We've all heard the iconic aphorism "The rich get richer and the poor get poorer," but has it ever occurred to you why? Amidst the worst pandemic in modern history, as businesses shut down, and everyone relied on social security checks, billionaires doubled their net worth. What sets them apart? What knowledge do they possess that eludes us? Why are banks always willing to extend credit? And why do they emerge as saviors during wars and infrastructure collapses? In a series of articles starting with this one, we will delve into these questions, starting with an examination of the root cause: global debt. Our aim is to shine a light on the economic challenges confronting our civilization and to explore possible solutions.
By 2024, global debt has reached an unprecedented level surpassing $300 trillion, a figure that might not seem substantial until you consider the numerous zeroes following the three. If you were to examine the richest countries by GDP, you would notice that they also tend to have the most debt. According to the Wikipedia entry "List of countries by external debt," the United States has an external debt of $34.4 trillion, the United Kingdom has $9.65 trillion, Japan has $9.2 trillion, Germany has $6.1 trillion, and France has $3.4 trillion. If you were to compare the debt to each corresponding country’s GDP, you would find that in eight out of ten countries in the top ten, the debt exceeds the GDP.
Debt manifests in two primary forms: private debt and public debt. Private debt encompasses loans acquired by individuals, households, and businesses, spanning personal loans, mortgages, credit card balances, business loans, and corporate bonds. These financial obligations are sourced from banks, credit unions, other financial entities, and through the issuance of corporate bonds.
On the other hand, public debt, also known as government or sovereign debt, represents funds borrowed by governments to finance their operations and fulfill obligations. This includes investments in infrastructure, social welfare programs, defense initiatives, and various public services crucial for societal functioning. Governments acquire these funds by issuing bonds such as Treasury bonds, bills, and notes, which are purchased by a diverse array of investors including individuals, institutions, other governments, and central banks.
The chart above shows the private debt, loans, and debt securities as a percentage of GDP for five countries: France, Germany, the United Kingdom, the United States, and Japan. The data spans from 1950 to 2020. At the start of the chart, most countries' debt was around 50% of their GDP, but it never decreased. Japan experienced the highest peak in private debt relative to GDP, particularly noticeable during its economic bubble in the late 1980s and early 1990s. The United States and United Kingdom both saw significant increases in private debt leading up to the 2008 financial crisis. France showed a sharp increase in private debt as a percentage of GDP in the last decade, peaking around 2020. Germany maintained relatively lower levels of private debt compared to the other countries, with more stable and gradual increases.
The chart above illustrates central government debt as a percentage of GDP for the same major economies. Japan’s debt-to-GDP ratio has increased sharply, especially since the mid-1990s, reaching over 220% by 2020, the highest among the countries listed. The U.S. ratio has shown significant rises during and after financial crises, particularly around the 2008 financial crisis and the COVID-19 pandemic, nearing 118% by 2020. The UK’s ratio has steadily climbed, with significant spikes during the late 2000s financial crisis and the COVID-19 pandemic, hitting around 104% by 2020. France’s ratio was approximately 94% by 2020. Germany’s ratio exhibits a more moderate increase, peaking in the early 2010s, dipping slightly, and then rising again during the COVID-19 pandemic, remaining one of the lower ratios at around 45% by 2020.
During the COVID-19 period, global debt surged significantly, evident in the charts. The pandemic disrupted economies worldwide, leading governments to enact extensive fiscal measures such as stimulus packages, unemployment benefits, and business support, all of which substantially escalated national debts. Trillions of dollars were printed out of thin air. COVID-19, once considered a conspiracy theory, is now acknowledged to have been engineered in a lab with funding from the United States. A global cabal deliberately released the virus, prompting worldwide quarantines, business closures, and massive government spending, including the issuance of social security checks, and a significant portion of this money was siphoned off by the same group.
As Congress took the lead in pandemic relief efforts, lawmakers held investments in companies focused on COVID-19. Between 2020 and 2021, Congress voted on six relief bills totaling nearly $6 trillion. Additionally, Congress allocated over $10 billion to support drug companies in vaccine development and distribution, while mandating health insurers to cover vaccination costs. Moderna shares were priced below $20 at the beginning of 2020 at the outset of the pandemic. As the pandemic intensified, the stock experienced exponential growth, peaking at $455 per share in September 2021. If you had purchased Moderna stocks at $20 per share and sold at the peak, your return on investment (ROI) would have been 23 times your initial investment. Imagine how much money the politicians made.
According to the 2024 "World of Debt" report from the United Nations Conference on Trade and Development, public debt increases at twice the rate in developing countries, which collectively owe nearly a third of the world's debt. In Africa, debt growth outpaces GDP growth. The report further reveals that 61% of public debt in developing countries is owed to private creditors. Additionally, these countries face higher borrowing costs compared to developed nations; for instance, interest rates in Africa average 9.8%, while in Germany they are 0.8% and in the U.S. they are 2.5%. Over the past 12 years, net interest payments in developing countries have nearly tripled, increasing from $300 billion to $850 billion. Meanwhile, net revenue has declined by half during the same period, further complicating the task of debt repayment. According to the same report, over 3.3 billion people reside in countries where spending on interest exceeds investments in education or health.
These statistics clearly indicate that the escalating debt crisis is leading to a decline in the purchasing power of currencies. As national debt increases, so do the interest payments on that debt. This sets off a cycle where borrowing results in higher interest payments, requiring even more borrowing if revenues don't increase sufficiently to cover these costs. It is a relentless cycle, the financial Ouroboros. Japan led the decline among the five major countries. Since November 2011, the value of the Japanese Yen against the U.S. dollar has dropped by 50%. Economists are increasingly concerned that other currencies, particularly the U.S. Dollar, may soon experience similar declines.
Given that the richest countries are deeply indebted, with their debts exceeding their GDPs, it's evident that there is a widespread reliance on credit. This raises an important question: if everyone is borrowing, who is providing the loans? We will explore this issue in upcoming articles.
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