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.
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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.
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.
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.’
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.
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.