Public debt seems to be a global phenomenon, and that’s not a good thing. Recently, European debt grabbed the headlines with Greece leading the way. The most recent data shows a Greek government debt-to-GDP ratio of nearly 175-to-1! Greek GDP is down 25% and unemployment there stands at 25%, with youth unemployment at 50%.
The solution seems to be concessions. The problem is, if Europe makes concessions to Greece, they have to do it for everyone else too. Other countries will be lining up for aid.
Unfortunately, this isn’t anything new. Governments have defaulted on debt 300 times over the last few hundred years. Greece isn’t unique, but maybe just the next domino to fall.
Spain is king. It’s defaulted six times in the last 140 years, and 12 times dating all the way back to 1550. And while soccer is the popular game in Italy and Argentina, those countries have also made a sport of debt monetization.
Debt at its core is simply future consumption brought forward. When used as a means to finance its own repayment, it can be good, like taking on debt to buy machines to produce salable products.
But this global public debt is unproductive. And when combined with inflation and loose monetary policies, the primary result is destroyed buying power. Future debt (possibly the productive kind) is wiped out because we’re spending it all today.
The problem is simply that there’s too much debt globally – and it’s going to come due one day. It’s a potentially slippery slope, and we might all stumble as a result.