Countries debt levels.

[Blair007]

On the radio today I heard them talking about the new budget and certain peoples concerns about Australia's debt level. It's 12x the countries GDP, but that's nothing compared to other developed countries.

I've never understood this whole concept though, if there's this much debt in the world dosnt there need to be a surplus someone for the balance to equal zero?

Is it possible for some of these countries with high debt like the USA to ever get into the black again?

And we they talk about one countries debt does that include individuals debt, credit card/mortgage etc or is it just debt that belongs to the government?

Probably all simple questions but I've always thought about them but never got around to asking someone.

 

[HotRod]

On the radio today I heard them talking about the new budget and certain peoples concerns about Australia's debt level. It's 12x the countries GDP, but that's nothing compared to other developed countries.

I've never understood this whole concept though, if there's this much debt in the world dosnt there need to be a surplus someone for the balance to equal zero?

Is it possible for some of these countries with high debt like the USA to ever get into the black again?

And we they talk about one countries debt does that include individuals debt, credit card/mortgage etc or is it just debt that belongs to the government?

Probably all simple questions but I've always thought about them but never got around to asking someone.

Always wondered that too. My understanding that the debt is just the federal government debt excluding any state debt.

I believe all this debt must be owed to people/companies (via bonds etc) and other governments (via international borrowings).

Also I would imagine that some of this debt are derivatives, so it is not backed by anything!

I think the Chinese are the one able to pull the strings of many a nation.

Have a look at this.........

http://www.australiandebtclock.com.au/

Then this..........

http://www.usdebtclock.org/

and finally this.......

http://www.nationaldebtclocks.org/

Some scary stuff.

they are all going up at crazy rates. I can't see how they can ever go down in some instances.

 

[lizzie]

What I don't understand is those who complain that "our debt isn't as bad as their debt".

Just because we're not as far up the creek as some other countries, it doesn't mean that we're in a good position. It's a bit like saying "I only have $20,000 debt on my credit card that I'm struggling to pay off, but Fred has $80,000, so I can go out and spend some more."

Sometimes I just don't get the mentality of people

 

[Dazz]

Tells a sad story. Click on Total Govt debt and refresh the graph.

http://www.australiandebtclock.com.au/history

The only trouble is, the scale is so massive, most ordinary Australian folks simply cannot comprehend it.

The typical reaction is to ignore the problem and write it off as being someone else's problem.

 

[Blair007]

Always wondered that too. My understanding that the debt is just the federal government debt excluding any state debt.

I believe all this debt must be owed to people/companies (via bonds etc) and other governments (via international borrowings).

Also I would imagine that some of this debt are derivatives, so it is not backed by anything!

I think the Chinese are the one able to pull the strings of many a nation.

Have a look at this.........

http://www.australiandebtclock.com.au/

Then this..........

http://www.usdebtclock.org/

and finally this.......

http://www.nationaldebtclocks.org/

Some scary stuff.

they are all going up at crazy rates. I can't see how they can ever go down in some instances.

woah that is crazy! i still don't get it though, if the world debt is almost 60 trillion then wheres it all coming from. i don't think any person/company/country can afford to fund that debt. It seems like they are creating money from nothing and wasn't that the whole reason the US economy collapsed and we had the GFC?

 

[Crabnet]

woah that is crazy! i still don't get it though, if the world debt is almost 60 trillion then wheres it all coming from. i don't think any person/company/country can afford to fund that debt. It seems like they are creating money from nothing and wasn't that the whole reason the US economy collapsed and we had the GFC?

Well confidence was shot because an entity like a council in New South Wales chasing higher returns invested their money into a product that was a riskier investment than they were initially led to believe.
The product didn't actually have the level of quality asset backing behind it so the council loses most of their dough and looks to sue to get it back. That scenario repeated many times over.
Plenty of that lent money has been written off but those who initially made money from the dubious lending probably have some of it salted away somewhere.
Banks lost a lot of their capital backing through speculating and so had to be topped up from the Government printing press.
They didn't trust each other to lend to each other.
Lots of debt was written off.
In Australia the lending model of borrowing short term and lending long term came tumbling down.
And China lends money to the USA so that the USA can afford to buy goods from China.

The world continues on with the rich getting richer and the poor getting poorer.

From the news:
http://www.theage.com.au/money/borr...can-take-it-20140513-386z8.html#ixzz31kipzbm2

"Australian households have a well-deserved reputation for taking on large amounts of debt ? and recent numbers show why.

According to the Bureau of Statistics, household debt has now increased to $1.8 trillion, or $79,000 for each person in the country.

After adjusting for inflation, this is higher than it's been at any time in the last 25 years, despite the global financial crisis causing consumers to be much more cautious.

The ratio of debt to disposable assets has also started to climb again, and is at a three-year high of 148 per cent. Debt to total income is also higher than in a bunch of wealthy countries including the UK, US, Japan, Germany, Canada and France.

What is more, the ratio of debt to assets has been steadily climbing for the last 25 years, nearly doubling to just under 20 per cent at the end of 2013."

The important thing is can Australians continue to afford to service their debt?

 

[marg4000]

What I don't understand is those who complain that "our debt isn't as bad as their debt".

Just because we're not as far up the creek as some other countries, it doesn't mean that we're in a good position. It's a bit like saying "I only have $20,000 debt on my credit card that I'm struggling to pay off, but Fred has $80,000, so I can go out and spend some more."

Sometimes I just don't get the mentality of people

Totally agree.

It seems that the argument "well, we are much better off than most countries" is intended to kill any concern about Australia's debt levels.

Problem is, as a country we are spending more than we are earning. As any household knows, this will all end in tears as debts always come home to roost.

I, for one, don't want a mess visited on my children and grandchildren. Our generations incurred the debts, therefore it is up to us to pay them down.
Marg

 

[Crabnet]

Totally agree.

It seems that the argument "well, we are much better off than most countries" is intended to kill any concern about Australia's debt levels.

Problem is, as a country we are spending more than we are earning. As any household knows, this will all end in tears as debts always come home to roost.

I, for one, don't want a mess visited on my children and grandchildren. Our generations incurred the debts, therefore it is up to us to pay them down.
Marg

I don't think people are trying to shut down debate. Many think that Australia with moderate debt levels has time to bring it's budget back into balance without the need to embrace austerity which can be counterproductive.
For me the urgent issue is the double-digit cost disequilibrium that has developed in Australia making us uncompetitive on the world stage and leading us to serfdom.

 

[Ed Barton]

What I don't understand is those who complain that "our debt isn't as bad as their debt".

Just because we're not as far up the creek as some other countries, it doesn't mean that we're in a good position. It's a bit like saying "I only have $20,000 debt on my credit card that I'm struggling to pay off, but Fred has $80,000, so I can go out and spend some more."

Sometimes I just don't get the mentality of people

Running a countries finances is nothing like running a household's finances.

 

[Dazz]

Utter rubbish.

It doesn't matter whether it is a country, a state, a council, a sporting club or a home....the fundamental fact remains, if you deliberately decide to spend more than you earn, in the medium to long term you are going to run into a huge wall of pain.

Every entity must balance their budget at the very least. People figured this **** out many hundreds of years ago. Anything less is spin and waffle.

"Annual income twenty pounds, annual expenditure nineteen pounds nineteen
shillings and six pence, result happiness."

"Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."​

 

[Blair007]

I don't know if this is the right way to look at it but with property investing id be happy to take on more debt if it ment good supporting cash flow and growth potential. Would countries treat there economy like this also?

 

[lizzie]

I don't think people are trying to shut down debate. Many think that Australia with moderate debt levels has time to bring it's budget back into balance without the need to embrace austerity which can be counterproductive.
For me the urgent issue is the double-digit cost disequilibrium that has developed in Australia making us uncompetitive on the world stage and leading us to serfdom.

So where exactly is the austerity in the recent budget? I don't think anything requires serious "belt tightening" but maybe one might have to rethink the daily Maccas drive thru for a shake and fries if one needs to go to the doctors.

I agree that Australia is relatively uncompetitive on the world stage - which is why we need to play to our strengths - one of with is medical break throughs (which we are good at) which is being dealt with in the budget - others need to be identified and supported.

Don't agree with the Chaplin "religion in schools" plan

 

[Crabnet]

So where exactly is the austerity in the recent budget?

Not much austerity overall except for removing the safety net for the under 30's unemployed. Perhaps things will be austere for some of them who can't move back with their parents.
The budget is only forecasting a bringing forward of surplus by a year if my memory serves me correctly.

I don't think anything requires serious "belt tightening" but maybe one might have to rethink the daily Maccas drive thru for a shake and fries if one needs to go to the doctors.

Actually some pensioners are hit pretty hard but most of the pain and savings are in the outlier years

I agree that Australia is relatively uncompetitive on the world stage - which is why we need to play to our strengths - one of with is medical break throughs (which we are good at) which is being dealt with in the budget - others need to be identified and supported.

Yes moving auto industry assistance to medical research but if you listen to those in that field their biggest impediment is funding of startup manufacturing. That's why the good ideas get snapped up by overseas companies.
Banks don't like lending for such risky propositions, they much prefer lending for real estate purchases.

 

[lizzie]

Not much austerity overall except for removing the safety net for the under 30's unemployed. Perhaps things will be austere for some of them who can't move back with their parents.

I think the decision was to move from unemployment to "earn or learn" - please excuse the hype tag line - but I agree. If you are unemployable in your current state then support to learn further is a good idea

 

[hobo-jo]

I've never understood this whole concept though, if there's this much debt in the world dosnt there need to be a surplus someone for the balance to equal zero?

Is it possible for some of these countries with high debt like the USA to ever get into the black again?

When a bank makes a loan (the source of most money creation) it creates a loan account and also generates the dollars required to repay the loan. The same thing happens when a government borrows money (the bond is created along with an equal amount of Australian Dollars to repay). So technically there is always enough Australian Dollars to repay all Australian Dollar denominated debt (sans interest, but we would never have to repay everything at once).

Here is how I put it in a blog post last year:

I have seen it suggested that a bank must receive a deposit from which it can then lend a majority portion. In fact when someone borrows money from a bank, the bank can create new money (or credit) out of thin air. It will credit the borrower with a deposit (which might be paid in form of a cheque or deposit into the borrowers account) and will also create a loan account for which the bank charges interest on the created money (this is an asset for the bank, earning it income).

When a bank lends money, the deposit ends up in the hands of the borrower without anybody else having less, hence we have just seen an increase in the total money available. In today's monetary system 'money is debt', it is backed by the ability of borrowers to repay their loans, that is something that should strike fear into the hearts of savers given the reckless abandon with which banks lend today.

Australian dollars can be borrowed into existence by the government running a deficit (borrowing to spend more than it receives in revenue) or via the private sector. Government debt today is relatively low, but has been on the rise since the GFC.

http://www.bullionbaron.com/2013/10/let-australians-save-in-gold-instead-of.html

The way I see it, both private and public debt is owed by the same people, so a more important measure than either alone, is both combined. In nominal terms the total value of the loans is without a measuring stick to know whether it is too high or not, so a reasonable way to gauge that is by comparing to GDP. While Australia's public debt may be low compared with some of the worst, our combined debt brings us to around the same level as the United States. This is from 2011, but we wouldn't have seen much change since:

Here is a chart of the United States total debt to gdp over the long term:

They have a long way to deleverage before returning to levels that are sustainable with normalised rates. So do we.