- There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt. – John Adams, 1826
- The world is overburdened by an insurmountable mountain of debt. The Illuminist banksters are telling us that the solution is more debt! The Illuminist snakes are not solving the problem. They are doing precisely the opposite of what is needed. They want to build this debt bomb into a nuclear debt bomb and detonate it worldwide! The Illuminists are about to pull the plug. A global economic, financial and monetary collapse is coming soon!
When debt levels turn cancerous!
By Ambrose Evans-Pritchard, http://www.telegraph.co.uk/
Now we know where the tipping point lies. Debt becomes poisonous once it reaches 80pc to 100pc of GDP for governments, 90pc of GDP for companies, and 85pc of GDP for households. From then on, extra debt chokes growth.
Stephen Cecchetti and his team at the Bank for International Settlements have written the definitive paper rebutting the pied pipers of ever-escalating credit. “The debt problems facing advanced economies are even worse than we thought.”
The basic facts are that combined debt in the rich club has risen from 165pc of GDP thirty years ago to 310pc today, led by Japan at 456pc and Portugal at 363pc.
“Debt is rising to points that are above anything we have seen, except during major wars. Public debt ratios are currently on an explosive path in a number of countries. These countries will need to implement drastic policy changes. Stabilization might not be enough.”
Demographic atrophy and aging costs will make this even nastier. “Rising dependency ratios put further downward pressure on trend growth, over and above the negative effects of debt.” Why has it happened?
1) Restrictions on credit have been “systematically removed” since the 1970s. (ie Gordon Brown’s 120pc mortgages and other such idiocies)
2) Greenspan’s “Great Moderation” fooled us all into thinking the world was free of risk.
3) The “Asian Savings Glut” pulled down real bond yields. (The BIS is being too kind to its masters — central banks — who also pulled down short rates for fifteen years, catastrophically so in my view).
4) Tax policies favour debt; ie corporate debt in Europe, or mortgages in the US, as well as a host implicit debt subsidies and guarantees (Fannie Mae and Freddie Mac?)
So get rid of all these bad policies (gradually of course). The professoriat has been a little too cavalier in arguing that debt does not really matter for the world as a whole because we all owe it to ourselves. Debtors are offset by creditors (not always from friendly countries). Common sense suggest that this academic solipsism is preposterous, and so it now proves to be.
My own suspicion is that debt has very powerful “intertemporal effects” that are not factored into the models. It steals growth from tomorrow, until there is little left to steal. The BIS does not explore this angle. (Mr Cecchetti said politely that I was talking nonsense when I raised this point with him .. well yes, perhaps, wouldn’t be the first time).
Here is the league table. It is revealing. (top of post)
As you can see, the US has one of the lower combined debts at 268pc of GDP. Australia is lowest (232), followed by Austria (238) and Germany (241). (I don’t believe the Norway figure in this chart. Norway has no public debt, except for purposes of monetary management).