Two questions about debt

What are the chances of recovering an unpaid debt?
What are the chances of recovering an unpayable debt?

You may not like thinking in trillions any more than the rest of us do but today you must learn to do so. If you don’t you will not be able to take part in or influence the coming debate about what to do about so much debt in the world. Forget the word trillion, though I shall keep mentioning it, and imagine the figures are simple thousands – and they apply to you.

How much money is there in the world? That depends on how you calculate it. Recent figures suggest there is some $200 trillion of debt, up from $140 trillion in 2008. That’s a big increase since this money hasn’t been “earned”, it’s been wafted into existence by Central Banks. As was the $140 trillion in the first place. One day someone will have to pay it back. I suppose. Or will they? Is the new world economy one in which the wafting into existence of new money is a miracle and lets us spend as we will without regard to its real value?

Or is the Emperor naked? If so, nobody’s saying it. Yet. And the programme goes on. Now the Bank of England has reduced rates to 0.25% and is threatening to reduce that. Much more important is that they are forcing the banks to pass this rate cut on to depositors and borrowers. Plus it is putting another £170 billion into the system. But will it work? I doubt it.

Debt growth is well ahead of economic growth. This is a dangerous situation because it inevitably calls for more debt if the economy slides further. Britain is slipping into recession. Nobody can say how deep the recession will be or how long it will last. My guess is that it is somewhat artificially created by the shock of Brexit and it will not be very serious. But a lot of people are going to lose their jobs and that will give rise to anger about the political and economic system. Oh what a tangled web we weave when brand new money does deceive.

There has even been talk of helicopter money. That means cash dished out to individuals to encourage spending. But what if the individuals want to save, to be prudent and keep it for a rainy day? Emperor Haile Selassie of Ethiopia used to hand out five pound notes from the partly-open window of his car to assuage the wrath of the peasants who wanted a car themselves. Or just something to eat. It didn’t save his Empire. Will helicopter money save our world?

“In the absence of growth and inflation, the only real alternative is debt forgiveness or default,” wrote Satyajit Das, the author of A Banquet of Consequences. He went on “Savings designed to finance future needs, such as retirement, are lost.” So if the savers, those prudent people who want to be self-sufficient and not rely on everyone else to bail them out, are going to lose their savings, what purpose is prudence? Debt forgiveness has dire consequences for the banks – and that means you.

Back to the two questions. The answer to “What are the chances of recovering an unpaid debt?” is “up to 100%”. The deluded take this as meaning the full 100%. The answer to “What are the chances of recovering an unpayable debt?” is nil. No delusions about that.

Much of the world’s debt is unpayable.