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Old 01-15-2020, 02:48 AM
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Global Debt


Excuse my ignorance- if Global debt is at record highs, who is it owed to? Is it all owed to oil rich countries?
https://edition.cnn.com/2020/01/13/e...ord/index.html
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Old 01-15-2020, 05:43 AM
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NET debt — moneys owed by debtors minus moneys owed to creditors — is still ZERO. Perhaps this will give you a sigh of relief!

Who owes the debt, and whom do they owe it to? General Motors owed $27 billion to bondholders, who forced GM to file for bankruptcy. AIG, on the other hand, was owed $57 billion via AAA-rated mortgage tranches and was forced into bankruptcy when those investments soured.

It may not matter much if some rich Americans owe money to other rich Americans, but what if the debtors are poor? What if big American businesses owe money to big Japanese businesses?

U.S. corporate debt is now at record highs. If business conditions take a turn for the worse — e.g. if war causes a petroleum price hike — bond ratings will fall, and those businesses will need to pay higher interest rates to renew their loans. Profits will fall, stock prices will fall. When the next recession hits I expect governments to use devaluations or deliberate inflations to reduce the damage. The global financial system is increasingly fragile, and the high debt levels reflect that.
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Old 01-15-2020, 05:59 AM
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Global debt will always be reaching 'record highs'. When any country starts to experience 'deflation' (prices dropping) they take measures to get bach to inflation. This means that prices and costs are always rising which automatically increases debt.

As an individual, debt will rise and fall according to one's own circumstances - high when you are starting out, with a big mortgage etc, and low when you retire, with the house paid for and all the credit cards cleared. If you average this out across your locality there will always be people in transition, but as house and land prices continue to rise, so will the total nett debt.

Moderate inflation is generally considered to be A Good Thing. To paraphrase Orwell - Inflation good; deflation bad.

Last edited by bob++; 01-15-2020 at 06:00 AM.
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Old 01-15-2020, 08:41 AM
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I believe one must distinguish between private debt, corporate debt and state debt.
Private debt is mostly local: it is owed to banks. That includes mortgages, credit card debt, consumer credits... In the worst case, it is owed to loan sharks. YMMV
Corporate debt can be owed to banks as well, but when the amount gets higher it is mostly financed through the emission of corporate bonds. Banks are usually the intermediary here, the bonds are traded on the stock exchange and depending on the assumed credit worthiness of the firm issuing the debt (its rating) it is bought by funds, who repackage it and sell it on, by insurance companies who need reliable flows of income (they have a problem today with zero rates), pension funds (401k and the equivalent in other countries) and particulars ("If you want to eat well, invest in stocks. If you want to sleep well, invest in bonds" said André Kostolany before the advent of zero rates).
Countries finance themselves with bonds as well, in the USA they are called Treasuries. Who buys those bonds varies a lot from country to country. Japan has an enormous debt burden, about 200% of GNP, but it can afford that because most of it is owed to Japanese citizens and Japanese banks and insurance companies. That also reduces its exposure to currency fluctuations. Spain sells a lot of its debt to Spaniards, an investment it encourages with tax breaks. The USA owes a lot of its debt (Treasury securities) to China, but also to the Fed (Quantitative Easing, some consider this fiat money and claim it has no backing, is thus inherently unsafe). Some US debt is in the Social Security Trust Fund. Funds, insurance companies and private citizens also bought US Treasuries. Saudi Arabia is not debt free, its debt stands currently at about 20% of GNP, it was practically nil in 2014. The economic situation can change quite fast. Argentina has enormous difficulties financing its debt because of its past record of defaults, therefore it has to offer very high interest rates to its creditors. It owes a lot of its debt to the IMF. Check NML Capital Limited as well, they bought a lot of the debt at steeply discounted prices during the crisis and are lobbying hard to avoid a restructuring (i.e., they want Argentina to pay the full nominal value at maturity). A further problem for Argentina is that its debt is denominated in US Dollars, so devaluation of the peso makes the debt burden rise in domestic terms (see "up shit creeck without a paddle" for more details). Every country is different, but none that I know of is debt free. There is no reason for a coutry not to make debts, debts are not bad per se, only when they become too high they turn into a problem.
Interestingly, the world as a whole has a considerable deficit, so the thesis that debt is owed by extraterrestrials would seem to have some merit . But that is more likely to be the result of shady or sloppy accounting, where imports are declared as expenditures for tax purposes but exports are not reported as gains.
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Last edited by Pardel-Lux; 01-15-2020 at 08:42 AM.
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Old 01-15-2020, 10:21 AM
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Let's dispose of some confusions:
Quote:
Originally Posted by bob++ View Post
Global debt will always be reaching 'record highs'. ... prices and costs are always rising which automatically increases debt.
I'll guess you're offering up the truism that if GDP doubles and all else is equal, then total debt will also double. Please click on this graph.The blue line shows Federal Debt: Total Public Debt as Percent of Gross Domestic Product. The red line shows U.S. Non-financial corporate debt as currently $6,600,000,000,000, twice what it was in 2007. Yes, that's $6.6 Trillion with a T. The green line is, I think, a comparable figure for China, expressed in dollars. Half the debt of the U.S. today; MUCH less a decade ago. (I Googled looking for a write-up on the China data series here, and found only this — which I'll link since it bears on OP.

I could add more data series to this graph, but what's the point? Rising debt levels reflect inflation, rising population, or rising productivity? WRONG!
Quote:
Originally Posted by bob++ View Post
Moderate inflation is generally considered to be A Good Thing. To paraphrase Orwell - Inflation good; deflation bad.
The Fed targets 2.0% inflation and is happy that their recent figure shows 1.8%. This is NEITHER enough to explain the graph NOR is it the future inflation I anticipate in response to the next financial crisis.
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Old 01-15-2020, 11:29 AM
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Quote:
Originally Posted by blueslipper View Post
Excuse my ignorance- if Global debt is at record highs, who is it owed to? Is it all owed to oil rich countries?
https://edition.cnn.com/2020/01/13/e...ord/index.html
As your article mentions, in some countries it is the people who are in debt and in some countries it is the government. In some countries it is both.

Business Insider breaks down $60tn in sovereign debt, based on IMF data as of 2016. There is no single answer, but I suppose if you had a table showing how much money each government owed overall you could construct a pie chart showing how many trillions are owed to foreign governments, how many to domestic banks, how many to foreign banks, how many to domestic nonbanks, foreign nonbanks, etc.

But the IMF itself says most of the global debt is driven by private debt. I feel like the data is there, in the IMF global debt database, dividing up private debt into domestic bank loans, domestic nonbank loans, domestic securities, foreign bank loans, foreign nonbank loans, and foreign securities. I just can't seem to find an easy and accessible breakdown online, and I'm not knowledgeable/motivated enough to dive into data and build it myself.

~Max

Bryan, B. (2016, Sep 9). "Here's who holds the world's $60 trillion in sovereign debt." Business Insider. Retrieved January 15, 2020 from https://www.businessinsider.com/heres-who-holds-the-worlds-60-trillion-in-sovereign-debt-2016-9

Moreno Badia, M. & Dudine, P. (2019, Dec 17). "New Data on World Debt: A Dive into Country Numbers." IMFBlog. Retrieved January 15, 2020 from https://blogs.imf.org/2019/12/17/new-data-on-world-debt-a-dive-into-country-numbers/
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Old 01-15-2020, 12:17 PM
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Quote:
Originally Posted by blueslipper View Post
Excuse my ignorance- if Global debt is at record highs, who is it owed to? Is it all owed to oil rich countries?
https://edition.cnn.com/2020/01/13/e...ord/index.html
The US is an oil rich country, so yeah.
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Old 01-15-2020, 02:11 PM
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Quote:
Originally Posted by Max S. View Post
As your article mentions, in some countries it is the people who are in debt and in some countries it is the government. In some countries it is both.

Business Insider breaks down $60tn in sovereign debt, based on IMF data as of 2016. There is no single answer, but I suppose if you had a table showing how much money each government owed overall you could construct a pie chart showing how many trillions are owed to foreign governments, how many to domestic banks, how many to foreign banks, how many to domestic nonbanks, foreign nonbanks, etc.

But the IMF itself says most of the global debt is driven by private debt. I feel like the data is there, in the IMF global debt database, dividing up private debt into domestic bank loans, domestic nonbank loans, domestic securities, foreign bank loans, foreign nonbank loans, and foreign securities. I just can't seem to find an easy and accessible breakdown online, and I'm not knowledgeable/motivated enough to dive into data and build it myself.
I don't think such data actually does exist, which only considers debt (not equity), considers all debt (not just sovereign debt), and then breaks down which sector in each country is the creditor for each sector in every other country.

However, the data exists to get a general idea if 'it's all (or mostly) owed to oil rich countries'. 'Total' world debt is around $250 trillion (per the International Institute of Finance per this CNBC article). Though you'd probably expect any such total to be less than 100% complete (probably means debt or or reported by govts and regulated financial institutions, presumably doesn't include person to person loans etc)
https://www.cnbc.com/2019/11/15/glob...and-china.html

This wiki page gives the net foreign asset position by big creditor country
https://en.wikipedia.org/wiki/List_o...ion_per_capita
That's including equity not only debt so is somewhat apples and oranges, but you can easily see the total for all listed is a pretty small fraction of $255 tril, and oil exporters Norway, Saudi Arabia and Russia are 6th, 8th and 12th on the list totaling around $1.6tril. IOW the bulk of the $255tril in debt must be either between debtors and creditors in the same country (a govt and its own citizens, a bank and its domestic loan customers, etc), or else people/entities in one country owe a foreign creditor on one piece of debt but it's mainly offset by some other piece of debt with foreign debtors.

IOW no, not even a substantial fraction of world debt is owed, net to 'oil rich countries'.

Last edited by Corry El; 01-15-2020 at 02:16 PM.
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Old 01-15-2020, 05:09 PM
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Quote:
Originally Posted by Corry El View Post
This wiki page gives the net foreign asset position by big creditor country
https://en.wikipedia.org/wiki/List_o...ion_per_capita
That's including equity not only debt so is somewhat apples and oranges, but you can easily see the total for all listed is a pretty small fraction of $255 tril, and oil exporters Norway, Saudi Arabia and Russia are 6th, 8th and 12th on the list totaling around $1.6tril...
Japan tops the list with almost $3 trillion, but China, Hongkong and Macau combine for over $4 trillion. Norway has a high NIID per capita, but the financial center of Singapore is even higher. Germany has a big NIID, as do Saudi and Russia. U.S. was biggest NIID in the world 40 years ago IIRC, but is now the biggest debtor.

The Debtor nations' numbers are on a different page. U.S.A has the most negative NIID at -$8 trillion, Spain is -$1 trillion; Australia and U.K. are also big "debtors", though of course much isn't debt: it's direct foreign investment.

As Corry El points out, these figures include stocks (& etc.) as well as bonds, but I think the apples are comparable. I'm not sure but think foreign-owned stockholdings in multi-nationals like P&G are included in (i.e. subtracted from) U.S.'s NIID, making U.S. NIID seem worse than it is. While these numbers aren't quite in the same magnitude as a quadrillion dollars; they are significant. One can over-simplify and say if liquidation were somehow forced, the U.S. would owe several months of its GDP to countries of East Asia. Not to worry, but it's more than nothing. And creates hidden pressures in international relations.
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Old 01-15-2020, 05:18 PM
Max S. is offline
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Quote:
Originally Posted by Corry El View Post
I don't think such data actually does exist, which only considers debt (not equity), considers all debt (not just sovereign debt), and then breaks down which sector in each country is the creditor for each sector in every other country.
I think it does. For one, the public sector is already broken down like that (see my previous cite). If you look at IMF GDD's methodology white paper you see that their fallback method for calculating private debt is built off precisely what we're looking for: domestic/nondomestic bank/nonbank loans and securities.

Unfortunately IMF doesn't seem to take into account nondomestic nonbank loans. See p. 12-13 of the linked paper:
"Approach 2: sum of domestic bank loans, cross-border bank loans data from the BIS, and debt securities data from the Dealogic database. This approach was used in most emerging market economies and a few advanced economies that do no report sectoral financial accounts."
~Max

Mbaye, S., Badia, M. & Chae, K. (2018, May 14). "Global Debt Database: Methodology and Sources." IMF Working Papers. Retrieved January 15, 2020 from https://www.imf.org/en/Publications/WP/Issues/2018/05/14/Global-Debt-Database-Methodology-and-Sources-45838

Last edited by Max S.; 01-15-2020 at 05:22 PM.
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Old 01-15-2020, 06:04 PM
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Quote:
Originally Posted by Max S. View Post
I think it does. For one, the public sector is already broken down like that (see my previous cite). If you look at IMF GDD's methodology white paper you see that their fallback method for calculating private debt is built off precisely what we're looking for: domestic/nondomestic bank/nonbank loans and securities.

Unfortunately IMF doesn't seem to take into account nondomestic nonbank loans. See p. 12-13 of the linked paper:
Whether it does or doesn't it's obvious net external debt is a pretty small % of total debt. Not sure why it would be highly important to know exactly how small.

To back up a step, people not familiar with this issue at all (not to say you aren't) tend to be surprised by the statement that it all cancels out, but it does on a first order basis. Only real assets are well...real. They are what represents the world's wealth and earning potential. Counting financial asset values is a proxy for determining that real value. For example the value of Apple's assets is probably more accurately counted as the so-called enterprise value of that company, stock + debt market value rather than the 'book' value of the real assets. But the existence or not of those underlying real assets (capital equipment, patents, know how etc) is the difference between a poorer and richer world, not the existence of paper claims on those assets which is all stocks and bonds are.

That said, obviously there are potentially extremely important second order consequences to debts not being paid on a large scale even though the total humankind balance sheet is unaffected on a first order basis. It's just worth remembering that the amount of debt in a vacuum isn't very meaningful, which does relate to how important it would be to slice and dice it down to the nth degree of who owes whom by country and sector. A post above said that an earlier post's implication 'more debt is a natural sign of healthy growth' was false. And it was correct that that statement at least could be false. But the latter post's implied statement 'more debt is a problem' isn't necessarily true either. There's no good or bad level of the particular type of financial claim on real assets known as 'debt', in a vacuum. It truly 'all depends'.

Last edited by Corry El; 01-15-2020 at 06:06 PM.
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