Pick Your Debt Poison

Tyler Durden's picture


When it comes to estimating the biggest threat to the global financial system, by far the biggest threat and biggest unknown is the total Financial debt in the system, for the simple reason that as we have been showing for over two years, it is simply impossible to quantify just what the real level of such debt in the developed world truly is, especially when one accounts for shadow liabilities, rehypothecated collateral, derivatives, and all those other footnotes in financial statements that only become relevant when daisy-chained collateral links start collapsing following the default of one or more financial entities, and when gross becomes net. What we can, however, do is show the other three major categories of debt currently existing in the system: Government, Corporate and Household debt, as they are distributed among the "developed" countries. We also know what the tresholds are beyond which the debt becomes unsustainable. In the words of the BIS: "For government debt,  the threshold is around 85% of GDP... When corporate debt goes beyond 90% of GDP, it becomes a drag on growth. And for household debt, we report a threshold around 85% of GDP, although the impact is very imprecisely estimated."

So in light of all these various thresholds, where do the "developed countries" of the world stack up? It's not pretty.

Total Government Debt distribution:

Total Corporate Debt distribution:

Total Household Debt distribution:

And one final chart showing all three non-financial debt categories combined. We leave conclusions to the reader.

Source: Metis Risk Consulting, Feasta

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Tue, 07/17/2012 - 21:29 | 2626624 GetZeeGold
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I'll have a vodka tonic......hold the poison.


Tue, 07/17/2012 - 21:37 | 2626640 The Monkey
The Monkey's picture

Isn't the huge amount of debt overall, esp financial debt, big time bullish? If we are literally on the precipice it means central banks will hold the pedal will be on the metal everytime, all the time.

Tue, 07/17/2012 - 21:44 | 2626656 GetZeeGold
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Isn't the huge amount of debt overall, esp financial debt, big time bullish?


Another $300.000 spent on an Economics degree......shot straight to hell.


Tue, 07/17/2012 - 22:00 | 2626680 Yes_Questions
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Econ Pedigrees are measured to the thousandth of a dollar now?


That may be a sign of progress.

Especially if they go for only three places to the left now too.



Wed, 07/18/2012 - 00:01 | 2626959 Dr Benway
Dr Benway's picture

Said it once, I'll say it again.


Crossholdings are a MAJOR source of synthetic leverage.


Companies buy each other's shares to support share prices, and are in effect lending each other money in a way that shows up in no metrics.

Wed, 07/18/2012 - 00:19 | 2627007 AldousHuxley
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companies buy each other's products to report on wall st. as new revenue.


japanese banks lent each other money.


libor is international banks lending each other money.


We have a problem when companies won't even buy each other's shares/products because of lack of trust.

Wed, 07/18/2012 - 00:20 | 2627009 Oh regional Indian
Oh regional Indian's picture

Dr. b, then extrapolate to Government cross holdings. 

Think Sovereign Debt and THEN think synthetic leverage. That is mind-boggling. Especially when FED by a dark pool of liquidity.

Debt Trap, Death Trap...



Wed, 07/18/2012 - 00:53 | 2627065 AldousHuxley
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How do you calculate debt as % of GDP when GDP is NEGATIVE or NEAR ZERO?


what's more important is forecasted growth of debt VS growth of GDP



Wed, 07/18/2012 - 01:13 | 2627089 FreedomGuy
FreedomGuy's picture

I would add that putting government spending into the GDP formula is a major mistake, as well. By spending, including deficit spending governments can artificially inflate their GDP.

I would subtract government spending for a net GDP and then the whole world would look immensely different and more accurate. Deficit spending would actually decrease GDP figures, as it should. Governments would stop "shovel ready" stimulus that often amounts to shoveling a hole and filling it in again as if that is any kind of productivity you would want in your GDP numbers.

Wed, 07/18/2012 - 01:45 | 2627120 cranky-old-geezer
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Sorry folks, but the debt problem is a distraction. 

Nobody's gonna default.   Central banks will end up printing ALL the currency needed to keep funding ALL the sovereign debt generated.

The REAL problem is CURRENCY DEBASEMENT and eventual CURRENCY COLLAPSE, specifically from all the PRINTING needed to fund all the debt generated.

Of course nobody talks about currency debasement and collapse.  

Fed says we have 1.5% inflation.  Bull-fucking-shit.  How 'bout 15% inflation.  That's more like it.

Say what? It's all going into reserve accounts at the Fed, not circulating in the economy?

Nope, not what's printed to fund new government debt.  That shit goes right into the economy.  Nearly $2 trillion a year now going right into the economy thru government deficit borrowing & spending.

No, rising sovereign debt isn't the problem, it'll never be defaulted on.

Currency debasement and collapse is the real problem ...that nobody talks about ...except a few of us here at ZH ...like me.

Wed, 07/18/2012 - 02:36 | 2627166 Judge Arrow
Judge Arrow's picture

Bailiff, the Geezer has made his case - the debt is a number, currency is what you have at the liquor store - that sounds like a verdict to me - now I need a drink, hey, can you spot me a Ben till next week?

Wed, 07/18/2012 - 02:46 | 2627177 All Risk No Reward
All Risk No Reward's picture

I'll take the counter argument - and please take the time to think it through before going visceral on me.

The government does not control the money supply - a private banking cartel does.  Especially the meg banking interests that cotnrol the Federal Reserve System (Bernanke is a front man doing the bidding of the real controllers "behind the curtain," as it were).

Who owns the debt?  Oh, primarily the same people who control the Federal Reserve.

Who cotnrols trillions in cash directly and throught their multi-national front corporations?  Oh, primarily the same people who control the Federal Reserve.

So your argument is that these people are going to eliminate their own wealth and bail out those they've criminally indebted?


So, why haven't they done this yet?  Why would they since society is allowing them to offload as much of their bad debt as possible onto us and allowing them to indebt society to the tune of trillions of dollars while they pocket the proceeds?

The point is that game won't last forever...  and when it ends, what will the private banking cartel do?

1. Hyperinflate and bust themselves to bail out the debtors they have by the short hairs?

2. Allow interest rates to go up, suck the credit from the system, bust the debtors, roll up planet Earth under their multinational front corporations, eliminate their competititon...  with out a care in the world as they are TBTF&J?

What would you do in their shows?  Why?

Oh, and these same people who will decide our monetary fate hand picked, financed and promoted all their operatives currently in office, they control the bureaucracy, they control the media...  and are handing out 3.6% 30 year loans as I type.

Now you might understand why the Rockefeller Foundation brought Mises over to the U.S. and funded his work.

"The best way to control the opposition is lead it [or finance a point of view that is to your benefit, anyway]."
~Vladimir Lenin

Wed, 07/18/2012 - 04:37 | 2627249 zhandax
zhandax's picture

Another wasted econ degree.  Just who do you think the major holders of the US debt are?  The Chinese?  The banks?  Trading bandits, all.  The US .gov is over 15 trillion in the hole.  The Chinese average about 1 trillion in of that.  On a bad auction, the i-banks may have to sit on 5 trillion, but it is unloaded on the muppets, or those in need of collateral, within a week or so.  The real holders of the US debt are those who age.  Yes, if you are one of the unfortunate ones who actually get older, you are a prime lemming at the US debt line.  You remember that bogus Social Security Trust Fund?  What, exactly, do you think the politicians stuffed it full of when they looted the fund?  Their corpses would still be hanging from street lights if they had actually stolen the money.  No, they exchanged it for good old fashioned "Full Faith and Credit" US debt.  Why in hell politicians aren't swinging from lamp posts today defies all logic, but there you go.

Thu, 07/19/2012 - 02:22 | 2630890 All Risk No Reward
All Risk No Reward's picture

>>Just who do you think the major holders of the US debt are?  The Chinese?  The banks?  Trading bandits, all.<<

The richest people on the planet - national boundaries are for chumps, or haven't you read the globalist's own writings?

The same crowd that cotnrols the mega banks and the multinationals and the Federal Reserve System and who will use it in order to further their interests, not the interests of the lowly debtor class.

>>The US .gov is over 15 trillion in the hole.  The Chinese average about 1 trillion in of that.<<

Still stuck on national boundaries?  Money Power is international...  they know no national pride and have no allegiance to a nation state.  In fact, they want to destroy nation states.  Again, read their documents that state this openly.

Tragedy and Hope is a good book to read to begin to get an idea how the world really runs.

The bankster's Federal Reserve owns more treasuries than any other entity, in case you didn't know.

>>On a bad auction, the i-banks may have to sit on 5 trillion, but it is unloaded on the muppets, or those in need of collateral, within a week or so.<<

Yes, the poor indebted serfs own all their own debt...  oh wait!  They don't!  Most people are big time debtors, my friend, and the debt receipt "money" is concentrated in the hands of the few.

>>The real holders of the US debt are those who age.  Yes, if you are one of the unfortunate ones who actually get older, you are a prime lemming at the US debt line.  You remember that bogus Social Security Trust Fund?  What, exactly, do you think the politicians stuffed it full of when they looted the fund?  Their corpses would still be hanging from street lights if they had actually stolen the money.  No, they exchanged it for good old fashioned "Full Faith and Credit" US debt.<<

The social engineering that causes you to be blind to a small group of people who own most of the debt receipts while society is saturated with debt has worked exceptionally well with you.  Shake it off!  Here's some help...

Debt Money Tyranny...


Big Finance Capital is the "club" with the most money and debt ownership and political control, not grandpa and grandma.  The latter are bit players...  as evidenced by the fact they will go to jail for committing crimes. Jail is for little people, if you know what I mean.

>>Why in hell politicians aren't swinging from lamp posts today defies all logic, but there you go.<<

We agree on this, but our reasons are probably different in some respects.

Good luck - we need it.

Thu, 07/19/2012 - 06:59 | 2631038 zhandax
zhandax's picture

Those "richest people on the planet" only bought it to hold momentarily to scarf off the value of "most benefit to those closest to it's creation".  Then, they flipped it.  They don't want to own this shit anymore than you do.

Thu, 07/19/2012 - 03:21 | 2630917 cranky-old-geezer
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I'll take the counter argument

There is no valid counter-argument.  

This stuff is pretty simple.  When the money supply expands way faster than GDP, as it is now to fund rapidly expanding government debt, the value of the currency is seriously diluted, as it has over the past 4 years, around 50%.

That's extreme inflation with it's corresponding dilution of currency value, just like doubling the number of shares of stock of a company dilutes the value of each share 50%, same concept.

The rapidly growing govt debt funded by all this currency printing is meaningless, it'll never be defaulted on, just rolled over and over indefinitely.

These are simple things not requiring long complicated explanations.  Any Econ 101 & 102 student who is awake in class can understand these simple things.

Long complicated explanations are attempts to divert attention from where the real problem is.

In the bigger picture what's happening is all the wealth of the nation is being transferred to the government and banks.  The fiat currency printed on a printing press is just the vehicle for transferring all the wealth of the nation to the government and banks.

Thu, 07/19/2012 - 03:37 | 2630925 Ghordius
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+1 what you are trying to explain is difficult for many to understand because the real inflation, i.e. the increase of the monetary base, usually needs at least 18 months to translate into increases of prices, and that this increase of prices can be very different in the various goods and assets, for a while. Add the countereffect of deleveraging, and the picture can be murky for years.

This is very counterintuitive for who expects direct, fast and clear effects and reactions from every action. Add the mindset of the trader that is only interested in the short term effects, and you could talk as well to walls.


btw, I disagree with the "sustainable level" of debt/GDP in the article, this is against the Japanese and other country's experience for decades. I understand this ties in with your "it will be rolled over" statement - on which I broadly agree.

Wed, 07/18/2012 - 02:55 | 2627184 verum quod lies
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Even though Bloomberg warned: “Iceland is warning Greece and Ireland not to copy its recovery model even though the Atlantic island managed a return to international debt markets less than three years after letting its banks default on $85 billion.” And as reported even by the PWTB (the Economist): “MOST came quietly in the end. After a tortuous process, the majority of private holders of Greek government bonds had agreed by March 9th to trade in their bonds for new longer-dated ones with less than half the face value of the old ones and a low interest rate. The biggest sovereign-debt restructuring in history allowed Greece to wipe some €100 billion ($130 billion) from its debts of around €350 billion. It will also be the first test of the resilience of the financial system ...”

Therefore, default and restructuring (default being part of that process) did and will likely happen. Inflation, sure, why not; and note that inflation is a form of taxation/default (i.e., default in the sense of promising one thing economically yet delivering substantially less or even nothing in some cases). But let’s not make silly statements when so far the score is default/restructuring 2 and massive inflation 0. I too think this shortly will turn into high to massive inflation overall, but “nobody's gonna default” is just a silly thing to make an absolute statement about. Sure, there will be a tendency toward high and even hyper-inflation (and I too think U.S. inflation is underreported), but don’t dismiss default as not being in the cards for any sovereign.


Wed, 07/18/2012 - 06:49 | 2627370 geblis
geblis's picture

But if there were no debts, there would be no need to print!

Wed, 07/18/2012 - 02:18 | 2627143 The Navigator
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US Debt is $15Tril, closing in on $16Tril - US GDP is $15Tril, maybe a little less - the debt to GDP ratio is about 105%, meaning we owe more than we make in a year.

I think you are thinking of the 1.6% growth rate which is not used in this ratio/calculation.

Wed, 07/18/2012 - 03:23 | 2627205 tenpanhandle
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Exactly right.  The calculation is based on GDP not the growth (or lack thereof) of GDP.  While I've got the floor I'd like to pose a question and point or two: 

The US uses falsefied unemployment numbers and phoney inflation stats as compared to the reporting by other countries for their own unemployment and inflation numbers.  The US does not count unfunded libilities as part of their accumulated debt and therefore the US debt numbers in this operation do not include these immense unfolding amounts.  Do all the other countries listed in this exercise also not include unfunded liabilities in their total debt figures?

In the US and other countries with huge unfunded liabilities this should add another tier or two to this equation and put the whole concept of any kind of future control and management into the realm of the absurd.

Wed, 07/18/2012 - 05:09 | 2627291 kraschenbern
kraschenbern's picture

GDP <=0   Singularity!

Wed, 07/18/2012 - 06:56 | 2627377 Thamesford
Thamesford's picture

Debt to income would be more meaningful.

Wed, 07/18/2012 - 06:42 | 2627358 neidermeyer
neidermeyer's picture

Dr. Benway ,


You are 1000% correct ,, that is THE way that lack of capital is hidden ,, Bank "A" buys worthless debt assetts from Bank "B"  and Bank "A" reciprocates. In the good ole S&L crisis we saw that occurring in almost every failure, usually with shares in worthless companies that weren't publicly traded or in real estate.

Wed, 07/18/2012 - 04:30 | 2627261 StychoKiller
StychoKiller's picture

Euro denizens use periods in place of commas -- craazy, no?

Tue, 07/17/2012 - 22:24 | 2626730 soccerballtux
soccerballtux's picture

^ask Japan how it worked for them?? Not well.

unrelated, I have a rant for the people that complain about the lack of work ethic in young folks today.

jobs don't pay like they used to.


$12 to eat out, $13 to see a movie, $3.50/g gas, 5-digits-per-year-college-tuition, why bother? Take bus, play video games, buy Ice Cream when you get a chance. Who needs more? Older people say "eehhh??? I bet that taught you the value of a dollar, son!" Rather, my minimum wage job taught me the value of an hour of freedom. When I tell older people that they scowl at me, suck it old farts, the world sucks now and you wouldn't work an 8 hour shift at McD taking new orders for the same damn food every 20 seconds for minimum wage either, so get off my case.

I make an engineer's salary now. Still would make same decision given the chance. Those summers of working in high school are summers I'm never going to get back. Work work work till you die. No thanks.

I know better paying high school jobs exist but I was very bad at thinking "out of the box", hence engineering now. If I'm engineering now and couldn't figure out the better jobs back then, what are the poor stupid people that can't even go to college supposed to do? We shipped all the stupid-people jobs off to China.....that was a bad decision for us long term, should have been taxing imports from non-1st-world countries (e.g. taxing unless imported from countries that have similar wages as us, such as Japan, UK, South Korea, Taiwan, etc) from the getgo. Now we'll just pay for the correction through welfare meanwhile encouraging entitlement. If you feel entitled to having a job, then at least you're working.


rant over...

Tue, 07/17/2012 - 22:38 | 2626764 CrockettAlmanac.com
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 When I tell older people that they scowl at me, suck it old farts, the world sucks now and you wouldn't work an 8 hour shift at McD taking new orders for the same damn food every 20 seconds for minimum wage either, so get off my case.


Lots of folks have been willing to work at McDonald's for the past 60 years or so. That's how folks with few skills and little experience get skills and experience. It's the way of the world not a personal attack upon you.

Tue, 07/17/2012 - 23:44 | 2626902 Dr Benway
Dr Benway's picture

I know for a fact that most people in office jobs spend most of the days doing nothing.


Coffees, chatting, surfing, etc etc etc EASILY takes up 50% if not more of the average office workers time.


So it rankles me too when I hear people in sinecures complaining young people won't work hard enough. Those cushy office jobs with cushy salaries will become rarer and rarer, so at least STFU and count your blessings is what I say to those people.

Wed, 07/18/2012 - 00:16 | 2626995 CrockettAlmanac.com
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I volunteer at a local historic site. In June I was helping set up tents for the annual Strawberry Festival with four other volunteers. Our ages are 85, 66, 47, 16 and 8. There were about a dozen teenagers who were paid to be there by the municipality to cut the weeds. While we volunteers worked the tax feeding teens played hacky sack. Screwing around is not exclusive to any age group or workplace.

Wed, 07/18/2012 - 00:21 | 2627012 AldousHuxley
AldousHuxley's picture

don't measure "hard work" by income/work

measure it by lifestyle/work


middleclass lifestyle = education + housing + healthcare


yeah....young kids today are getting screwed. So what if they make twice a much for little more slacking??? The same old house is going for 4 times as much.

Wed, 07/18/2012 - 04:49 | 2627278 zhandax
zhandax's picture

Young kids today are being screwed by the same system who taught them, and it's our fault that we didn't throw the assholes out of office and demand that the federal government get the fuck out of the education business.

Wed, 07/18/2012 - 00:57 | 2627071 Dr Benway
Dr Benway's picture

Look, I wasn't trying to say that elders slack off more than younguns. I was trying to say that the elders have sucked the teat of the gravy train in a plethora of ways while passing on the debt to these younguns. Like Aldous pointed out above, its the younguns that will have to pay many of the debts of the old.


So let them play their hackysack.

Wed, 07/18/2012 - 11:39 | 2628269 CrockettAlmanac.com
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So let them play their hackysack.


But I'm not rich, never was and I am taxed to pay for these teen "workers." If you want to subsidize their fun then do it yourself.

Wed, 07/18/2012 - 04:15 | 2627246 HungrySeagull
HungrySeagull's picture

I tossed meat off the cooker into a Mc Donald's line.

It was one of the shortest times I ever spent at one employer.

And as a Customer I don't do much better. I usually wait until some old wrinkled fuck gets behind the cash register because I know that person will focus and accurately take my order instead of those giggly spaced out tarts.

Tue, 07/17/2012 - 23:36 | 2626879 WillyGroper
WillyGroper's picture

so you think they can't/aren't outsourcing engineering jobs here? still in the box eh? 

Wed, 07/18/2012 - 01:02 | 2627076 James_Cole
James_Cole's picture

If you have a Msc (or higher, extra $ if biomedical) engineering degree from a decent school you will be in demand in the US & around the world, I know this personally. Not many people can get by at that level though. 

Bsc might not do it, there are still lots of labs hiring here though.

Wed, 07/18/2012 - 04:28 | 2627260 natty light
natty light's picture

Thank you, sir.

Tue, 07/17/2012 - 23:33 | 2626873 ReactionToClose...
ReactionToClosedMinds's picture

very good (funny > 'hold the poison')) ... great set of summation charts ZH ..... gives one all the perspective one needs.

This is going to be one hell of a Fall ....... whether the equity markets (or Treasurys, commodities or whatever) go up or down .... there are more simultaneous roller-coaster dynamics in play than I can ever remember in my aging lifetime.  This makes the Cold War look simple by any relative comparison .. since that had the nuclear threat overhang .. but it was much more straightforward since the bolshviks made it obvious to everyone ...even the AFL-CIO ...except the hard left

Did some Chinese person curse the West?  May you live in interesting times! 

Wed, 07/18/2012 - 01:26 | 2627100 AldousHuxley
AldousHuxley's picture

speaking of charts...


Spanish Stock MArket historical


Wed, 07/18/2012 - 04:14 | 2627243 cossack55
cossack55's picture

Looks like they need to tweak their algos.

Tue, 07/17/2012 - 21:38 | 2626643 Snidley Whipsnae
Snidley Whipsnae's picture

Household debt? Does household debt include the gambling losses by bankers/FIRE sector that are using gov stooges to dump them onto households/taxpayers?

It's only a matter of time untill all the losses of the FIRE sector become 'household debt'....

Tue, 07/17/2012 - 22:12 | 2626711 boogerbently
boogerbently's picture

This may be the ADVANTAGE to the lack of transparency. We'll never know how bad it is.....so it's easier to fix or deny!

Tue, 07/17/2012 - 21:40 | 2626650 Max Fischer
Max Fischer's picture

Whenever you use "percentage of GDP" during the worst global recession in modern history, you're going to get skewed numbers.

Tue, 07/17/2012 - 21:51 | 2626667 Aziz
Aziz's picture

As a percentage of GDP gives a relatively clean estimate of debt as a percentage of total economic activity. 

If we used a percentage of potential GDP like I think Krugman and DeLong want us to, that is living in fantasy land. We have the GDP that we have.

Tue, 07/17/2012 - 21:54 | 2626672 Yes_Questions
Yes_Questions's picture



We have the GDP that we're told we have.

Tue, 07/17/2012 - 22:20 | 2626728 Bollixed
Bollixed's picture

Ah yes, the old Ghost Domestic Product...

Tue, 07/17/2012 - 22:42 | 2626776 CrockettAlmanac.com
CrockettAlmanac.com's picture


Tue, 07/17/2012 - 22:15 | 2626715 boogerbently
boogerbently's picture


we don't have too high of debt.....we have too low a GDP. (I'm not too fat, I'm just too short for my weight)!!!

Tue, 07/17/2012 - 21:55 | 2626674 Pure Evil
Pure Evil's picture

I guess you have better graphs and charts that you want to share with us.

Tue, 07/17/2012 - 22:42 | 2626775 TheFourthStooge-ing
TheFourthStooge-ing's picture

Max, Max, Max....let me try an explanation that you might find easier to understand.

Let's say, for example, that an evening's enjoyment for you is getting a buzz on by drinking a flask of Wild Irish Rose, a six-pack of Michelob, and a quart of Stroh's, followed by posting rants in the ZH comments.

One day around the end of the month you find your snap card out of credit, so for cash you go around town to four different blood/plasma centers, being drained by a pint at each location. You're feeling a little woozy, but you now have enough to buy some Wild Irish Rose, a six-pack of Michelob, and a quart of Stroh's.

You're anticipating another evening of clever insight and irrefutable demagoguery on ZH, but in your weakened condition you end up getting so smashed that you vomit all over your mother, pass out on her couch, and lose control of your bodily functions.

The "percentage of GDP" numbers are like that. They're not really skewed because the economy's weakened condition amplifies the effects of the debt, much like getting all boozed up after draining two quarts of blood.

Hope that helps.

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