If America borrows 100% of its wealth..

lostinrates

which is a quater of the worlds wealth, how does the maths actually work. (question and the figures thanks to This week discussion).

Its too complicatd for me, because if its 25% of the money in the world, then the rest of the world has 75% to go between it, and if america is paying interest on that 25% of the wealth then they must have more than 25% of it really, or not?

Can we have more than 100% wealth (incoporating furture wealth?) How did wealth get so disconnected from natural resources? Payment for skill, for intangible worth-arts, media etc?

Mr_Mumble

Hmm, don't think you (or This Week) mean wealth as such.

US household net worth is over $53 trillion. The US government may be spending like thieving drunken sailors but they're 'only' borrowing $1.6tn this year for a projected government net debt of 8.65tn.

lostinrates

Mr_Mumble wrote: »

Hmm, don't think you (or This Week) mean wealth as such.

US household net worth is over $53 trillion. The US government may be spending like thieving drunken sailors but they're 'only' borrowing $1.6tn this year for a projected government net debt of 8.65tn.

Hmm, so I got the wrong end of the stick? I could have sworn they said wealth, but I've etremely pleased I'm wrong. My poor broken head was struggling more than usual to try and understand...the un-understandable.

I wonder if its one of those watch again programes so I can see where I heard wrong:o

(a less scared lir thinks she might be able to sleep after all.:o)

Generali

lostinrates wrote: »

which is a quater of the worlds wealth, how does the maths actually work. (question and the figures thanks to This week discussion).

Its too complicatd for me, because if its 25% of the money in the world, then the rest of the world has 75% to go between it, and if america is paying interest on that 25% of the wealth then they must have more than 25% of it really, or not?

Can we have more than 100% wealth (incoporating furture wealth?) How did wealth get so disconnected from natural resources? Payment for skill, for intangible worth-arts, media etc?

The amount of the debt is less important than the ability to service it.

The problem that the US has (as well as the UK and many other European countries) is that she has made huge promises in terms of future pension payments and healthcare coverage that haven't been provided for and which are unlikely to be able to be paid.

This is the sovereign defaults that I think are almost inevitable over the next decade or 2, not defaults in the Government debt markets (although that might happen too).

Generali

Demanufacture wrote: »

Lostinrates, following on from Generali's post here is a link to one possible outcome, courtesy of Karl Denniger, warning.... this economic forecast is not for the faint of heart.

http://www.youtube.com/watch?v=m1VbGcaVvFM&feature=fvsr

What he's talking about is simple compound interest (I lost the will to live half way through the video I'm afraid).

The point he misses is that these days (unlike in earlier times) a lot of the 'debt' is in the form of non-binding promises, that is paying pensions and providing free healthcare. It is quite possible to partially or wholly default on these promises without the end of the Western Capitalist system. The British Government for example has already partially defaulted on its pension promises by increasing the age of retirement. This is a trend that I believe is likely to continue as the bill is simply too big to me met.

andygb

Generali wrote: »

What he's talking about is simple compound interest (I lost the will to live half way through the video I'm afraid).

The point he misses is that these days (unlike in earlier times) a lot of the 'debt' is in the form of non-binding promises, that is paying pensions and providing free healthcare. It is quite possible to partially or wholly default on these promises without the end of the Western Capitalist system. The British Government for example has already partially defaulted on its pension promises by increasing the age of retirement. This is a trend that I believe is likely to continue as the bill is simply too big to me met.

Generali, do not take this as a dig at you, but what is the alternative to not paying people a pension which they can live on? As people live longer, and the need for "manpower" decreases (due to advances in technology), how will everyone survive? This is not the first time that you have mentioned defaulting on promise, and I find it a deeply disturbing idea.
An ageing population.
Less employment opportunities.
Supposedly more young people leaving school with higher qualifications, and even higher expectations.
If we raise the retirement age to 70 who will it really benefit? By making people work longer,we are simply depriving the young of employment opportunities. By forcing people to hang on without work, until they become eligible to claim their pension, then we will be forcing tens of millions into poverty, because the private pension plans which they have contributed to will not be worth very much.
Maybe we will see more people working as carers, but maybe a lot of people, fed up with seeing so many "Old people" around, unable to fend for themselves, will suggest some sort of state controlled euthanasia programme to get rid of the "problem".
The future does not look very welcoming.

lostinrates

Generali wrote: »

The amount of the debt is less important than the ability to service it.

The problem that the US has (as well as the UK and many other European countries) is that she has made huge promises in terms of future pension payments and healthcare coverage that haven't been provided for and which are unlikely to be able to be paid.

This is the sovereign defaults that I think are almost inevitable over the next decade or 2, not defaults in the Government debt markets (although that might happen too).

Thank you Gen, yes, I'm comfortable with the idea of big debt (after all, planning on having one of those ourselves soon at more than 100% of current wealth but ability to pay back). It just find I'm ...struggling.....with the concept of ''new money'' (not les bourgoisie, I have a certain liking for fish knives myself) but actual new money: what 100% of the worlds wealth is and how we increase that in fat rather than what we represent it with (cash, cards or gold:although I suppose the latter is part of that wealth in physicality not just representively). I guess the amount isn't static because things like how muh oil we have changes, things with inherant worth....but I'm still struggling with the idea.

If total wealth, of the world, is not a pie that we get a thin sliver of, or not, what is it?:o

lostinrates

andygb wrote: »

Generali, do not take this as a dig at you, but what is the alternative to not paying people a pension which they can live on? As people live longer, and the need for "manpower" decreases (due to advances in technology), how will everyone survive? This is not the first time that you have mentioned defaulting on promise, and I find it a deeply disturbing idea.
An ageing population.
Less employment opportunities.
Supposedly more young people leaving school with higher qualifications, and even higher expectations.
If we raise the retirement age to 70 who will it really benefit? By making people work longer,we are simply depriving the young of employment opportunities. By forcing people to hang on without work, until they become eligible to claim their pension, then we will be forcing tens of millions into poverty, because the private pension plans which they have contributed to will not be worth very much.
Maybe we will see more people working as carers, but maybe a lot of people, fed up with seeing so many "Old people" around, unable to fend for themselves, will suggest some sort of state controlled euthanasia programme to get rid of the "problem".
The future does not look very welcoming.

Are we depriving the young of employment if we are an aging population? Or is this more of an isue of too few young to pay for the pensions involved, and that the situation now is one of job creation and oversupply of workers acroos the age range?

CLAPTON

The future is very likely to be excellent for at least the next 100 years.

If there are major problems, lack of 'funded' pension or healthcare schemes are certainly not the things to worry about.
The provision of these two services will be provided just like all other services on an onging basis by the then current generation of working people. So pensions and helathcare will provided in the same way as the provision of clean water supplies, food, electricity, gas transport, police, education etc etc. .. In fact that is exactly what life is about isn't it?.. You start off being totally dependant on other, you grow up and provide services to the young and old, you get old and rely on the working people to support you... somewhere in all that you enjoy yourself.. a bit messy but its worked for 2 million years and will probably continue for a bit longer.

If you want to worry about the future then the major problems will be the continuing growth of the world's population, water supply on a global scale, peak oil, conflict caused by the strugggle for resources, global warming....

lemonjelly

andygb wrote: »

Generali, do not take this as a dig at you, but what is the alternative to not paying people a pension which they can live on? As people live longer, and the need for "manpower" decreases (due to advances in technology), how will everyone survive? This is not the first time that you have mentioned defaulting on promise, and I find it a deeply disturbing idea.
An ageing population.
Less employment opportunities.
Supposedly more young people leaving school with higher qualifications, and even higher expectations.
If we raise the retirement age to 70 who will it really benefit? By making people work longer,we are simply depriving the young of employment opportunities. By forcing people to hang on without work, until they become eligible to claim their pension, then we will be forcing tens of millions into poverty, because the private pension plans which they have contributed to will not be worth very much.
Maybe we will see more people working as carers, but maybe a lot of people, fed up with seeing so many "Old people" around, unable to fend for themselves, will suggest some sort of state controlled euthanasia programme to get rid of the "problem".
The future does not look very welcoming.

We'll need a load of carers & nurses to look after the old codgers.;)
Who else is gonna push their wheelchairs?

Generali

lostinrates wrote: »

Thank you Gen, yes, I'm comfortable with the idea of big debt (after all, planning on having one of those ourselves soon at more than 100% of current wealth but ability to pay back). It just find I'm ...struggling.....with the concept of ''new money'' (not les bourgoisie, I have a certain liking for fish knives myself) but actual new money: what 100% of the worlds wealth is and how we increase that in fat rather than what we represent it with (cash, cards or gold:although I suppose the latter is part of that wealth in physicality not just representively). I guess the amount isn't static because things like how muh oil we have changes, things with inherant worth....but I'm still struggling with the idea.

If total wealth, of the world, is not a pie that we get a thin sliver of, or not, what is it?:o

The trouble is, I think that your conflating two things. There's money which is a representation of value (often called a store of wealth) and wealth itself (eg land and other productive assets).

The amount of money in circulation need bear no fixed relationship between the total value of assets. One reason for that is practical - the total value of any asset class is set by the last sale by convention. To change the amount of money in circulation because the price of a particular asset has changed would be impractical.

Another reason is that the money supply depends on 2 things: the amount of cash in circulation and also how often it changes hands (known technically as velocity of circulation or just velocity).

Part of the problem is that money isn't really anything at all - most (all?) currencies are what are called fiat currencies, that is that they are created and destroyed by fiat (Government order). If the Government wants some more money in existance it prints some or creates it on a computer. This is done every Christmas for example as the demand for money rises predictably every Christmas as people want to buy Christmas presents etc.