Sta Hungry Stay Foolish

Stay Hungry. Stay Foolish.

A blog by Leon Oudejans

World of Debt

My blog title has been borrowed from a recent Project Syndicate article: A World of Debt. Early 2018, I published my blog Deficits, Losses, and (Government) Debt. My 2018 diagram (obviously) excluded the impact of the 2019-2023 pandemic, which created lots of new government debt.

With hindsight, my 2018 diagram contained too much and too little information. Hence, my new diagram (left).

Each arrow represents a formal debt restructuring, apart from inflation.

However, inflation may be viewed as an informal debt restructuring.

My diagram may suggest that we have come full circle. I doubt that.

In my view, the 2021-2023 inflation surge is not related to my diagram because it’s a supply side crisis (eg, Russian invasion of Ukraine).

Hence, inflation is far from over.

It seems that we are indeed in a world of debt. In general, politicians are unwilling to raise income taxes (eg, USA). Hence, an increase in government debt is the most likely outcome (eg, US debt ceiling). In due time, there will be too much money compared to goods. Hence, more (price) inflation.

In my diagram, each participant will restructure its own debt. However, the debt problem is (usually) passed on to the next participant. That debt bucket must, however, stop somewhere. Hence, inflation will start to wipe out (our) wealth. Latter will (usually) result in more debt (eg, customers).

In my view, we are now at the stage of federal and/or national debt problems. In due time, we will move from supply side inflation to the classic demand side inflation. A world of hurt is on its way.

Some quotes on debt:

  • “If you owe your bank a hundred pounds, you have a problem. But if you owe a million, it has.” John Maynard Keynes
  • “Debts are like children – begot with pleasure, but brought forth with pain.” Molière
  • “Debt is the slavery of the free.” Publilius Syrus
  • “There are four things every person has more of than they know: sins, debt, years, and foes.” Persian Proverb
  • “There are three kinds of people: the haves, the have-nots, and the have-not-paid-for-what-they-haves.” Earl Wilson

World of Hurt (1998) by Ilse de Lange
artist, lyrics, video, Wiki-artist, Wiki-album+song

Note: all markings (bolditalicunderlining) by LO unless in quotes or stated otherwise.

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