A shock-horror headline today said that global debt stands at US$200 trillion, which is about 3 times gross global product. A debt:income ratio of 3 is quite modest for a young couple borrowing to buy a home and a car, but for a business or a government it should ring alarm bells. So should we be alarmed?
Someone drew my attention to a beautiful graphic in the Daily Mail, showing how 11 of those 200 trillions are lent and borrowed among the banking sectors of 16 countries. It seems that everyone’s lending to everyone else. Even China and Germany are borrowers and even Greece and Portugal are lenders.
So if everyone defaulted tomorrow… well, there would be a lot of individual winners and losers, but there wouldn’t be any Martians turning up to repossess our planet because we hadn’t kept up our mortgage payments.
What calms me is the fact that the headline is about gross debt. Someone who borrows $100k in order to buy bonds to the same value has given rise to $200k of debt, but their net debt is zero. Even our heavily mortgaged young couple probably has money in a bank account – effectively a loan to their bank.
When I was a lad In London, Peter Pan was always put on during the Christmas holidays in the West End. Perhaps it still is. And there was always excited speculation about which famous actress (yes, we still had actresses in those days) would don tights and a pointy hat and play the part of Peter. Margaret Lockwood was the one when I was taken to see it, and I still remember the thrill of seeing her fly across the stage on a barely visible wire.
Even more vivid is my memory of the terrible moment when Tinkerbell was on the point of death. Her tiny light flickered and Peter begged us all to shout our affirmation of belief in fairies, for it was only that belief which could restore her. Tears streamed down my innocent face as I yelled, “Yes!!!” They turned to tears of joy as her light stopped flickering and came back strong and vital. My eyes are moist as I write, just thinking about it.
And now the global economy is flickering – as China’s growth rate wanes, the Euro Zone flounders, commodity prices droop, and Christine Lagarde frets about indebtedness. And only our belief can save it. Join with me now, I beg you. Do you believe in economic growth? Do you?! I can’t hear you!!!