I’M NO economist but the global debt situation is something that concerns me and many others all over the world.
According to the Organization for Economic Co-operation and Development (OECD), the world’s total Sovereign and Corporate debt is over $100 trillion; 40% of this will mature in 2027, but that’s assuming we don’t compound it.
This amount will continue to grow until countries and corporations either default, transfer payments to other sectors of the economy or undergo a painful austerity.
In the first scenario, we enter a global recession/depression where billions, if not trillions of dollars are lost. That’s it. The world races to the bottom, we enter a period of instability, and what comes the other end would likely be unpleasant for a lot of people.
There’s not much to say about it, other than that a severe economic recession/depression could potentially lead to revolutions, insurrections and wars.
The second scenario involves directing the cost of debts onto specific sectors of the economy. For example, governments could raise taxes to pay off the debt, but doing so will harm consumption and economic activity of the middle and working classes.
They can also allow those sectors that are more heavily in debt relative to other parts of the economy to go bust. This was the case with China’s real estate bubble, for example, and may have delayed their economic reckoning by allowing the China Communist Party to transfer their dependency onto the manufacturing and export sector, which in turn allowed them to offshore their economic issues to the global market. But this measure only works if the system is fully reformed. Shifting debt from one sector to another, without structural reforms is a temporary measure.
The last scenario is austerity, which is like scenario one but managed. Austerity means less consumption, higher taxes and lower social services, but unlike a recession, the process is managed. It’s the difference between falling down a hill, and sliding off it. A good example is Japan’s Lost Decade.
There’s hope that tech can save the global economy, but I am less optimistic. As I have mentioned last week, some governments are hoping that robotics and artificial intelligence will boost productivity enough to save them from this economic mess, or at least, delay it. It’s possible to grow out of debt with the help of the right tools, but it’s not possible without structural reforms./PN
