Metastasis [mətas′təsis] pl. metastases:
An active process by which tumor cells move from the primary location of a cancer by severing connections from the original cell group and establishing remote colonies. Because malignant tumors have no enclosing capsule, cells may escape, become emboli, and be transported by the lymphatic circulation or the bloodstream to implant in lymph nodes and other organs far from the primary tumor.
Now we know where the tipping point lies. Debt becomes poisonous once it reaches 80% to 100% of GDP for governments, 90% of GDP for companies, and 85% of GDP for households. From then on, extra debt chokes growth.
Stephen Cecchetti and his team at the Bank for International Settlements [BIS] have written the definitive paper rebutting the pied pipers of ever-escalating credit. “The debt problems facing advanced economies are even worse than we thought.”
The basic facts are that combined debt in the rich club has risen from 165% of GDP thirty years ago to 310% today, led by Japan at 456% and Portugal at 363%.
“Debt is rising to points that are above anything we have seen, except during major wars. Public debt ratios are currently on an explosive path in a number of countries. These countries will need to implement drastic policy changes. Stabilization might not be enough.”
Demographic atrophy and aging costs will make this even nastier. “Rising dependency ratios put further downward pressure on trend growth, over and above the negative effects of debt.” […]
Below is a downright frightening table of debt-as-%-of-GDP of the OECD (Organization for Economic Cooperation & Development) countries:
While the United States has one of the lower combined debts at 268% of GDP, our debt level still exceeds the 80-100% level when debt becomes a metastasized cancer, choking off economic growth. The latest Labor Dept statistics for the month of August are evidence of the metastasis: Employers added no net jobs and the jobless rate remains stuck at an official 9.1% (the unofficial unemployment rate is much higher, in double digits).
Evans-Pritchard concludes that not all debt should be demonized: “Used wisely and in moderation, it clearly improves welfare. But, when it is used imprudently and in excess, the result can be disaster. And disaster we have. We must prepare for a long hard slog, for the rest of my life and yours.”
Read the full op-ed, here.
Read the BIS report on the global debt problem, here.