24 nations now facing Greek-style debt crisis. Are we facing global insolvency?
The mainstream press has kept many of us focused upon Greece in the last few months, but in global terms, the Greek financial crisis is small compared to what many other countries are facing. What you may not know is that debt crises have become dramatically more frequent across the world since the deregulation of lending and global financial flows in the 1970s.
Many countries became economically uncompetitive and were falling behind. To tackle this problem, countries relied on either increasing debts, or for the countries which are the source of the loans, promoting exports through lending. This allowed growth to continue but at a certain type of cost – rising inequality.
The rich were putting more of their growing share of national income into speculative lending and risky financial investments, in search of higher returns. Rising inequality, along with financial deregulation, therefore fuelled an unsustainable boom in lending and was an underlying factor behind the crisis which began in 2008.
All of this has manifested itself with large numbers of indebted countries, so much so that there are 24 nations that are currently facing a full-blown debt crisis, and there are 14 more that are rapidly heading toward one.
Get Briefed, Get Weekly Intelligence Reports - Essential Weekend Reading - Safe Subscribe
Right now, the debt to GDP ratio for the entire planet is up to an all-time record high of 286 percent, and globally there is approximately 200 TRILLION dollars of debt on the books. That breaks down to about $28,000 of debt for every man, woman and child on the entire planet. And since close to half of the population of the world lives on less than 10 dollars a day and 84 per cent on less than $20 a day there is no way that all of this debt can ever be repaid. Realistically, we are actually facing global insolvency.
As the EU has just demonstrated with Greece, there was no Plan B – all they did was load the country with more debt in order to pay off its current debt. Even the IMF has recognised that Greece cannot now pay its debts.
International debt has been increasing rapidly since 2011. The total net debts owed by debtor countries, both by their public and private sectors, which are not covered by corresponding assets owned by those countries, has risen from $11.3 trillion in 2011 to $13.8 trillion in 2014.
By the end of 2015 they will increase further to $14.7 trillion. Overall, net debts owed by debtor countries will therefore have increased by 30% or $3.4 trillion – in four years.
This increase in debts between countries is being driven by the largest economies. Of the world’s ten largest economies, eight have sought to recover from the 2008 financial crisis by either borrowing or lending more, thereby further entrenching the imbalances in the global economy. For instance, the US, UK, France, India and Italy have all borrowed even more from the rest of the world. Germany, Japan and Russia have all increased their lending to other countries.
Foreign loans to low-income country governments trebled between 2008 and 2013, driven by more ‘aid’ being provided as loans – including through international financial institutions, new lenders such as China, and private speculators searching overseas for higher returns because of low interest rates in Western countries.
Significantly this report highlights the level of debts held by some countries:
- There are 22 countries that are currently experiencing a serious in-debt crisis similar to Greece.
- There are 14 more countries where government debt has a high risk of turning into a crisis.
- There are another 29 countries where government is likely to have a financial crisis
- Another 28 countries on the list are facing problems but might not turn into a crisis.
The countries already experiencing a full-blown debt crisis, just as Greece is are as follows (in alphabetical order)
- Costa Rica
- Dominican Republic
- El Salvador
- The Gambia
- Marshall Islands
- Sri Lanka
- St Vincent and the Grenadines
Countries in default or debt restructuring
And there are another 14 nations that are right on the verge of one…
- Cape Verde
- Sao Tome e Principe
What is frightening about all of this debt is that it is impossible to pay it all off. Take the case of the wealthiest nation on earth – America. The national debt there is now more than double what it was just before the financial crash in 2008. It is mathematically not possible for America to now pay off its debts.
The nations of the EU cannot boast to be any better off. Greece is by no means the only EU nation in big trouble.
The fact is that EU Debt to GDP levels have soared in just the last three years with a massive QE project of 1.2 trillion euros only just underway
Spain now boasts over $1.0 trillion in debt outstanding with Italy at €2.6 trillion. A haircut, experienced by Cyprus or some sort of debt forgiveness would trigger systemic failure in Europe as the banks collapsed.
At the heart of the problem are the banks, who, as a whole are now leveraged at a rate of 26-to-1. At these leverage levels, a modest drop of just 3% in asset prices, in real terms, extinguishes the entirety of all private deposits.
Contrary to popular belief Asia has not performed any better. China now has record debt levels. Government, corporate and personal debt combined is now almost 300 per cent of GDP. Japan’s government debt is now 230 per cent of GDP
Total global debt now stands at an eye-watering $200 trillion with an unbelievable $1.5 quadrillion in derivatives.
One day, the dominoes will start to tumble, this much is well recognised by many in the economics business – what they don’t know is when. One can only speculate what the world will look like in global crash2 but one thing is known – it will be much worse that the first one just 7 years ago.
Read the full JubileeDebt report