Skip to main content

Is There Too Much Government (or Private) Debt?

This is a complicated subject, with opinions all over the map. Debt in most countries today is unsustainable. At some point, a nation runs into trouble; for example, Greece. Some borrowing is good, which provides more flexibility in funding government programs.

But if there’s too much borrowing, particularly when encouraged by misguided government policies, then households and businesses are very vulnerable if there’s some sort of economic disruption and they no longer have enough income to finance debt payments. This is when debt becomes excessive.

Yet this is what the crowd in Washington is encouraging. More debt to finance more government programs, as if there is no limit and no tomorrow.

Global debt of all types grew by $57 trillion from 2007 to 2014 to a total of $199 trillion, the McKinsey Global Institute reported in February 2015. That’s 286% of global GDP compared with 269% in 2007. The current ratio is above 300%.

See: Debt, Bubbles, and Reckless Government

The world's debt rose by $3 trillion in the first quarter of 2019 — an almost unprecedented borrowing binge that brought total global debt to $246.5 trillion. Total U.S. debt (private and public) rose to a new all-time high of more than $69 trillion — led by federal government debt, which is now over 101% of GDP.

See: The world's debt rose by an unprecedented $3 trillion in the first quarter of 2019

High levels of debt put countries in a vulnerable position in the event of a downturn and could endanger the world's economic recovery, said economists from the Institute of International Finance, which released the study today.

Artificially low interest rates are distorting economic decisions by making something (debt) seem cheaper than it really is. The bottom line is that government spending programs directly cause debt, but we should be just as worried about the private debt that is being encouraged and subsidized by other misguided government policies.

The consequences of such high and rising debt could be significant. High and rising debt will:
  • Slow income growth;
  • Increase interest payments, crowding out other priorities;
  • Push up interest rates;
  • Dampen our ability to respond to the next recession or emergency;
  • Place more burden on future generations; and
  • Increase the risk of a fiscal crisis.
See: Why Should We Worry About the National Debt?

Personal Economics 101
Labels:

Comments

Post a Comment

Thanks for the comment. Will get back to you as soon as convenient, if necessary.

Popular posts from this blog

California: A Model for the Rest of the Country, Part 2

Part 1 here . On Leaving the Golden State Guest Post by NicklethroweR . Posted on the Burning Platform. The fabled Ventura Highway is all that separates my artist loft from the beach where surfing first came to the United States. Both my balcony and front patio face the freeway at about eye level and I could easily smack a tennis ball right on to the ever busy 101. Access to the beach and boardwalk is very important to a Tourist Town such as mine and I can see one underpass from my balcony and another underpass from the patio. Further up the street are two pedestrian bridges. Both have been recently remodeled so that people can not use it to kill themselves by leaping down into traffic. The traffic, just like the spice, must flow and the elites that live here do not like to be inconvenienced as they dart about between Malibu and Santa Barbara. Another feature of living where I live would have to be the homeless, the insane and the drug addicts that wander this particular...
Post a Comment
Read more

Factfulness: Ignorance about global trends. The world is actually getting better.

This newsletter was powered by  Thinkr , a smart reading app for the busy-but-curious. For full access to hundreds of titles — including audio — go premium and download the app today. From the layman to the elite, there is widespread ignorance about global trends. Author and international health professor, Hans Rosling, calls Factfulness  “his very last battle in [his] lifelong mission to fight devastating global ignorance.” After years of trying to convince the world that all development indicators point to vast improvements on a global scale, Rosling digs deeper to explore why people systematically have a negative view of where humanity is heading. He identifies a number of deeply human tendencies that predispose us to believe the worst. For every instinct that he names, he offers some rules of thumb for replacing this overdramatic worldview with a “factful” one. In 2017, 20,000 people across fourteen countries were given a multiple-choice quiz to assess basic global literac...
Post a Comment
Read more

Habits of Highly Successful Traders, Part 1

(Part 2 is here .) Trading is different than investing. Simply put, trading is short-term, investing long-term.  The goal of investing is to gradually build wealth over an extended period of time through the buying and holding (and selling at a appropriate time) of a portfolio of stocks, ETFs, bonds, and other investment instruments. Trading involves more frequent transactions, such as the buying and selling of stocks, commodities,  currency pairs , or other instruments. The goal is to generate returns that outperform buy-and-hold investing. While investors may be content with  annual returns  of 10 percent to 15 percent, traders might seek a 10 percent return each month.  Trading is hard work. Don't let anyone fool you. But if you're interested in this, it can be rewarding. However, you must have discipline and be able to follow rules. Most traders blow up their accounts. But the good ones follow certain habits. These habits can work well for investors al...
Post a Comment
Read more