Global Wave of Debt Is Largest, Fastest in 50 Years

[Hydrogen]

WASHINGTON, December 19, 2019—Debt in emerging and developing economies (EMDEs) climbed to a record US$55 trillion in 2018, marking an eight-year surge that has been the largest, fastest, and most broad-based in nearly five decades, according to a new World Bank Group study that urges policymakers to act promptly to strengthen their economic policies and make them less vulnerable to financial shocks.

The analysis is contained in Global Waves of Debt, a comprehensive study of the four major episodes of debt accumulation that have occurred in more than 100 countries since 1970. It found that the debt-to-GDP ratio of developing countries has climbed 54 percentage points to 168 percent since the debt buildup began in 2010. On average, that ratio has risen by about seven percentage points a year—nearly three times as fast it did during the Latin America debt crisis of the 1970s. The increase, moreover, has been exceptionally broad-based—involving government as well as private debt, and observable in virtually all regions across the world.

“The size, speed, and breadth of the latest debt wave should concern us all,” said World Bank Group President David Malpass. “It underscores why debt management and transparency need to be top priorities for policymakers—so they can increase growth and investment and ensure that the debt they take on contributes to better development outcomes for the people.”

According to the report, the prevalence of historically low global interest rates mitigates the risk of a crisis for now. But the record of the past 50 years highlights the dangers: Since 1970, about half of the 521 national episodes of rapid debt growth in developing countries have been accompanied by financial crises that significantly weakened per-capita income and investment.

“History shows that large debt surges often coincide with financial crises in developing countries, at great cost to the population,” said Ceyla Pazarbasioglu, the World Bank Group’s Vice President for Equitable Growth, Finance, and Institutions. “Policymakers should act promptly to enhance debt sustainability and reduce exposure to economic shocks.”

The analysis found that this latest wave is different from the previous three in several ways—it involves a simultaneous buildup in both public and private debt; it involves new types of creditors; and it is not limited to one or two regions. Some of the increase in debt has been driven by China, whose debt-to-GDP ratio has risen 72 points to 255 percent since 2010. But debt is substantially higher in developing countries even if China is excluded from the analysis—among EMDEs, it is twice the nominal level reached in 2007.

Those characteristics pose challenges that policymakers haven’t had to tackle before. For example, nonresident investors today account for 50 percent of the government debt of EMDEs, considerably more than in 2010. For low-income countries, much of this debt has been on non-concessional terms, and outside the debt-resolution framework of the Paris Club.

Under the circumstances, policymakers should develop mechanisms to facilitate debt resolution when it becomes necessary, according to the report. Greater debt transparency would also help.

https://www.worldbank.org/en/news/press-release/2019/12/19/debt-surge-in-emerging-and-developing-economies-is-largest-fastest-in-50-years

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Somehow I get a feeling neither central banks nor governments of the world, will make a legitimate move to address these issues. As global debt accumulates and negative attributes associated with inflationary money exert more destructive influences upon job markets, economies and living standards. Is there a chance we'll witness an exodus from inflationary models towards more deflationary paradigms such as gold standards or bitcoin?

Its no big secret that investment banks prefer inflationary models as it makes it easier for them to create profits through inflating balance sheets. This translates to pro inflation / pro fractional reserve banking being taught as universal standards in colleges as standard curriculum. Purely due to the profiteering potential it offers banks, rather than it being stable or sustainable over the long term.

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[Harriti]

Somehow I get a feeling neither central banks nor governments of the world, will make a legitimate move to address these issues. As global debt accumulates and negative attributes associated with inflationary money exert more destructive influences upon job markets, economies and living standards. Is there a chance we'll witness an exodus from inflationary models towards more deflationary paradigms such as gold standards or bitcoin?

 

You are too funny. So far, there have been many crises so far, and we have all taken steps regarding the supply of fiat money. We never need Bitcoin and never bring it to topics like this again, it's like a joke. Only those who need money like us are in this sinful decentralized market, all economists know Bitcoin is a scam. No one manages it, and the sharks are throwing their nets and raising the price of Bitcoin, when it feels enough, it will sell to your heads. Don't be too naive to think that bitcoin can help the whole world prosper! It is the tool to kill those who think like you. I would apologize if it hurt you, but I would like to share my experience and vision in this sinful market in the hope that no one will make a mistake and give money to the sharks.

[Hydrogen]

You are too funny. So far, there have been many crises so far, and we have all taken steps regarding the supply of fiat money.

There have been no real steps taken to address deficit in the USA or EU much less on a smaller scale in developing nations.

all economists know Bitcoin is a scam. No one manages it

Economists in the current era are often less reliable and accurate than broken clocks and weather predictions. They predict recessions, that tesla's stock will fail and people should short it. And other nonsense across the board on a regular and routine basis.

What economists purportedly "know" is vastly overrated and not something most people take seriously anymore.

That said who are you who would claim to speak for "all economists" some of whom are very much pro crypto and pro bitcoin.

Don't be too naive to think that bitcoin can help the whole world prosper! It is the tool to kill those who think like you.

Bitcoin intoduces free market competition to bank and government monopolies.

This incentivizes banks and states to be more proactive in addressing negatives prevalent in their respective sectors.

Its a win/win for everyone including banks and governments so why oppose it.

[panganib999]

Well, banks have the sure proof backup plan called "gold" in their hands. Iirc, banks have actually been hoarding gold for quite sometime now, and I believe they have the ability to withstand the recession that may come and up due to the huge debt the world has accumulated so far. Plus, I believe that in talking about profits, letting a market crash happen while they stand together with gold would bring them more profit and honestly, it's already been quite some time since the debt has been announced to be over the top and yet, the top brass has done nothing to appease the problem. As for bitcoin being a possible answer, I doubt that. Gold and Bitcoin has a clear cut difference in terms of volatility, and gold stands above bitcoin this time.

[alyssa85]

It's mainly happening in China - but the Chinese seem to be allowing some of these companies to default to make investors more careful about whom they lend to. See

https://www.bloomberg.com/news/articles/2019-12-26/china-s-government-is-letting-a-wave-of-bond-defaults-just-happen

China’s had another record year of corporate bond defaults. That’s not a crisis. It’s a plan.

A decade ago, defaults almost never happened, but that wasn’t because companies in China were always healthy. It was a reflection of the tightly controlled financial system, where companies were often linked to the government and bonds were largely bought by state-owned lenders. Authorities have often stepped in to ensure that financially troubled enterprises didn’t crash into default, out of concern over social unrest in the event of job losses or missed payroll payments.

This system imposed little discipline on borrowers. Now global investors are coming into China’s bond market. Though many companies are still state-backed, policymakers are getting more comfortable with defaults. Without them, bond buyers would have little incentive to make a careful assessment of a company’s creditworthiness.

They had corporate debt defaults of $130.7bn in 2019.

[1Referee]

Plus, I believe that in talking about profits, letting a market crash happen while they stand together with gold would bring them more profit and honestly, it's already been quite some time since the debt has been announced to be over the top and yet, the top brass has done nothing to appease the problem.

That's not going to work. Gold isn't the ultimate safe haven asset people think it is. If a global crash is artificially initiated, it will also tank the value of Gold because most of the actual price discovery happens on derivatives markets, and what are they used for the most? Right, it's speculation, not for safe haven purposes.

Gold doesn't automatically pay your debt or bills. In order to get that done, doesn't matter who it concerns, it will need to be sold for fiat. The most in-demand asset will be fiat. Everything else will very likely suffer and bleed for years straight. Bitcoin will fall as well. The only people who think that Bitcoin is a safe haven asset are those within the space, the rest just considers it to be a wild west casino.

[tartibaya]

People spend money all the time. Is it always right to buy something? Necessary needs can be taken but luxury consumption is too much. What Bitcoin can do in this case. Inflation can be a means of control. A fairer distribution of economic power can be achieved with more limited money.

[jkpj22]

Gold is and always was hedge against bad things happening. If we are to experience a crisis, it will keep going up.

However I agree with one thing - hoarding gold is not gonna save your ass. It has no liquidity. How do you want to pay with it? If there is nobody to give you money for it, then it's useless to you at the end of the day.

Anyway, buying gold is still the best thing you can do. And buying real estate too.

[Darooghe]

I foresee one viable option, money is debt and debt is money. the current fiat system has to go. No more paper value, All bank accounts to zero. no more Mortgage, Loans or other forms of debts, nothing to payback, but then what's your 5 bucks gonna get you? For the only way to eliminate the self imploding debt, is to kill the monetary system. A group of cryptographers named Satoshi Nakamoto, created a emergency exit, BITCOIN. "Let us be rid of the debt, and by the same token, instate a one world currency unit. Then we shall control not only the economy of one country, but the world."

[Hydrogen]

I foresee one viable option, money is debt and debt is money. the current fiat system has to go. No more paper value, All bank accounts to zero. no more Mortgage, Loans or other forms of debts, nothing to payback, but then what's your 5 bucks gonna get you? For the only way to eliminate the self imploding debt, is to kill the monetary system.

Hey didn't that work for the tv show Mr. Robot?   

If debt is wiped out across the board. It could also wipe out retirement plans, food stamps, welfare, pensions, health insurance and other state funded programs people rely upon for survival.

There was a reason behind a sharp increase in fatalities after the USSR defaulted on its deficit. Russians lost their state funded pension plans and had no alternatives.

There appears to be confusion as to what happens when a state cannot pay its debt. I think the best analogy is a bank or large corporation going bankrupt. Whatever side effects or outcome, they may not be pleasant.

[Wexnident]

I actually doubt they're even gonna make a move. Honestly, They're just pretty much letting it accumulate. Sure, they're trying to pay it back, but let's be honest. Them paying it back means loaning more, which really just kills the notion of them actually "paying it back".

I foresee one viable option, money is debt and debt is money. the current fiat system has to go. No more paper value, All bank accounts to zero. no more Mortgage, Loans or other forms of debts, nothing to payback, but then what's your 5 bucks gonna get you? For the only way to eliminate the self imploding debt, is to kill the monetary system. A group of cryptographers named Satoshi Nakamoto, created a emergency exit, BITCOIN. "Let us be rid of the debt, and by the same token, instate a one world currency unit. Then we shall control not only the economy of one country, but the world."

Easy to say mate. Do you even know the possible repercussions of the action you just want to do? That's like literally killing off the entire market. And honestly, even if we start doing it now, It would take yeaars to implement. Like literally. That's overhauling literally everything the entire world has stood for in the past decades.

[squatz1]

I foresee one viable option, money is debt and debt is money. the current fiat system has to go. No more paper value, All bank accounts to zero. no more Mortgage, Loans or other forms of debts, nothing to payback, but then what's your 5 bucks gonna get you? For the only way to eliminate the self imploding debt, is to kill the monetary system.

Hey didn't that work for the tv show Mr. Robot?   

If debt is wiped out across the board. It could also wipe out retirement plans, food stamps, welfare, pensions, health insurance and other state funded programs people rely upon for survival.

There was a reason behind a sharp increase in fatalities after the USSR defaulted on its deficit. Russians lost their state funded pension plans and had no alternatives.

There appears to be confusion as to what happens when a state cannot pay its debt. I think the best analogy is a bank or large corporation going bankrupt. Whatever side effects or outcome, they may not be pleasant.

Yeah people don't really understand that you can't just remove debt because there is always someone else on the otherside of the debt. The person that is owed the money. Even in the US -- most of the federal debt isn't owed to people or corporations, it's owed back to the US government -- as it's owed to the Social Security and Medicare Trust fund (pretty sure Medicare as well, but I know SS)

So instead of just wiping away the whole system and starting fresh -- which teaches nothing to people -- you have to focus on the problem head on.

[wheelz1200]

The problem also lies in the fact that as a global society it has become the norm to live in great debt and believe it's not that big of a deal.  100 years ago this was not the case.  People used to take pride in working for everything they got instead of just living on credit.  The financial institutions have now taken advantage of this and now we are in a very unstable predicament.

[panganib999]

That's not going to work. Gold isn't the ultimate safe haven asset people think it is. If a global crash is artificially initiated, it will also tank the value of Gold because most of the actual price discovery happens on derivatives markets, and what are they used for the most? Right, it's speculation, not for safe haven purposes.

Gold doesn't automatically pay your debt or bills. In order to get that done, doesn't matter who it concerns, it will need to be sold for fiat. The most in-demand asset will be fiat. Everything else will very likely suffer and bleed for years straight. Bitcoin will fall as well. The only people who think that Bitcoin is a safe haven asset are those within the space, the rest just considers it to be a wild west casino.

Well, it may tank the value of gold but ultimately, it would survive the crash. Unlike the major cause of the crash, which is the debt of Gold itself. Gold may not be a soft fiat, but it is backed by something. A hard asset so to speak, unlike fiat which is backed by only the government itself, which was the one who caused the debt to grow by so much. Fiat can simply be called as a "medium" at this point. So that both the consumer and the seller would have a middle ground, where they both earn and profit equally without bias.

[abhiseshakana]

Somehow I get a feeling neither central banks nor governments of the world, will make a legitimate move to address these issues. As global debt accumulates and negative attributes associated with inflationary money exert more destructive influences upon job markets, economies and living standards. Is there a chance we'll witness an exodus from inflationary models towards more deflationary paradigms such as gold standards or bitcoin?

Discussing the exodus from the fiat system to the gold system or the adoption of full bitcoin we must discuss the impact of increasing global debt accumulation on the global economy and the economy of a country.

Significantly increased debt accumulation will pose a risk of increasing financial stability in the short term, namely economic tightening by developed countries to reduce debt from fiscal policy to increase interest rates, which in turn is an increase in the exchange rate of its currency. In the end, developing countries and poor countries that absorb debt in the form of dollars from rich countries will experience debt swelling.

Will the swelling of debt and all its problems bring the awareness of many state governments that the fiat system is very vulnerable and is a failure especially when the US starts printing dollars without gold collateral, and then moves on to bitcoin?

In my opinion, the answer is no. Because one of the symbols of a country's sovereignty is its national currency. It is impossible for a government to surrender its authority to a decentralized system. Unless it is because of TINA (there is no alternative) as happened in Venezuela because it received a total embargo from the United States.

Switching to a gold-based system is more likely to be done by some countries in the long run. Some Islamic countries have started to initiate currencies with gold guarantees. But preparing the network transition infrastructure from a fiat system with a new system will take a long time.

[hugeblack]

Unfortunately, the politicians who borrow them are the people who pay the bills.
Many of these politicians are corrupt and no one is emulating them for their punishment, but rather impunity, especially in developing countries.

Therefore, the return to gold is highly unlikely, especially with the inflation of these countries ’spending and exchange. The least solution is to erode the value of the currency and thus print more money.

[Linkkoin]

In my opinion, the answer is no. Because one of the symbols of a country's sovereignty is its national currency. It is impossible for a government to surrender its authority to a decentralized system. Unless it is because of TINA (there is no alternative) as happened in Venezuela because it received a total embargo from the United States.

Switching to a gold-based system is more likely to be done by some countries in the long run. Some Islamic countries have started to initiate currencies with gold guarantees. But preparing the network transition infrastructure from a fiat system with a new system will take a long time.

EU had proven, that in some cases resigning from own currency could have been harmful in case of crisis. Spain or Greece suffer damages from the last (a decade ago!) financial crisis, and as they could not manipulate its own currency and are unwilling to make really hard reforms.
Yet as long as Bretton Woods agreement is still in force, it is hard to believe that going back to the gold standard or switching to BTC as the worlds currency (instead of USD) will happen in the next several decades.

[Captain Corporate]

 The debt situation world has will eventually be solved one way or another, there is no possibility that debt of this size can go unnoticed and just continues to grow. What will happen in the future, the world will have 100 trillion? 200? 500? There must be an end to it eventually and I don't know how it will happen or when it will happen but I am %100 certain it will happen. My money is on the fact that people will start to live in a more crypto currency way of life, earn the money you have and spend the money you earn type of way without debt and without needing any mortgages or debts. Thats on individual side, there is also the wall street companies that get billions of dollars in debt all the time and never pay it off and just keep postponing the payments of the debts until they can't be paid and than they just get bailed out, eventually it will reach to a level where they can't be bailed out anymore and even if that means hurting the economy badly, someone will punish them for their greed and let them go bankrupt with thousands of people who had money there but at least stop similar things happening again in the future.

[avikz]

Unfortunately, the politicians who borrow them are the people who pay the bills.
Many of these politicians are corrupt and no one is emulating them for their punishment, but rather impunity, especially in developing countries.

Therefore, the return to gold is highly unlikely, especially with the inflation of these countries ’spending and exchange. The least solution is to erode the value of the currency and thus print more money.

 

I too agree that returning back to gold standard is highly unlikely! But we also need to understand that, it doesn't stop banks and institutions from buying more and more gold to stack up their underground lockers! So the demand of gold is not going to decrease! Rather, in current situation, this trend of buying gold is likely to increase and we have already started seeing a surge in Gold's price.

So it really doesn't matter if gold standard is coming back or not, but it still remains the best hedge instrument during uncertain times!

[Theb]

Just an FYI if a great recession comes that will trigger an inflation similar to Venezuela even "deflationary" assets are not safe from inflation simply because these assets are still have an equal value to its fiat counterparts. During these times we will also see a lot of people liquidating their assets for cash so definitely it will drag down the prices of these assets just like what happened to the stock market and other markets during 2008 the crypto market will still be vulnerable from this basically you won't really expect any kind of asset to become a safe haven when the demand for money is greater than investments. So the only ones who will really prevail are the ones who still have a lot of extra cash lying around in their pockets where they can buy of these cheap assets when the time comes.