The Global Debt Crisis. Is anyone concerned? Watch

dottjt
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I've been studying this bad boy for well over 6 months and put simply: the world is screwed. America have 55 trillion dollars worth of debt and their yearly deficit is nearing 50% of the budget.

- 43 million Americans live by food stamps and that number is rapidly increasing. The number of unemployed American's has been steadily increasing.

- Europe is a financial time bomb waiting to happen. Greece is on the verge of default and it's going to lead to the destruction of the Euro and everything else in it's path as the effects ricochet across the world.

- The financial system already imploded in 2008. We've merely been unsustainably kicking the can down the road until another lehman brothers event happens.

Although I'm sure all this meaningless to you. But that's the problem - people have no financial background what-so-ever; and it's this mentality that is going to leave many unprepared for the inevitable 1930's type depression. People aren't taught in schools about how the monetary system works, what inflation is and how the government spends it's money. Something as fundamental as "interest rates" is a foreign concept to many.I bet if i were to ask you where money comes from, you wouldn't have a single clue. If you knew, you'd be outraged.

Unfortunately, i think a lot of it comes down to financial ignorance. People don't give a crap about what the hell is happening in the economy. People are more concerned with masterchef and all the small trivial aspects to life, like the fact that your bus late taking you to work etc. Unfortunately, this is going to be the downfall of society.

I made a video that i think explains the whole crisis really well in under 10 minutes:

http://www.youtube.com/watch?v=Kz6xG2YtyyE

So what are your thoughts? Naturally this thread was destined to fail.... along with the failure of society.
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Bill_Gates
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Haha i guess no-ones worried by no replys? The free market WORKS :P
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DH-Biker
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I'm not really too concerned. Its far and beyond my control and its even further beyond my knowledge of global economy to even have a reasonable guess at what could happen if it did go up-ended.

I like to think there's people who have got some reasonable control that know what to do about this situation. And it will, eventually, balance out again. However, if it doesn't, and we are destined to drop into another, albeit much, much worse recession like a stone in water, then I guess I'll have to become an arm-chair economist and throw around ideas.

But for now, as I said, I remain hopeful that there are people who can deal with these upcoming problems and I'll sit back and let the professionals work.
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sil3nt_cha0s
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I should imagine people only care if it affects them adversely.

And seeing as most people on TSR are from reasonably decent backgrounds, are still in full-time education and haven't entered the working world, I'd imagine they're not too bothered.
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Aeschylus
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(Original post by dottjt)
I've been studying this bad boy for well over 6 months and put simply: the world is screwed. America have 55 trillion dollars worth of debt and their yearly deficit is nearing 50% of the budget.
Where'd you get those figures from. Every figure I see shows US debt as 14 trillion. Still scary though
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Stratos
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As long as the morrissons value stays I'm not worried.
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Fantaisie
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Don't care at all, ****s gonna happen so I'm just gonna roll with it.
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MagicNMedicine
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Most people don't understand it and that includes the journalists and commentators and especially internet shetstirrers that like to go on about debt figures and deficit figures, and usually get them wrong.

There are two separate issues going on - debt sustainability and absence of economic growth.

With any kind of debt its not the overall figure of debt owed that counts - when you see that figure quoted in isolation it is just for effect. What matters is the ability to meet the debt repayments, ie the revenues being brought in, the timescale over which the debt is held, the interest rate on the debt. When lenders suspect that a country is going to be a bad risk of defaulting on its debts then they won't lend to it except at higher interest rates which then creates a problem that can spiral out of control as the interest payments on the debt start rising and you are playing catch up in a game where you can never catch up.

Some of the media commentators and a few politicians have been telling us (and the same in the USA) that we are 'going to be like Greece' and the interest payments are going to spiral out of control etc, but the latest 10 year borrowing rates for the UK (as printed in the back of this week's edition of the Economist) are 2.4%, the US are 1.87%, France 2.6%, Germany 1.76%. We are not the countries who are being seen as likely defaulters - we are borrowing at very low rates which makes the debt owed more serviceable. It is more of a problem for countries like Spain (5.39%), Italy (5.73%) and Greece (22.03%).

The issue regarding absence of growth is what has more direct effects on people, as economic output requires people to produce it, the more output being produced the more people are required to be employed. As the population grows over time and more people come into the workforce then you need some level of growth all the time to absorb the new people into the workforce, otherwise unemployment will rise. This is where there is more of a problem for us, in the last year the UK has grown 0.7%, the US 1.5%, France 1.6%, Germany 2.8% (then for comparison again you have Spain 0.7%, Italy 0.8% and Greece -7.3%).

If low growth persists then you get a lot of people who are long term unemployed and it is difficult to get them back into the workforce as they lose skills, employers don't want them, and in general the output potential of the economy will fall as there are fewer useful workers and also, demand in the economy becomes repressed as people change their mindset to one of 'battening down the hatches and only spending what is absolutely necessary'.

That's why you get the 'paradox of thrift' - there was a guy in the audience in Question Time last year who said people need to change their mindsets and become savers rather than spenders....yes it sounds like prudent behaviour, but that is exactly what is happening and this is why the economy has no growth. It is hard for any business to sell anything to people who are just holding onto the pennies and being prudent.

Most of the time when there is any sort of debate about the economic situation, and you see this especially on TSR, all it turns into is a political mudslinging contest by people that have a political allegiance. Most people don't really understand the situation but they have a natural reaction (depending on the way they are politically programmed) to say "its because of the disastrous ConDem coalition policies" or "its because Gordon Brown ruined the country".
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Oswy
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Focus on the debt has, ironically, diverted attention from the fact that capitalism seems to be failing at an ever advancing rate without credit. It's the fact that capitalism has needed to operate through so much credit that we should spend more time thinking about because we now know that both credit-based economics and non-credit based economics, under capitalism, seem to be inherently failing systems.

Even if capitalism does manage to claw its way out of this self-made hole it seems it can only do so by either further impovershing the many or by again jumping on a credit train. The options look bleak.
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dottjt
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(Original post by Aeschylus)
Where'd you get those figures from. Every figure I see shows US debt as 14 trillion. Still scary though
The 55 trillion dollars includes public + private debt. The 14 Trillion (now 15 trillion) represents public debt.
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dottjt
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(Original post by MagicNMedicine)
Most people don't understand it and that includes the journalists and commentators and especially internet shetstirrers that like to go on about debt figures and deficit figures, and usually get them wrong.

There are two separate issues going on - debt sustainability and absence of economic growth.

With any kind of debt its not the overall figure of debt owed that counts - when you see that figure quoted in isolation it is just for effect. What matters is the ability to meet the debt repayments, ie the revenues being brought in, the timescale over which the debt is held, the interest rate on the debt. When lenders suspect that a country is going to be a bad risk of defaulting on its debts then they won't lend to it except at higher interest rates which then creates a problem that can spiral out of control as the interest payments on the debt start rising and you are playing catch up in a game where you can never catch up.

Some of the media commentators and a few politicians have been telling us (and the same in the USA) that we are 'going to be like Greece' and the interest payments are going to spiral out of control etc, but the latest 10 year borrowing rates for the UK (as printed in the back of this week's edition of the Economist) are 2.4%, the US are 1.87%, France 2.6%, Germany 1.76%. We are not the countries who are being seen as likely defaulters - we are borrowing at very low rates which makes the debt owed more serviceable. It is more of a problem for countries like Spain (5.39%), Italy (5.73%) and Greece (22.03%).

The issue regarding absence of growth is what has more direct effects on people, as economic output requires people to produce it, the more output being produced the more people are required to be employed. As the population grows over time and more people come into the workforce then you need some level of growth all the time to absorb the new people into the workforce, otherwise unemployment will rise. This is where there is more of a problem for us, in the last year the UK has grown 0.7%, the US 1.5%, France 1.6%, Germany 2.8% (then for comparison again you have Spain 0.7%, Italy 0.8% and Greece -7.3%).

If low growth persists then you get a lot of people who are long term unemployed and it is difficult to get them back into the workforce as they lose skills, employers don't want them, and in general the output potential of the economy will fall as there are fewer useful workers and also, demand in the economy becomes repressed as people change their mindset to one of 'battening down the hatches and only spending what is absolutely necessary'.

That's why you get the 'paradox of thrift' - there was a guy in the audience in Question Time last year who said people need to change their mindsets and become savers rather than spenders....yes it sounds like prudent behaviour, but that is exactly what is happening and this is why the economy has no growth. It is hard for any business to sell anything to people who are just holding onto the pennies and being prudent.

Most of the time when there is any sort of debate about the economic situation, and you see this especially on TSR, all it turns into is a political mudslinging contest by people that have a political allegiance. Most people don't really understand the situation but they have a natural reaction (depending on the way they are politically programmed) to say "its because of the disastrous ConDem coalition policies" or "its because Gordon Brown ruined the country".
They are exactly the points i address in my video. We're not growing at a rate enough that it is able to service the debt.
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dottjt
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(Original post by Oswy)
Focus on the debt has, ironically, diverted attention from the fact that capitalism seems to be failing at an ever advancing rate without credit. It's the fact that capitalism has needed to operate through so much credit that we should spend more time thinking about because we now know that both credit-based economics and non-credit based economics, under capitalism, seem to be inherently failing systems.

Even if capitalism does manage to claw its way out of this self-made hole it seems it can only do so by either further impovershing the many or by again jumping on a credit train. The options look bleak.
I always thought that credit was the problem. At least the easy access to cheap credit (especially with current low interest rates). I think you're looking at things through a Keynes point of view, which i disagree with.
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H.JJJ
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(Original post by MagicNMedicine)
Most people don't understand it and that includes the journalists and commentators and especially internet shetstirrers that like to go on about debt figures and deficit figures, and usually get them wrong.

There are two separate issues going on - debt sustainability and absence of economic growth.

With any kind of debt its not the overall figure of debt owed that counts - when you see that figure quoted in isolation it is just for effect. What matters is the ability to meet the debt repayments, ie the revenues being brought in, the timescale over which the debt is held, the interest rate on the debt. When lenders suspect that a country is going to be a bad risk of defaulting on its debts then they won't lend to it except at higher interest rates which then creates a problem that can spiral out of control as the interest payments on the debt start rising and you are playing catch up in a game where you can never catch up.

Some of the media commentators and a few politicians have been telling us (and the same in the USA) that we are 'going to be like Greece' and the interest payments are going to spiral out of control etc, but the latest 10 year borrowing rates for the UK (as printed in the back of this week's edition of the Economist) are 2.4%, the US are 1.87%, France 2.6%, Germany 1.76%. We are not the countries who are being seen as likely defaulters - we are borrowing at very low rates which makes the debt owed more serviceable. It is more of a problem for countries like Spain (5.39%), Italy (5.73%) and Greece (22.03%).

The issue regarding absence of growth is what has more direct effects on people, as economic output requires people to produce it, the more output being produced the more people are required to be employed. As the population grows over time and more people come into the workforce then you need some level of growth all the time to absorb the new people into the workforce, otherwise unemployment will rise. This is where there is more of a problem for us, in the last year the UK has grown 0.7%, the US 1.5%, France 1.6%, Germany 2.8% (then for comparison again you have Spain 0.7%, Italy 0.8% and Greece -7.3%).

If low growth persists then you get a lot of people who are long term unemployed and it is difficult to get them back into the workforce as they lose skills, employers don't want them, and in general the output potential of the economy will fall as there are fewer useful workers and also, demand in the economy becomes repressed as people change their mindset to one of 'battening down the hatches and only spending what is absolutely necessary'.

That's why you get the 'paradox of thrift' - there was a guy in the audience in Question Time last year who said people need to change their mindsets and become savers rather than spenders....yes it sounds like prudent behaviour, but that is exactly what is happening and this is why the economy has no growth. It is hard for any business to sell anything to people who are just holding onto the pennies and being prudent.

Most of the time when there is any sort of debate about the economic situation, and you see this especially on TSR, all it turns into is a political mudslinging contest by people that have a political allegiance. Most people don't really understand the situation but they have a natural reaction (depending on the way they are politically programmed) to say "its because of the disastrous ConDem coalition policies" or "its because Gordon Brown ruined the country".
This sums up everything.

Investor confidence is also shoddy at the moment mainly because of poor gdp figures which in turn lead to poor employment figures and industry performance.

I do find it ironic that when its boom - people spend and borrow more than save. When its bust - people save more than spend. Everyone has it the wrong way round. Basically, joe public needs to understand if you want to kick start this economy, you should go out and spend your money to rally confidence in the markets which will see some growth at the end of it.
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Oswy
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(Original post by dottjt)
I always thought that credit was the problem. At least the easy access to cheap credit (especially with current low interest rates). I think you're looking at things through a Keynes point of view, which i disagree with.
I'm more a fan of Marx. Capitalism is inherently crisis forming and no amount of tinkering, of the Keynesian kind or otherwise, can prevent the internal contradictions from surfacing in some way or other. Check out David Harvey's book The Enigma of Capital.

Capitalism in advanced industrial centres appeared to be stalling in the 1970s and generating increasing labour unrest. The 'solution' was to clamp down on unions and hide the failure of wages to keep up with required consumption by using credit. This is the stark choice under capitalism as I see it, the stalling of growth and rise of unemployment without credit or the build up of another, potentially state-destroying, bubble with it.

Capitalism is a busted flush as far as I'm concerned, it's more a matter of when and how it will fully collapse than whether or not that collapse will happen. If this doesn't turn out to be the ultimate crisis maybe the next one will be too hard and fast to plug, or maybe the one after that.
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Oswy
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(Original post by H.JJJ)
...

I do find it ironic that when its boom - people spend and borrow more than save...
If booms pretty much happen because a sustained cycle of borrowing and spending is engineered then it's not so much as ironic as inevitable.
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ish90an
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(Original post by Oswy)
Focus on the debt has, ironically, diverted attention from the fact that capitalism seems to be failing at an ever advancing rate without credit. It's the fact that capitalism has needed to operate through so much credit that we should spend more time thinking about because we now know that both credit-based economics and non-credit based economics, under capitalism, seem to be inherently failing systems.

Even if capitalism does manage to claw its way out of this self-made hole it seems it can only do so by either further impovershing the many or by again jumping on a credit train. The options look bleak.
What a load of utter garbage. The current crisis came about due to governments trying to play with economies, spending recklessly and encouraging cheap credit(sold to thick voters in the guise of "public sector growth" and "fairness"). The eurozone is suffering precisely because it abandoned true capitalism and let left wing governments in Greece, Spain and Italy live lifestyles they couldn't afford and German and French banks jumped on it, and are now being supported by governments(another anti-capitalist move) because people in places like Greece still want to live off borrowed money and governments themselves rely far too much on their banks. Economies that have done well, such as China and India, have in contrast gone away from state control; the parts of India that have seen the best growth are those that have let private businesses do their thing whereas socialist state governments have led to lost jobs and factories moving elsewhere.
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Quady
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(Original post by dottjt)
I've been studying this bad boy for well over 6 months and put simply: the world is screwed. America have 55 trillion dollars worth of debt and their yearly deficit is nearing 50% of the budget.
50% of the budget - source?
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jacketpotato
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Op and most of this topic ignore the primary causes of the credit crisis. Excess debt may have contributed but that by itself is a completely insufficent and nonsense explanation. There were huge stock, asset and property bubbles that collapsed in a small space of time. If there was another crash it would be for entirely different reasons. The Op's video is very generic and doesn't explain or match with what actually happened.

For a proper explanation read the introduction (and the short introduction to the dissents) at http://fcic.law.stanford.edu/.


(Original post by ish90an)
What a load of utter garbage. The current crisis came about due to governments trying to play with economies, spending recklessly and encouraging cheap credit(sold to thick voters in the guise of "public sector growth" and "fairness"). The eurozone is suffering precisely because it abandoned true capitalism and let left wing governments in Greece, Spain and Italy live lifestyles they couldn't afford and German and French banks jumped on it, and are now being supported by governments(another anti-capitalist move) because people in places like Greece still want to live off borrowed money and governments themselves rely far too much on their banks. Economies that have done well, such as China and India, have in contrast gone away from state control; the parts of India that have seen the best growth are those that have let private businesses do their thing whereas socialist state governments have led to lost jobs and factories moving elsewhere.
I'm not sure how cheap credit caused public sector growth. You mention China, but since 2008 China has moved away from capitalism not towards it. China quickly underwent enormous state-spending binge (4 trillion Yuan) following the credit crunch, increased regulation on investments, increased regulation on its banks and continued to fix the Yuan exchange rate. The real position is much more complicated than you suggest.

I question your idea that there was an abandonment of "capitalism" because Spain, Greece and Italy were allowed to live beyond their means. States are sovereign, I don't think the idea of a superpowered EU which controls what states spend is capitalist. You also need to remember that the banks which exposed themselves to Greek/Italian/Spanish debt are private sector organisations which chose to lend to those states at cheap rates and are now likely to lose money. That is entirely capitalist: banks bought Greek debt because they were trying to make money, not because they were forced to.
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dottjt
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(Original post by Quady)
50% of the budget - source?
http://www.gpoaccess.gov/usbudget/fy10/index.html

Total revenue: $2.381 trillion
Total expenditures: $3.552 trillion
Deficit: $1.294 trillion

ahk, so it's more like 36% - my bad.

However in 2011 the deficit creeped up to 43%.
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dottjt
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(Original post by jacketpotato)
Op and most of this topic ignore the primary causes of the credit crisis. Excess debt may have contributed but that by itself is a completely insufficent and nonsense explanation. There were huge stock, asset and property bubbles that collapsed in a small space of time. If there was another crash it would be for entirely different reasons. The Op's video is very generic and doesn't explain or match with what actually happened.

For a proper explanation read the introduction (and the short introduction to the dissents) at http://fcic.law.stanford.edu/.
Sure, debt isn't the direct problem. The issue i was trying to raise is that Debt can never be sustainable in the long run. In every single society in history, debt has always outpaced growth and problems arise. Sure, the debt itself didn't cause the problem: but i was just trying to demonstrate that fact.
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