On the debt front, the the situation is becoming gloomy. In developed countries’ household, institutional, government and corporate debts altogether could easily exceed 300% of the gross domestic product. Lot of attention is paid to government debt, much less so to neither non-government nor corporate or household indebtedness. The alarming side of this situation is debt must be repaid at a certain point of time by diverting part of the gross national product. Unless repayment comes from the proceeds of new debt.
Hence the problem. When debt is supposed to finance growth it could be expected that the future growth will make for its reimbursement. Now let us have a quick look on the figures. If you consider that 300% of GDP of debt is sustainable you must bear un mind that a fraction of the GDP will be diverted to redeem this debt in full. Lets us assume that 10% of GDP will be used for that purpose. That would imply a 30 year average debt maturity, enough to postpone the burden of the debt on future generations. Not very friendly for unborn generations !
And yet nobody seems to bother very much about this issue. Maybe the attention is diverted by the effect of interest rates that are too low. As for now. But what will happen if and when the interest rates get back to higher levels ? Another reason may come from the fact that debt is like a coin with the debtor on the one side, the lender on the other side. A quite popular french saying may illustrate the point : “si tu dois 100 euros à ton banquier c’est ton problème, si tu lui dois 1 millions d’euros c’est son problème” suggesting that the debt is the lender’s responsibility, in very first !
Interesting theory to write about the topic, isn’t it ?
Dominique F. Pasquier