When will the Great Financial Ponzi end?

Value Hunter said:

What on earth are you talking about? You are comparing apples to oranges. You need to compare total debt to total GDP and total debt growth to total GDP growth otherwise it makes no sense. You are trying to compare total GDP to the individual annual increase in debt which is a useless and nonsensical comparison.

What you are saying would be the equivalent of saying "widget corporation has $100 million dollars of earnings and its debt only increased by $15 million this year". Its kind of a meaningless analysis. What would be meanignful is saying that "widget corporation last year earned $97 million and this year earned $100 million. Meanwhile its total debt increased from $300 million to $315 million". The second sentence is a more accurate portrayal of whats going on with global debt to GDP.

You keep ignoring the two key points:

1) Global debt already far exceeds global GDP. Globally total GDP is somewhere around $95 - 110 trillion USD (depending on who's figures you use). While total debt is $300 - $350 trillion USD. And that $300 - $350 trillion figure excludes various off balance sheet liabilities (unfunded pensions, etc). You could argue if you were comparing the total economy to a company GDP would be like sales rather than profit. And any company that has debt which is 3 times sales is generally considered highly indebted. Even debt to EBITDA (let alone debt to sales) of 3 times is considered to be a considerable amount of debt for the majority of companies (although it can be okay for some companies such as utilities, real estate companies, etc).

2) In 2016 global debt was around $69 trillion USD (extrapolated from the graph I posted earlier). So its increased from $69 trillion to the current $100 trillion. That is a $31 trillion dollar increase in 8 years. In the same 8 years Total debt increased from $221 trillion to $315 trillion. That is a $94 trillion dollar increase. So the total debt in nominal dollar terms increased by triple the amount that total GDP did. And it also increased at a faster percentage rate as total debt to GDP increased from 320% to 333% (some other figures from other sources show even higher increases in the total debt to GDP ratio).

So to summarize debt is increasing faster than GDP in both dollar terms and percentage terms. And this has been going on since the 1970s (when the final link to gold was severed and the world moved to a pure fiat standard). If debt kept gorwing faster than earnings for a company in both dollar and percentage terms over a 50 year period it would generally be considered unsustianable (depending on the starting level of the debt) and the same is ture for the world economy.

At this point I am getting tired of dealing with your ignorance, lack of using facts to argue and your lack of logic and constant arguing in bad faith. Its very tiresome.

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You are missing the point that total debt is an accumulation over many years, where as GDP is an annual figure.

Comparing total GDP in say 2024 to how much debt grew in 2024 gives you the most accurate results on your claim that debt is fueling GDP.

For example if total global output this year is $140 Trillion but debt only grew by $11 Trillion this year, then obviously the vast majority of GDP is not related to that increase in debt and that proves your original claim is false.

I am not sure why can’t understand that.

I mean it’s like saying some ones life style is fuelled by credit card debt, because they had $50,000 credit debt. But if they had spent $140,000 that year, and the credit card had only increased from $45,000 to $50,000 then only $5,000 of that total $140,000 spending they did can be attributed to debt, the other $135,000 is genuinely their own output.

given the Global Debt situation currently , the main figure is the interest on the debt ( and can it be serviced in a timely fashion )

chances are many nations cannot service the debt without some refinancing maneuver ( such as increased borrowing , or a pause on interest payments )

and sadly some of those nations are rather large

Value Collector said:

You are missing the point that total debt is an accumulation over many years, where as GDP is an annual figure.

Comparing total GDP in say 2024 to how much debt grew in 2024 gives you the most accurate results on your claim that debt is fueling GDP.

For example if total global output this year is $140 Trillion but debt only grew by $11 Trillion this year, then obviously the vast majority of GDP is not related to that increase in debt and that proves your original claim is false.

I am not sure why can’t understand that.

I mean it’s like saying some ones life style is fuelled by credit card debt, because they had $50,000 credit debt. But if they had spent $140,000 that year, and the credit card had only increased from $45,000 to $50,000 then only $5,000 of that total $140,000 spending they did can be attributed to debt, the other $135,000 is genuinely their own output.

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But in your example what you are not looking at is the long term picture. If that person runs up an extra $5000 of credit card debt every year even though in any given year the deficit is small and most of their spending comes from their own earnings eventually its going to cause problems. If they continue down the same path for another 10 - 20 years eventually repaying the credit card interest (let alone the principle) will absorb a hefty portion of their annual income and they will run into serious problems. Do you think somebody can spend more than they earn into perpetuity? Is that sustainable?

Obviously the total GDP figure is not primarily fueled by debt growth but the growth of GDP is primarily fueled by debt. Without credit growth the economy would have years on end of stagnation. Just look at what happened during the global financial crises. Credit contracted by a small amount but that was enough to send the global economy into a severe recession where many companies went bankrupt and a huge number of people lost their jobs and this occurred because outstanding credit decreased by a few percent (debt deflation) instead of increasing by a few percent.

divs4ever said:

given the Global Debt situation currently , the main figure is the interest on the debt ( and can it be serviced in a timely fashion )

chances are many nations cannot service the debt without some refinancing maneuver ( such as increased borrowing , or a pause on interest payments )

and sadly some of those nations are rather large

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Interest rates are much higher than 3 or 4 years ago and as long term debts gradually mature and get rolled over at the new higher interest rates this will be a huge burden on borrowers. It will also cause government deficits to skyrocket in many countries.

And yes even though interest rate cuts have started on average interest rates over the next ten years will likely be higher than they were over the last ten years.

Value Collector said:

You are missing the point that total debt is an accumulation over many years, where as GDP is an annual figure.

Comparing total GDP in say 2024 to how much debt grew in 2024 gives you the most accurate results on your claim that debt is fueling GDP.

For example if total global output this year is $140 Trillion but debt only grew by $11 Trillion this year, then obviously the vast majority of GDP is not related to that increase in debt and that proves your original claim is false.

I am not sure why can’t understand that.

I mean it’s like saying some ones life style is fuelled by credit card debt, because they had $50,000 credit debt. But if they had spent $140,000 that year, and the credit card had only increased from $45,000 to $50,000 then only $5,000 of that total $140,000 spending they did can be attributed to debt, the other $135,000 is genuinely their own output.

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Obviously the total GDP figure is not primarily fueled by debt but the growth of GDP is primarily fueled by debt. Without credit growth the economy would have years on end of stagnation. Just look at the global financial crises a small contraction in debt crashed the global economy.

Value Hunter said:

1. Obviously the total GDP figure is not primarily fueled by debt.

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Gee, thanks for finally admitting that, why did you make me go through 10 posts before you could admit that?

Value Hunter said:

Without credit growth the economy would have years on end of stagnation. Just look at the global financial crises a small contraction in debt crashed the global economy.

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It’s chicken and egg stuff, a larger economy is going to have more debt, it would be silly to assume the economy globally good double in size without having a doubling of debt.

It’s also silly to assume that you could go through years of low interest rates and not have debt grow faster than the economy,

But none of this even matters to my original point, which was simply that globally speaking net debt is $0, which is not just a mathematical truth, but if you actually spend some time understanding the actual economy, If you are as smart as you think you are, one day you will have a light bulb moment and realise “holy ship, VC is right” until then there is not much more I can say.

Value Hunter said:

But in your example what you are not looking at is the long term picture. If that person runs up an extra $5000 of credit card debt every year even though in any given year the deficit is small and most of their spending comes from their own earnings eventually its going to cause problems. If they continue down the same path for another 10 - 20 years eventually repaying the credit card interest (let alone the principle) will absorb a hefty portion of their annual income and they will run into serious problems. Do you think somebody can spend more than they earn into perpetuity? Is that sustainable?

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Yes, but we are no where near that point yet, where the debt burden would consume all of GDP.

And, we don’t owe this debt to some Aliens from another planet that will kick us out of earth if we default, we owe it to ourselves, and we can write it off, reorganise it, inflate it away, decide to start paying it back or many other options.

As I said in the other post, just spend some time thinking about it for a while, don’t reply straight away, just thinking about it, and if you are lucky you might have a light bulb moment.

It’s a tough spot for sure. The markets are totally disconnected from reality, running on speculation and hope for lower interest rates. It’s risky, and I can’t help but worry it’ll end up like 2008.

Value Collector said:

But none of this even matters to my original point, which was simply that globally speaking net debt is $0,

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A lot of money is loaned or printed into existence which firstly is inflationary and secondly is not real savings (as it would be on a hard/commodity money standard) and thirdly a large percentage of the debt is for unproductive purposes e.g. student loans that will never be repaid, car loans, loans for corporate takeovers, loans for bidding up the price of existing housing stock, etc. I mean sure if the loans were mostly used to fund legitimate business expansion (building new factories, distribution centers, research and development, etc) and infrastructure investment, housing construction, etc it would be a different story. But in the current economy the vast majority of loans are either for consumption or other unproductive purposes. A lot of these loans will eventually not be repaid.

Value Collector said:

It’s chicken and egg stuff, a larger economy is going to have more debt, it would be silly to assume the economy globally good double in size without having a doubling of debt.

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Debt has been growing at a faster rate than GDP for the last 50 - 60 years. E.g. if GDP doubled then debt went up 150%, etc.

Value Collector said:

It’s also silly to assume that you could go through years of low interest rates and not have debt grow faster than the economy,

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Except this ignores the fact that debt has grown faster than GDP for the last 50 - 60 years when we have passed through multiple cycles of falling and rising interest rates so this argument does not hold water.

Value Collector said:

Yes, but we are no where near that point yet, where the debt burden would consume all of GDP.

And, we don’t owe this debt to some Aliens from another planet that will kick us out of earth if we default, we owe it to ourselves, and we can write it off, reorganise it, inflate it away, decide to start paying it back or many other options.

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Debt servicing does not need to consume all of GDP for it to be unsustainable because there are other necessary expenses that also must be paid. For example in the housing market its considered to be "mortgage stress" when a household has more than 1/3 of their income going to service the mortgage because of course they still need money left over to pay for other essentials such as food, water, electricity, transport, medical expenses, etc.

You act as if all of these things are consequence free.

Japan had a massive private sector debt bubble which popped in the late 1980s and their economy has been zombified and low growth ever since (with the government trying to take on huge amounts of debt since then to cover the weakness of the private sector). Start paying the debt back? Just ask the Greeks how their attempt at austerity went post the 2008 global financial crises.

Debt deflation is a real thing and the austerity necessary to pay the debt back can shrink GDP meaning the debt to GDP ratio won't even necessarily fall much if at all putting the country in a death spiral. Just look at when Greece tried austerity as a perfect case study.

You haven't addressed the point I made multiple times that the economy fundamentally went off the rails in the 1970s when the final remaining vestiges of the gold standard were broken during the reign of president Nixon. A fiat economy will eventually doom us all (or at least most of us). You are ignorant of history if you do not understand this.

And if you try to inflate your way out of debt well just ask Zimbabwe, Venezuela, Argentina, etc how that worked out.

If you default on dent your country gets locked out of capital markets for a fairly long period of time.

If there is an unsustainable debt its going to be hugely painful to deal with it and there is no easy way out. Also consider when a debt default or hyperinflation occurs the creditor loses their capital which has ramifications on the other side. Maybe foreign pension funds cannot pay the retirees and so on. A lot of flow on effects you are ignoring.

You seem extremely poorly read and ignorant of history, economics, etc.

I am going to stop arguing with you because I feel like I am losing too many brain cells.

win98 said:

It’s a tough spot for sure. The markets are totally disconnected from reality, running on speculation and hope for lower interest rates. It’s risky, and I can’t help but worry it’ll end up like 2008.

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if only 2008 ... if China is contracting at the same time ( this time ) Australia might not have a good life-line , since our numb-nut leaders haven't been strengthening trading relationships with India ( or even Mexico )



will they cut rates in Australia this year , a cut on Melbourne Cup Day would be unusual , and the RBA still has a little credibility ( jaw-boning room )

i am thinking they will hold for the rest of the year , but i have been wrong before