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Mats Kaarbø

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The World has More Than 40 Trillion Dollars in Debt, But To Whom?

The question is simple. To whom is the world in debt?

Source: http://www.economist.com/content/global_debt_clock

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    • Jon Ho

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      Oct 6 2012: And then comes guy C and D...

      C: Why the frowny face guys? Lets go party, drink some wine, go on a non-sinking cruise ship holiday!
      D: Yeah! Or, or lets go watch some bullfights!

      A & B : Well, ok, lets go!


      ;)
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      Oct 7 2012: Wonderful post Mark.
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    Oct 4 2012: One of the greatest fallacies most people believe about modern economics is that "government debt" is totally BAD. In actuality, a totally balanced budget is worse than a government with a deficit (debt). Governments don't carry debt the same way an individual or a business does. Governments can always "pay off" debt by simply "rolling the debt over" and continuing to pay interest on the debt. The debt can theoretically be increased infinitely, as long as the total amount of the debt and interest payments do not exceed other factors within the economy. This is preferable, for many reasons, to actually eliminating the debt altogether.

    Here are a couple links that explain it in "layman's" terms. Note the first link is from an article by an economist who received the Nobel Prize in Economics in 1996, so the information is not archaic, and was recognized within the last two decades by some of the world's best economists as being "realistic" and "factual".

    The Need for a Budget Deficit
    http://wfhummel.cnchost.com/vickrey.html

    Do Deficits Matter?
    http://wfhummel.cnchost.com/deficits.html

    The entire series of articles is very informative for the "average person" who has never studied Economics. Undoubtably, some of the conclusions drawn from some of the articles will be subject to debate, just as ANY conclusion drawn from an Economics discussion can be debated by anyone who disagrees with the "philosophy" of the economic system. But much of the information...MOST of it...is basic foundation-level teaching about how the economic system is designed to operate. And that daily operation of the system is much different than what "arm chair economists" think about how the economic system is designed to work.

    Many recommended "solutions" to economic system "problems", if actually implemented, would cause the total failure of the economic system in question.

    "The World" is not in debt to anybody. Debt is handled differently by governments vs "people".
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      Oct 4 2012: So did Paul Krugman they both are Keynesian s I will look this over later but for starters Keynesians by definition think spending is beneficial the 1.5 multiplier and all.

      The practical reality is that debt does matter the same for a country as for an individual.

      The problem with government spending is the exchange is poor in other words there services are very expensive and what you get for your money is not a bargain.

      As to the OP's question I think the debt has to be taken in perspective. This index shows that perspective and indicates that Australia and New Zealand are in the 5 freest countries in the world despite their red ranking on the map linked by the OP, which does not show Hong Kong or Singapore or Switzerland.

      I don't think there is enough information on the OP's map to draw any conclusions

      http://www.heritage.org/index/ranking
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        Oct 4 2012: Like I said, Pat, any discussion about economics can be challenged by anyone else with a different opinion about what a "good" vs "bad" economic system should be.

        The point of my post was there are plenty of people who are willing to say something like, "Our problems would all be solved by forcing the government to balance the budget!"

        As the articles show, that is not a realistic solution. Most economists would agree with that. And so would most POLITICIANS (if they are educated in economics). Yet you even hear politicians saying, "My opponant's policies are forcing an increasing deficit! But if you elect me, I'll implement a balanced budget!". Why are they saying that?

        Because it's what most of the population believe is "The Solution" to "The Problem". Politicians tell the people what the people WANT to hear...not what is necessarily factual...so they can get enough votes to get elected in the first place. Then, because we are a Republic, they will decide what NEEDS to be done, not what the people want to be done. It's really the only way to do it within our political system, including the handling of "the economy". If the people themselves were allowed to make the decisions on how to keep the economy going, it would collapse within months. A majority of the population would institute a totally balanced budget. The result would be an immediate stagnation of the economy, followed by an increasing recession (in all probability).

        There's nothing wrong with disagreeing about policies. But the disagreements should be based on rational projections of what is likely to happen when dissenting policy decisions are made.
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        Oct 4 2012: Pat,

        You edited (added to) your original reply above whle I was typing my reply to it. So just to be sure...

        I agree with the last sentence you added to your reply..."I don't think there is enough information on the OP's map to draw any conclusions."

        I still have to respecrtfully disagree with your statement you added about, "The problem with government spending is the exchange is poor in other words there services are very expensive and what you get for your money is not a bargain."

        "The Government" doesn't "spend" anything by increasing a deficit. It's not the same as me taking out a loan to buy a car or a house. The increased deficit is immediately put into the economy for USE by the private sector, for example...in the form of credit availability. This allows for investment, goods production, and jobs. A stagnant economy allows for none of those things. Keep an economy balanced, and it would have to STAY that way by no increases in goods production, public spending, decrease in unemployment, etc. No new jobs, no increase in anybody's quality of life, etc. Where you are now is where everything stays from that moment on.
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          Oct 4 2012: Yes I did add to my post forgive me the faux pa, I post to read what I wrote, not to change what I said although I sometimes do add as you noted.

          I think the fundamental disagreement we have is Free Market verses Keynesian.

          When the government takes out a loan as with QE 1 though QE 3 it is printing the money out of thin air which results in inflation which we all pay for through the nose. Additionally from my amateur economist point of view, the FED bough bad real estate loans this kept the big 5 banks from having to take a loss for their incompetence as they should have to. The problem with this is that real estate never will get to a price point where the astute buyer will purchase which creates stagnation a la Japan now on QE 8 I think.

          Apparently your basic assumption is that the economy is stimulated by government spending. Here is where the Keynesians are dead wrong. Really Keynesian economics are propaganda that gives the politicians an excuse to spend money.

          The reality is that as the next POTUS correctly indicated tonight that the economy is stimulated by private investment. I'm not opining this is just the way it is. When you have a egotistical top down individual like Wilson,FDR, LBJ, Obama you have stagnation, the exact opposite of what you espouse, again I'm not opining this is just a fact. The proof is the turd in the punch bowl that was their legacy.
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        Oct 4 2012: @Pat

        (Quote): "Additionally from my amateur economist point of view, the FED bough bad real estate loans this kept the big 5 banks from having to take a loss for their incompetence as they should have to."

        The FED bought those loans to prevent a TOTAL collapse of the economy. Only a SEGMENT of the economic system failed with the housing meltdown. Yes, it was a large segment, but if the FED had not "loaned" the $500 billion to stop many of those "businesses" from going bankrupt, we would not have had an economy at all within about 48 hours. There would have been a run on the stock market and all the banks by investors and the general public ("Gimme all my money NOW!") that would have made the Great Depression bank run look minor in comparison.

        And the day after the FED loaned that $500 billion dollars, I could still go to McDonald's for a $1 cheeseburger, Starbuck's for a $5 coffee, or my local Cadillac dealer for a $70,000 SUV (if I really wanted one and had the money to do it). Yes...the majority of the "people" who got burned by the collapse were the home owners who saw their property values go down. But there were TWO categories of those home owners. The ones who were financially solvent enough could still keep their homes at the lower property value and wait for the economy to recover so they won't lose value in the LONG run. The other category were the "get rich quick" home buying investors who saw an economy running wild on inflating home prices and "gambled" with adjustable rate mortgages. They lost, and had to walk away from their purchases or get foreclosed on them.

        In any case, the FED did what they HAD to do to prevent a single-segment failure of the economy from turning into a TOTAL failure of the economy. The "bad real estate loans" they bought didn't "cost" them anything, in the sense they didn't have to pay any "hard cash" for them at all. Government debt is different than private sector (personal people's or business) debt.
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          Oct 4 2012: i think government debt is actually not governments it is all of us people .when they cant pay off .they just begin to print money ,turn the disater to us people .i think then america depression is very ralated to the government and some big companies and banks
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          Oct 4 2012: Yea that is the same thing my congressman said but there have been 3 QEs since TARP, totaling how many trillions? with the last one going on into perpetuity.

          But you say it is ok because government debt/spending is different? Would you care to explain why? The only difference is that the FED has access to the printing press which creates the most insidious tax, inflation.

          I don't think I agree about the too big to fail conjecture. By not letting them fail the cure will be worse than the injury.

          One way or another (eventually) I don't see how we are not going to be the next Wiemar Republic.
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          Oct 4 2012: Ha! Great post Pat!

          Does anyone wonder anymore why Mark Rothko went for $87M?

          http://www.bbc.co.uk/news/world-us-canada-18001432
    • Oct 4 2012: @Rick Ryan

      William Vickrey seems to view deficit spending as a way to counteract rises in wealth inequality (and by extension income inequality). However there are other ways to do keep inequality in check and I'd say doing it through deficit spending is a very inefficient, perhaps even counter productive way. Much better would be a reduction of the workweek (and or lowering of the retirement age) coupled with a rise in pay per hour, although it might be especially difficult to implement in the US, it certainly can (and to a degree has been done) in other developed countries.
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      Oct 4 2012: Insanity! Printing money to get out of debt is not limitless! There are results to this. The value of currency goes down and becomes worthless. We have seen this in many countries in Africa. The price of products becomes huge as the value of currency goes down. Inflation 101!!
  • Oct 4 2012: It proves that we live in virtual reality :)
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      Oct 5 2012: Or another beings imagination lol
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    Oct 4 2012: I believe the answer you're looking for is this: the world has borrowed $40 trillion against its own future, and it is our future selves to whom the debt will be repaid.
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      Oct 4 2012: until we have a time machine, it does not work. if you want to have a flat TV, someone has to have a flat TV to give it to you, now. you can not take a flat TV from your future self.
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    Oct 10 2012: If you have a pension or mutual fund with a diverse portfolio that includes the bonds, than those countries might owe money to you. One of the problems with having low interest rates to stimulate the economy (which is what we are doing in Canada) is that people who have a lot of canadian bonds in their retirement fund are now getting lousy returns. The interest paid on those debts is the profits of the investors who put that money up front in the first place.

    Debt today is bought, sold, divided, and cumulated, and distributed among large and small investors. Sometimes those investors are billionaires, sometimes they are financial companies which include them in mutual funds to sell to small investors, and sometimes they are nations.

    If countries can't pay back their debt than investors won't want to buy bonds, which makes it harder for the governments to raise the money they need.

    Debt is very different for nations than for individuals. Borrowing money provides profit for certain sectors of the economy. In international relations, governments can use their own resources to support allies or out maneuver adversaries. In the case of pensions, when governments pay off their interest, they are supporting the retirees who invested in their country when they were young.

    It is not always bad, but it cannot be ignored
    • Oct 10 2012: "One of the problems with having low interest rates to stimulate the economy (which is what we are doing in Canada) is that people who have a lot of canadian bonds in their retirement fund are now getting lousy returns."

      What did you expect? That you can pay off debt without anyone suffering a loss in purchasing power? The rich and large corporations and banks are overrepresented among bond buyers, so it's effectively (for the most part) just a tax increase on the rich and big business, with less affluent people paying something, but not much. It's a progressive tax but without giving the rich a chance to block it in parliament and with the added bonus that if they were to make a fuzz about it people could just say: "well, you knew this was a possibility when you invested in bonds, you can't expect to always win".
  • Oct 7 2012: Future workers.
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    Oct 6 2012: .
    Country X owes country Y $50
    Country Y owes country X $55
    Logic would dictate that country Y owes country X $5
    But no, Country X owes country Y $50 and
    country Y owes country X $55
    • Oct 6 2012: Country X makes more money (through interest payments) on being a creditor for $55 and a debtor for $50 than on being a debtor for $5 if the interest rate on the $55 debt is higher thant that on the $50 debt. That's why you need permission from both countries if you want to cancel out parts of the debts against each other.
  • Jon Ho

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    Oct 4 2012: China, Japan, and Saudi Arabia, UAE.
  • Oct 4 2012: "The World has More Than 40 Trillion Dollars in Debt, But To Whom?"

    This is about national debts. Countries are indebted to each other (this is why the total net debt will be less than $40 trillion), corporations and individuals, basically everyone holding government bonds.
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    Oct 4 2012: References please.
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        Oct 4 2012: The $40 Trillion debt shown is a statistical number. Other ways of calculating the total debt would providide significantly different statistical amounts for the total debt depending on which way it is calculated. The figure arrived at on your linked page is only one way of determing that $40 Trillion number, and is in disagreement with the way it should be calculated by many respected economists in the world, including many Nobel Laureates in Economics.

        Statistics can be accumulated, manipulated, interpreted, and presented in many different ways, depending on how the presenter wants to present them.
        • Oct 4 2012: The question still remains however. To whom are the world in debt?
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          Oct 4 2012: Mats

          The money is created out of thin air, when the government does this it is not technically owed to anyone. The real effect though is to dilute the value of the existing money.

          Look at the illustrious Robert Mugabe and what he had done to his people. Unless there is something I don't get (which maybe) we are going to be saying the same thing about Bernake.
        • Oct 4 2012: "The real effect though is to dilute the value of the existing money."

          Yes, the idea is basically wealth distribution: everyone's money becomes worth less but some groups are compensated or even overcompensated for this.

          "Look at the illustrious Robert Mugabe"

          He went overboard. Hyper inflation is rare because printing in moderate amounts won't have much effect on the purchasing power of you or I. Bernanke is printing a lot right now because a lot of money doesn't trickle down from Wall Street, this is harmless for the time being but if some day the people on Wall Street decide to spend their money on the same stuff as you or I, we might see hyper inflation after all.
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    Oct 3 2012: the world is not in debt. some countries are. other countries are the creditors. like china, like germany.
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      Oct 4 2012: actually china is very rich while chinese are poor .
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        Oct 4 2012: poor they are, but they still had to finance american flat TV's and SUV's. this would not happen in the real world. only in this weird dream we are living in.
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          Oct 4 2012: ok . i admit that there are thousands of people who can own a suv,or ipad .but you know there are 13 billion people .not everyone can have one ..compared to america .i think we are still a village .they can own one or two .per family .while we may be ten percent of that .and most of us are workers .we still need to strive for meals for houses.
          i think living in china is much diffcult than some european countries .we do not have a complete health system .and also we handreds of thousands of student are facing a job seeking .even we can not find a good gob after we graduate .rich people are very rich .poor are very poor .
          most of the people who can burden a suv and ipad are officials merchants .so china is not what you thing it is .
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        Oct 4 2012: i was talking about americans. look at the world chart of trade balance:
        http://en.wikipedia.org/wiki/File:Cumulative_Current_Account_Balance.png
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    Oct 3 2012: To a few individuals who are the major benefitiaries of the inequalities caused and sustained by the present economic system.
    • Oct 3 2012: If this is true, who are to blame? The few individuals or the society as a whole for letting it happen?
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        Oct 4 2012: I dont think blaming anyone would be helpful. I just think more attention should be given to ethical and moral issues so that good systems do not turn bad due to mismanagement.