Global Debt - A Closer Look

By: Reggie Middleton | Thu, Mar 12, 2009
Print Email

Another BoomBustBlog reader Op-Ed piece...

Table of Contents

Conclusions

These are the main conclusions:

Taken together, this supports the notion that the world as a whole has heavily indebted itself greatly over the past 20 years. It appears the world has doubled its collective debt to spend and speculate on housing, which is about to lose $25-50T on them.

Required Reading:

  1. Debt - Thoughts On A Global Problem (Part 1),
  2. Banking out of Control (Part 2)
  3. Part (3) Global Debt Stats from the BoomBustBlog Community
  4. Reggie Middleton on the Irish Macro Outlook
  5. The Big Bank Bust
  6. Continued Deterioration in Global Lending, Government Intervention in Free Markets
  7. The Butterfly is released!
  8. Global Recession - an economic reality
  9. The Banking Backdrop for 2009
  10. Reader's Op Ed

Recommended Reading - The Asset Securitization Crisis:

  1. Intro: The great housing bull run - creation of asset bubble, Declining lending standards, lax underwriting activities increased the bubble - A comparison with the same during the S&L crisis
  2. Securitization - dissimilarity between the S&L and the Subprime Mortgage crises, The bursting of housing bubble - declining home prices and rising foreclosure
  3. Counterparty risk analyses - counter-party failure will open up another Pandora's box (must read for anyone who is not a CDS specialist)
  4. The consumer finance sector risk is woefully unrecognized, and the US Federal reserve to the rescue
  5. Municipal bond market and the securitization crisis - part I
  6. Municipal bond market and the securitization crisis - part 2 (should be read by whoever is not a muni expert - this newsbyte may be worth reading as well)
  7. An overview of my personal Regional Bank short prospects Part I: PNC Bank - risky loans skating on razor thin capital, PNC addendum Posts One and Two
  8. Reggie Middleton says don't believe Paulson: S&L crisis 2.0, bank failure redux
  9. More on the banking backdrop, we've never had so many loans!
  10. As I see it, these 32 banks and thrifts are in deep doo-doo!
  11. A little more on HELOCs, 2nd lien loans and rose colored glasses
  12. Will Countywide cause the next shoe to drop?
  13. Capital, Leverage and Loss in the Banking System
  14. Doo-Doo bank drill down, part 1 - Wells Fargo
  15. Doo-Doo Bank 32 drill down: Part 2 - Popular
  16. Doo-Doo Bank 32 drill down: Part 3 - SunTrust Bank
  17. The Anatomy of a Sick Bank!
  18. Doo Doo Bank 32 Drill Down 1.5: Wells Fargo Bank
  19. GE: The Uber Bank???
  20. Sun Trust Forensic Analysis
  21. Goldman Sachs Snapshot: Risk vs. Reward vs. Reputations on the Street
  22. Goldman Sachs Forensic Analysis
  23. American Express: When the best of the best start with the shenanigans, what does that mean for the rest...
  24. Part one of three of my opinion of HSBC and the macro factors affecting it
  25. The Big Bank Bust
  26. Continued Deterioration in Global Lending, Government Intervention in Free Markets
  27. The Butterfly is released!
  28. Global Recession - an economic reality
  29. The Banking Backdrop for 2009
  30. Reggie Middleton on the Irish Macro Outlook

General - How much debt did we pile on?

The next question is, just how much debt did these other countries lump on top of their property bubbles, and how much change did we see in the past 30 years?

Well, we have some data on that. Clear data is available on Australia and the US. There was also a most prescient piece put out by the OECD (again!) in December 2006, titled "Has the Rise in Debt Made Households More Vulnerable?" (source).

Household Debt, % of Disposable Income - OECD Nations, 1985-2005

Consider these graphs of [Household Debt as % of Disposable Income ], and the % change in that figure, from 1995 to 2005 (source):


Larger Image

Observations:

The graph below pulls us 10 years further back, comparing Household Debt / GDP for all OECD nations in 1985, 1995 and 2005 (source):


Larger Image

Observations:

Private Domestic Debt - All Countries - Current

Below is the graph of Domestic Private Debt. This is different from household debt. It is defined by the CIA World Factbook (source) in the following way:

"the total quantity of credit, denominated in the domestic currency, provided by banks to nonbanking institutions. The national currency units have been converted to US dollars at the closing exchange rate on the date of the information."

What this can do for us is "plug in the gaps" to see where the major non-OECD members stand.


Larger Image

Observations:

What this says to me is that most of the world is quite heavily indebted. The only ones who aren't are the non-Asian, non-OECD countries. And Germany.

Savings Rate Change, 1960-2006 - OECD Nations

Below is a graph of the change in the savings rate for the major OECD countries, as well as a graph of the savings rate for many of these countries from 1960-2006 (where available) (source, source, source, source):

Observations:

Honing in on Australia - 1985 was the starting point

It was shown above that Australia goofed up big time. They borrowed a ton, they stopped saving, and they had a huge housing bubble. Australia has been shown many times to have had a Private Debt bubble. The graph below shows that mortgage debt as a % of GDP went from ~16% in 1985 to ~85% in 2008 (source):

We really began shooting to the moon in 1985. Again, 1985 seems like the global starting point for the debt and spending craze.

Honing in on the USA - 1985 was again when we *really* went out of control

This is how much debt we lumped onto our housing bubble (source):

Once again we see 1985 as a starting point. Debt was growing - hard - beforehand, but it was in 1985 when we saw homeowners' equity take a concerted leg downwards. And that was off inflated pricing. If we were to adjust pricing to reality, home equity would be even less.

 


 

Reggie Middleton

Author: Reggie Middleton

Reggie Middleton
Reggie Middleton, LLC
Perpetual Interests, LLCTM
http://boombustblog.com/

Reggie Middleton

Who am I?

Well, I fancy myself the personification of the free thinking maverick, the ultimate non-conformist as it applies to investment and analysis. I am definitively outside the box - not your typical or stereotypical Wall Street investor. I work out of my home, not a Manhattan office. I build my own technology and perform my own research - in lieu of buying it or following the crowd. I create and follow my own macro strategies and am by definition, a contrarian to the nth degree.

Since I use my research as a tool for my own investing to actually put food on my table, I can stand behind it as doing what it is supposed too - educate, illustrate and elucidate. I do not sell advice, I am not a reporter hence do not sell stories, and I do not sell research. I am an entrepreneur who exists just outside of mainstream corporate America and Wall Street. This allows me freedom to do things that many can not. For instance, I pride myself on developing some of the highest quality research available, regardless of price. No conflicts of interest, no corporate politics, no special favors. Just the hard truth as I have found it - and believe me, my team and I do find it! I welcome any and all to peruse my blog, use my custom hacked collaborative social tools, read the articles, download the files, and make a critical comparison of the opinion referencing the situation at hand and the time stamp on the blog post to the reality both at the time of the post and the present. Hopefully, you will be as impressed with the Boom Bust as I am and our constituency.

I pay for significant information and data, and am well aware of the value of quality research. I find most currently available research lacking, in both quality and quantity. The reason why I had to create my own research staff was due to my dissatisfaction with what was currently available - to both individuals and institutions.

So here I am, creating my own research for my own investment activity. What really sets my actions apart is that I offer much of what I produce to the public without charge - free to distribute and redistribute, as long as it is left unaltered and full attribution is given to the author and owner. Why would I do such a thing when others easily charge 5 and 6 digits annually for what some may consider a lesser product? It is akin to open source analysis! My ideas and implementations are actually improved and fine tuned when bounced off of the collective intellect of the many, in lieu of that of the few - no matter how smart those few may believe themselves to be.

Very recently, I have started charging for the forensics portion of my work, which has freed up the resources to develop the site to deliver even more research for free, particularly on the global macro and opinion front. This move has allowed me to serve an more diverse constituency, which now includes the institutional consumer (ie., investment turned consumer banks, hedge funds, pensions, etc,) as well as the newbie individual investor who is just getting started - basically the two polar opposites of the investing spectrum. I am proud to announce major banks as paying clients, and brand new investors who take my book recommendations and opinions on true wealth and success to heart.

So, this is how I use my background and knowledge in new media, distributed computing, risk management, insurance, financial engineering, real estate, corporate valuation and financial analysis to pursue, analyze and capitalize on global macroeconomic opportunities. I have included a more in depth bio at the bottom of the page for those who really, really need to know more about me.

Visit his blog Boom Bust Blog.

Copyright © 2007-2012 Reggie Middleton

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com

SEARCH





TRUE MONEY SUPPLY

Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/