On World Debt and Ponzi Schemes

I recently read a couple of interesting statistics that really made me think of how precarious the global economy is. One of those is that the amount of debt that exits globally, taking all forms of debt across all countries, is about 230 trillion dollars. That's almost a quarter QUADRILLION dollars, and its scary to think that it is so high that we might soon just as well start counting in quadrillions.

So we all know(except maybe some government officials) that too much debt isn't good, as was shown by the 2007 economic crisis, the most recent of many debt driven crises. But what really puts the level of this debt into perspective is the next statistic, which is that the total global GDP is about 74 trillion dollars. So the global GDP is only about one third as much as the global debt. This means that if we cashed in all of the worlds economic output for a year, put it only toward the debt and nothing else(unrealistic), only 1/3 of the debt would be paid off.

The Rules Don't Apply to the Governments and Banks

If I try to get a bank loan, such as a mortgage, the bank looks at my assets and most importantly your income. For a mortgage, the rule that most banks use is that your mortgage payments should never be more than about a third of your salary. This comes from the argument that you of course need most(two thirds) of your salary to live on. In other words, government bank regulations recognize when lending to individuals like you that you should never take on a debt load that is more than 33% of your income. However, on a global scale the world has taken on a debt load that is 311% of "income" (ie: GDP). How can you possible pay off a debt that is triple the income? Why is this allowed? Well, because the bulk of the global debt load is taken on by governments. Also, as we saw in the sub mortgage scandal, banks can make fortunes trading and speculating on debt. The more debt, the more trading and speculating, and the more profit! Oh yes, and potentially a great deal of loss, but no worries, that's what bank bailouts are for.

If it Looks Like a Ponzi, and Smells like a Ponzi.....

For a while now the global economy continues to run by taking on more liabilities(debt) than can be paid out(GDP). This is a classic property of a ponzi scheme. The operators of a ponzi scheme make money by attracting more investors, promising each of them a big return on investment. Nothing wrong with that in itself, except with a ponzi scheme the investors are collectively owed more than what exists to pay them. Sounds familiar to the global economy doesn't it?