Could high global government debt cause a crash?

Brian65

newbinvestor wrote: »

Japan and China have debt of over 200% to gdp.
USA's debt rapidly on the rise.

Is anyone else worried that this could cause a massive crash? I don't see how the government can ever repay that debt, it's too big.

Just looking at the debt is like comparing 2 people whose circumstances are identical - except that one has bought a home on a mortgage and one is paying rent. Just comparing debt implies the home-owner is worse off.
In the case of countries it ignores the wheezes that politicians use to take debt off balance sheet - like PFI.
Or selling off their railways, power and water supplies. Countries that still own their monopoly industries can simply make them profitable by raising prices if they need to do.

Carrieanne

Mayhem claimed there was no magic money tree. It must have slipped her mind that there is, because she wouldn't lie (stop laughing at the back, you boys!). So far the magic money tree, AKA QE, has yielded £434 billion which forms part of the national debt... so Britain owes £434 in QE to, er, itself. How so? Because it went through the rigmarole of borrowing it into existence from the Bank of England who magicked it from thin air by entering digits into a computer instead of someone at the Treasury doing exactly the same thing.

As someone else wondered, why does .gov pay holders of British debt interest when they can purchase their holdings with more counterfeited QE that they can create an infinite amount of thus not having to make those interest payments?

Malthusian

Carrieanne wrote: »

As someone else wondered, why does .gov pay holders of British debt interest when they can purchase their holdings with more counterfeited QE that they can create an infinite amount of thus not having to make those interest payments?

Do people really wonder about extremely basic economic facts that most 8 year olds borrowing pocket money off each other to buy sweets could explain to them?

Namely that if you default on debt (or repay it with something that is less valuable than it used to be, which is a less extreme version) people will be less willing to lend you money in the future.

Aretnap

Economic wrote: »

And governments can imposes taxes to raise revenue and print money so comparing government debt and individual debt is totally irrelevant.

Of course, though my point was that the notion that a given level of debt is somehow unsustainable is often based on little more than "ZOMG! 200% That's HUGE". But that even in the context of individual debt it would not actually be all that big, and as you rightly point out the capacity of the state to deal with debt is much greater than that of the individual.

Another way of looking at it would be to say that Japan's debt is 2% of its GDP per century. In that context it sounds like little more than a rounding error. Or if you want to make Japan's debt sound really scary, why not say that it's 10,000% of weekly GDP? But as the lifetime of a state is in practical terms infinite there is no particular reason why a years GDP is a more useful amount of money to compare it to than a century's or a week's - they are all are just arbitrary units of time, and "OMG this number sounds huge" doesn't in itself tell you anything useful about the sustainability of the debt.

[Deleted User]

Aretnap wrote: »

Another way of looking at it would be to say that Japan's debt is 2% of its GDP per century. In that context it sounds like little more than a rounding error. Or if you want to make Japan's debt sound really scary, why not say that it's 10,000% of weekly GDP? But as the lifetime of a state is in practical terms infinite there is no particular reason why a years GDP is a more useful amount of money to compare it to than a century's or a week's - they are all are just arbitrary units of time, and "OMG this number sounds huge" doesn't in itself tell you anything useful about the sustainability of the debt.

Hmmm, the UK government have had to cut back spending on public services because of our high debt = high interest payments which may not have effected you but I bet it has effected many people for the worse.

Linton

newbinvestor wrote: »

Hmmm, the UK government have had to cut back spending on public services because of our high debt = high interest payments which may not have effected you but I bet it has effected many people for the worse.

The government did not have to cut back on spending, they chose to as part of a wider political agenda. The Uk does not pay high interest rates. Gilt purchasers, who are mainly in the UK, are more than happy to buy all the debt they can despite the very low interest rates..

Aretnap

newbinvestor wrote: »

Hmmm, the UK government have had to cut back spending on public services because of our high debt = high interest payments which may not have effected you but I bet it has effected many people for the worse.

As above, this is quite simply not true. The government did not have to cut back spending because of high interest payments, it chose to do so for ideological reasons. Interest rates on UK government debt are at the lowest they have been since... any time I can find data for, and total interest payments are at historically low levels too






Note that even at their height around 2011 (before QE and low interest gilt yields reduced them again) interest payments jumped by a whole 1% of GDP. BY contrast public spending has fallen from a peak of 45% of GDP to 38.5% of GDP (linky) - whatever has caused a fall of that scale it is clearly NOT the result of the extra 1% of GDP which was being spent on debt interest fro a couple of years.