The Theory of Everything Debt
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Neither a borrower nor a lender be, The Bard said, but how possible is that if credit is a driver of modern economies?
by Mary Teresa Bitti charts by Baiba Black W 34 | CPA MAGAZINE | MAY 2015
ILL THERE BE A REPEAT OF THE EXCESS that led to the global financial meltdown in 2008, the downturn of the 1990s and the Great Depression of the 1930s? Thanks to human nature and greed, it’s possible and maybe even probable. Debt remains all too easy to access even aſter it nearly destroyed world markets. The frightening fact is that debt really does make the world go round.
Witness the release in early 2015 of McKinsey Global Institute’s Debt and (Not Much)
Deleveraging, which surveyed 47 countries and revealed that since the most recent financial crisis, no major economies have reduced their ratios of debt to GDP. Advanced nations, those with more sophisticated financial systems, are the worst, with the debt-to-GDP ratio averaging 280% compared to a more modest average of 121% in developing countries. From 2007 to Q2 2014, global debt has grown by $57 trillion. Yikes. Even in countries where household debt is down significantly (definitely not the case in Canada), government debt is up more. In order to get a handle on all that leverage, CPA Magazine presents debt in all its glory and danger and answers a few key questions.
Debt is debt thanks to Rome AT LEAST THAT’S HOW MICHAEL HUDSON, president of The Institute for the Study of Long-Term Economic Trends and author of The Bubble and Beyond sees it. Here’s what we know: from about 2000 BC to the time of Jesus, it was normal for governments — Sumer, Babylonia, Egypt — to cancel debts when they got too big in order to restore equality. Rome was the first country not to cancel debt. Rather, it went to war in Sparta to overturn governments that wanted to cancel debt.
Tino Soriano/National Geographic
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