For the Upcoming Explosion Of the U.S. Debt Bomb
The U.S. national debt is not a problem, says Gary Shilling, until we either see “a tremendous amount of inflation or a complete breakdown in confidence in US Treasury obligations.” Once that happens, the world’s largest economy is at risk of an exploding ‘debt bomb.’
9. Bank for International Settlements Warns of Looming Debt Bubble
Global debt-to-GDP is now at a record high and the Bank for International Settlements has noted that over the last 16 years, debts of governments, households and corporations has gone up everywhere.
10. Total Collapse Of Our Keynesian Debt System Could Arrive At Any Moment
Our economic system (Keynesianism) is totally broken and invalid for solving our global economic problems going forward because it is a one-way street where debt grows and grows to unsustainable levels. The end game is default and bankruptcy.