Global debt soars to 356% of GDP

[aesma]

I wonder if governments are still justifying their massive piles of debt with the excuse of "low interest environment therefore we don't need to worry about servicing costs on the debt" now that long term market rates on bonds have hiked again.

These are debt levels that have not been seen since WWII - and in some cases, totally unwarranted stimulus packages.

The result is highly inflated asset prices, arbitrary pump & dumps on random stocks, and a real risk of reflation gone wrong in the near future. You'd be delusional to think that this system is sustainable under this type of stress.

As long as the governments can sell debt at the same low rate, then no. If things change, we'll see what happens.

I am not the bond expert but doesn't the rising bond yields mean that the US is having hard time with selling their debt? And as far as I know the FED is their primary customer that buys most of the US debt by printing money. (the other one is China)

We may have reached the end of the road.

In theory yes but there is a contradiction and you have written it yourself, the FED buys anyway.

What's misleading is that you expect the yield to be what's written on the bond (say 1%/year for 10 years) but instead it refers to the yield you get when you buy it on the secondary market at some other price than the one it was emitted at. So if you buy a 100$ 10 years 1% T-note for 50$ the yield is now 2% and the bond has basically crashed.

[mindrust]

I wonder if governments are still justifying their massive piles of debt with the excuse of "low interest environment therefore we don't need to worry about servicing costs on the debt" now that long term market rates on bonds have hiked again.

These are debt levels that have not been seen since WWII - and in some cases, totally unwarranted stimulus packages.

The result is highly inflated asset prices, arbitrary pump & dumps on random stocks, and a real risk of reflation gone wrong in the near future. You'd be delusional to think that this system is sustainable under this type of stress.

As long as the governments can sell debt at the same low rate, then no. If things change, we'll see what happens.

I am not the bond expert but doesn't the rising bond yields mean that the US is having hard time with selling their debt? And as far as I know the FED is their primary customer that buys most of the US debt by printing money. (the other one is China)

We may have reached the end of the road.

In theory yes but there is a contradiction and you have written it yourself, the FED buys anyway.

What's misleading is that you expect the yield to be what's written on the bond (say 1%/year for 10 years) but instead it refers to the yield you get when you buy it on the secondary market at some other price than the one it was emitted at. So if you buy a 100$ 10 years 1% T-note for 50$ the yield is now 2% and the bond has basically crashed.

No I don't think there is a contradiction. I think I couldn't make myself clear enough. The FED simply cannot buy it anymore... That's why I said:

We may have reached the end of the road.

The rates are going higher because we reached the tipping point.

The other customer of the US debt market is China and they hold how much? Over a trillion? At some point the other countries will have to stop buying it. Even the FED can't buy it forever.

Or I don't know... can they?

If the FED was still buying it, wouldn't the interest rates be still low?

[RealMalatesta]

Covid-19 is the major reason of sudden increase in world debt. Governments have no option except to print Fiat currencies to meet with Heath care and compensation program needs and falling revenues. USA is not only Top economy of the world but also leads the list of countries with most External and internal debt.

It is interesting to see just one nation being so much of the world debt, and nearly 2 nations covering half of all the debt, how could other nations grow bigger if they just gave these nations the chance to grow while they didn't had that type of power to grow?

This is why I feel like the best case for all of us is that if USA actually paid it is debt back to other nations and everyone basically paid their nation so that we wouldn't really just live for those nations. Debt is not to other nations only but if you gave any of those small nations chance to get as much debt as USA then those nations would have been at least as big and would be a great place to live as well, but they can't because people think they may not end up paying that much money back in the end so they can't get into bigger amount of debt to grow bigger and become better.

[Vishnu.Reang]

Covid-19 is the major reason of sudden increase in world debt. Governments have no option except to print Fiat currencies to meet with Heath care and compensation program needs and falling revenues. USA is not only Top economy of the world but also leads the list of countries with most External and internal debt.

It is interesting to see just one nation being so much of the world debt, and nearly 2 nations covering half of all the debt, how could other nations grow bigger if they just gave these nations the chance to grow while they didn't had that type of power to grow?

This is why I feel like the best case for all of us is that if USA actually paid it is debt back to other nations and everyone basically paid their nation so that we wouldn't really just live for those nations. Debt is not to other nations only but if you gave any of those small nations chance to get as much debt as USA then those nations would have been at least as big and would be a great place to live as well, but they can't because people think they may not end up paying that much money back in the end so they can't get into bigger amount of debt to grow bigger and become better.

Well.. US Dollar is the reserve currency of the world. On top of that United States Treasury Bonds are one of the main components in the foreign exchange reserves for many of the countries. This means that the Americans can sell their debt at very low interest (~1% per year). On the other hand, if a country such as Russia or Brazil want to take loans, then they need to give a much higher interest rate. Also, they can't go beyond a particular limit, as the lenders will refuse to loan any more due to the risk of default.

[LUCKMCFLY]

~snip~

This is a very possible reason for it to have exploded even more, but it must be taken into account that this is like a pressure cooker about to explode. The increase in inflation produced by many governments by devaluing their local currencies, causes liquidity for them but the constant printing of cash notes has caused the debt to grow more. The USA is the country that by default has its main currency the dollar, here the hegemony of the dollar is fully hierarchical worldwide, despite this, the USA also has debt, but its debt is not comparable with that of all countries at the global level. Worldwide, the Fed undoubtedly knows that a lot of that money is inorganic and that it is not having support, as I said before, this is a pressure cooker that will explode at any moment.

One of the best ways to protect yourself is by diversifying, and since the subject of diversification depends on the degree of financial culture that the person in question has, it can be advised to diversify into Gold, Bitcoin, cryptocurrencies, Real Estate ...

[Gyfts]

It's stimulus but it's also because the stock market is reckless with speculation. I wouldn't be surprised to see a bunch of new investors throw in 600 USD into whatever stock they want causing an artificial rise though.

BTC can be the same way to be fair, but you can't measure the economy based on stocks. Look at Tesla's stock, it's a bubble on the verge of being popped, and this will happen regardless of where the economy's at.

The rise in stock market was not solely due to speculation. The stocks that rose the most are Apple, Amazon.etc. If you look at the quarterly results for these stocks, then you can see that their performance was really good. Amazon sales increased by a lot during the pandemic period and some of the Apple products also achieved record revenues. The same can be said about Tesla. Their 2020 revenues were almost double that of the revenues for 2019. So I would disagree if you claim that the stock market rally is looking like a bubble.

Correct -- not all stocks are speculative. Obviously shipping/logistics companies like Amazon, UPS, FedEx, all will have increased stock prices. But, stocks like Tesla are extremely speculative. Over the last month, their stock is down 25 percent. Turns out, they do not have a 700 billion dollar market cap, as investors have found out.

[wxa7115]

Who do they owe all this debt to?

That was my question too, I couldn't even begin to fathom who does the world owe money. Maybe there really is an extraterrestrial race and the global leaders asks for some money and now they owe this extraterrestrial race and in exchange, they can go to our planet without a visa  . Kidding aside, this is not the most threatening thing because global debt as far as I know is not something that is being loaned for the purpose of getting it paid back, the people who loaned this are more interested on favor rather than the loan being payed with interests.

That debts is owed to banks, other governments, and institutional investors, if you have some kind of retirement account it is likely that the institution managing your money has sovereign bonds and as such even if it is a small amount governments owe money to you as well.

This is a problem because the system is based on debt and the only thing needed for the economy to crash is not that those that are owed money ask for their money back they only need to stop buying that debt and then governments will be out of money really quickly, they could offer bigger interest rates to appeal to investors but the bigger the interests the more difficult is to repay the amount, so this is a problem that will become more apparent and difficult to hide during the next decades and quite honestly there is no way to solve it.

[bryant.coleman]

Correct -- not all stocks are speculative. Obviously shipping/logistics companies like Amazon, UPS, FedEx, all will have increased stock prices. But, stocks like Tesla are extremely speculative. Over the last month, their stock is down 25 percent. Turns out, they do not have a 700 billion dollar market cap, as investors have found out.

Tesla reminds me of the Yahoo stock during the dot com bubble. Back in the late 90s, Yahoo had some sort of monopoly in the search engine market. The stock price went up like a rocket during 1998-99. The P/E ratio was in high hundreds . And when the dot com bubble burst, it all came crashing down. Yahoo never recovered, as Google quickly became the most popular search engine. There is a strong possibility that the same can happen with Tesla. Right now they have some sort of monopoly in the EV sector. But competition is also increasing. And the current P/E ratio of 700-800 looks extremely high for me.

[zanezane]

Tesla reminds me of the Yahoo stock during the dot com bubble. Back in the late 90s, Yahoo had some sort of monopoly in the search engine market. The stock price went up like a rocket during 1998-99. The P/E ratio was in high hundreds . And when the dot com bubble burst, it all came crashing down. Yahoo never recovered, as Google quickly became the most popular search engine. There is a strong possibility that the same can happen with Tesla. Right now they have some sort of monopoly in the EV sector. But competition is also increasing. And the current P/E ratio of 700-800 looks extremely high for me.

There is a possibility that Tesla won't go down too, AFAIK EVs are still a luxury item which means that many will still buy Tesla because they already have a foothold on the market compared to other start-ups that needs to prove themselves first before they can earn the trust of the market. I don't think that Tesla won't suffer like how Yahoo did back in the dot com bubble era. There are other car companies but most of them are still doing great, and I believe that this will happen to Tesla too, there might be new markets but they will still get by. I can't imagine the world having debts, I mean the idea of global debt is ridiculous in the first place but we have no choice but to pay for it.

[mindrust]

Tesla reminds me of the Yahoo stock during the dot com bubble. Back in the late 90s, Yahoo had some sort of monopoly in the search engine market. The stock price went up like a rocket during 1998-99. The P/E ratio was in high hundreds . And when the dot com bubble burst, it all came crashing down. Yahoo never recovered, as Google quickly became the most popular search engine. There is a strong possibility that the same can happen with Tesla. Right now they have some sort of monopoly in the EV sector. But competition is also increasing. And the current P/E ratio of 700-800 looks extremely high for me.

There is a possibility that Tesla won't go down too, AFAIK EVs are still a luxury item which means that many will still buy Tesla because they already have a foothold on the market compared to other start-ups that needs to prove themselves first before they can earn the trust of the market. I don't think that Tesla won't suffer like how Yahoo did back in the dot com bubble era. There are other car companies but most of them are still doing great, and I believe that this will happen to Tesla too, there might be new markets but they will still get by. I can't imagine the world having debts, I mean the idea of global debt is ridiculous in the first place but we have no choice but to pay for it.

It is not the start-ups that are going to dethrone Tesla. Ford has entered the markets. Porsche already did a while ago. I don't know about the others but It is likely that soon BMW, Toyota, Benz, VW etc will come up with their EV's also.

Let everything aside, just like zanezane said, ~1000 P/E is crazy for a company like that. And It is probably going to lose its market share in the future, rather than increasing it. Who knows how many cars VW sold last year...millions? and its P/E ratio is 12. Not 50, not 100, not 500. Just 12.

[Vishnu.Reang]

It is not the start-ups that are going to dethrone Tesla. Ford has entered the markets. Porsche already did a while ago. I don't know about the others but It is likely that soon BMW, Toyota, Benz, VW etc will come up with their EV's also.

Let everything aside, just like zanezane said, ~1000 P/E is crazy for a company like that. And It is probably going to lose its market share in the future, rather than increasing it. Who knows how many cars VW sold last year...millions? and its P/E ratio is 12. Not 50, not 100, not 500. Just 12.

Volkswagen is operating in loss for quite sometime now (so doesn't even have a P/E), so it can't be compared to Tesla. Toyota is having a P/E of around 16, while for General Motors and Nissan, it is 12.41 and 3.41 respectively. If corporations such as Toyota and BMW enter the EV sector, then it is going to be huge. Tesla will lose it's monopoly and it's market share in a relatively short time, and this will make it impossible to sustain such high P/E levels.

[mindrust]

Volkswagen is operating in loss for quite sometime now (so doesn't even have a P/E), so it can't be compared to Tesla.

Where is your source? Here is mine:



Volkswagen made $12 billion in 2020 despite the pandemic >> Warning CNN link. I recommend you to not click.

They clearly do have a P/E ratio.

And here is your Tesla's earnings:


https://www.macrotrends.net/stocks/charts/TSLA/tesla/net-income

You have a point though. You cannot compare VW to Tesla indeed. It is because Tesla is the one that's not making money.

Toyota is having a P/E of around 16, while for General Motors and Nissan, it is 12.41 and 3.41 respectively. If corporations such as Toyota and BMW enter the EV sector, then it is going to be huge. Tesla will lose it's monopoly and it's market share in a relatively short time, and this will make it impossible to sustain such high P/E levels.

Can't argue with those.

[Sithara007]

^^^ The surge in Tesla share price in 2020 is partly due to the fact that after a long time it managed to end up with a net profit in 2019. Look at Uber. It is having a market cap of more than $100 billion, despite the fact that the company has been reporting losses ever since it was first created. And worse still, the losses seems to be increasing with every passing year. At least in case of Tesla, the positive is that it has returned to profit.