|May 17, 2013
Source: Gold Silver Worlds
In his latest commentary, Michael Pento writes ”there is a reason why the Fed and other central banks have been unable to achieve a healthy and viable economy even after five years of trying to manufacture one from a printing press. The truth is an economy that is soaked in debt just doesn’t grow because it is always marked by at least one, if not all three, of the following growth-killing conditions; high interest rates, rampant inflation and onerous tax rates.”
When debt levels increase to an extent that they are equal or greater than its GDP capital flows out of the private sector due to burdensome rollovers and interest payments on that debt. Penton continues: “In addition, rising tax rates act as a disincentive to increase productivity and whatever money that is taken from the private sector is always redeployed in an inefficient, GDP-destroying manner. Rising interest costs also discourage borrowing and lead to capital shortages. And finally, inflation destroys the purchasing power of the middle class by eroding the value of the currency and leaving consumers with an inability to make discretionary purchases.”
Now how high is our debt actually? We know meantime the indebtedness per country with Japan as the big winner with a government debt to GDP ratio close to 220% (source). But what about the global indebtedness? TheWall Street Journal provides some details about the world debt levels.
$223.3 trillion is the total indebtedness of the world. It includes all parts of the public and private sectors, amounting to 313% of global gross domestic product. The world GDP was some $70 trillion at the end of 2012.
“The $223.3 trillion in total global debt includes public-sector debt of $55.7 trillion, financial-sector debt of $75.3 trillion and household or corporate debt of $92.3 trillion. (The figures exclude China’s shadow finance and off-balance-sheet financing.)”