A Bird’s Eye View of the Global Financial System

The single biggest issue for the world today is that there is too much debt in the financial system.

Some eye-watering facts:

Globally, the debt-to-GDP ratio is 322%.

Amongst G-7 nations, the numbers are striking:

  • United States: 106%
  • Germany: 61%
  • Japan: 196%
  • The United Kingdom: 85%
  • Canada: 89%
  • France: 98%

The only debt-to-GDP ratio that looks remotely decent is Germany’s – and that’s because the country has been aggressively paying down its debt. During the 2008 crisis, Germany’s debt-to-GDP skyrocketed to 82% as its economy collapsed and it went on a debt binge.

Put another way, of the seven largest developed nations, only one of them has a debt-to-GDP below 85%… and that is very likely to change during its next major recession.

By the way, anyone who tells you China doesn’t have a debt problem doesn’t understand how that country accounts for its debt.

Remember, China is fundamentally a command economy – an economy in which production, investment, prices, and incomes are all determined by the government.

As such, the government owns most of the large companies in China, called state-owned enterprises (SOEs). China uses these to hide its debt loads…

Because SOEs are technically companies – not the government itself – China doesn’t have to report their debt loads in its official debt data.

POOF! Suddenly China’s official debt numbers are much lower! When in reality, its debt-to-GDP ratio is north of 100%.

Again, the world has too much debt. No major nation is an exception.

A Global Debt Crisis 

Now, there are three ways to deal with excessive debt:

  1. Pay it off through growth or fiscal restraint.
  2. Default/restructure.
  3. Attempt to inflate it away by debasing your currency.

Of these, the only viable option is #3.

This sounds like a complicated idea, but really, inflating the debt away means money printing.

Think of it this way: Let’s say you owe $1,000 in debt. Now imagine that the dollar loses 50% of its value.

You still owe $1,000 in debt, but because each unit of debt is worth so much less, your REAL cost of the debt is only $500 in today’s terms.

This is the only real option major nations have today. And it’s one that policymakers LOVE to use, as the COVID-19 pandemic has revealed.

Best Regards,

Graham Summers
Editor, Money & Crisis

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Graham Summers

Editor Graham Summers has spent the last 15 years building a reputation as one of the most sought after and highly respected investment strategists on the planet. His work has been read and quoted by former Presidential advisors, award-winning institutional analysts, U.S. Senators, and more. He’s one of the few analysts on the planet to...

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