Wednesday 12 October 2011

HOW MUCH DEBT IS OUT THERE? - How big will the crash be?

I've been looking at all of the debt figures that are floating around and one thing has become clear to me. Nobody actually knows how big it is. And that is exactly why the so called political experts cannot agree on how big any bailouts should be.

Here are just a few examples of the type of debt that is now out there.

Personal debt. i.e. debt that is tangible and that we actually know about. For instance mortgage plus loans plus student debt plus credit cards plus overdraught. This averages out to about £25,000 ($40,000) per person in the UK.

National debt. i.e. the amount a country owes. This amount is largely in the form of government paper (or bonds). That is to say money borrowed (or stolen) from the unborn. For the UK this currently stands at about $9,000,000,000,000 (9 trillion dollars). If you divide that by the population it equates to around $150,000 per person.

Global debt is the amount that the world owes. That is to say, the sum of all the national debts of sovereign nations. That figure is about $100,000,000,000,000 (100 trillion dollars). If you divide that by the entire human population it equates to about $15,000 per person on the planet. Seeing as the significant majority of the planet could not even imagine that amount of money or have any chance of ever paying back that amount, the debt share will have to be absorbed by 'wealthier' first world people.

Now, there is one more chunk of money that could be owed. It's a kind of insurance scheme known as the derivatives market. These debts never really come into being unless things start to go wrong.

Derivative global debt is thought to have been transacted at a nett value of $1,000,000,000,000,000 (1000 trillion dollars or 1 quadrillion dollars). If (or when) the bubble bursts this debt burden will be repatriated back down along the line to nation states and ultimately individuals.

This is where it gets scary. The sum of all the debts contained within the financial system divided by the world's economically active population is $1,000,000 per head (1 million dollars).


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