Every hiccup, eye blink or clearing of the throat from some Fed governor or their counterpart in the European Central Bank, the Bank of Japan or the People’s Bank of China is carefully observed and parsed by analysts from London to Canberra to Ottawa.
And for what? World economies – and world markets – have fared no better since the advent of central bank interventions in the economy and artificial jiggering of markets than they did in the decades prior. Their latest depredation, keeping rates so low that savers are penalized and risk-taking is rewarded, may yet come a-cropper. No, not in the short term; in the short term we can party hearty courtesy of low margin rates and cheap financing of cars, land, houses, etc. But long term? What the hell are we thinking?
$60,000,000,000,000. $60 trillion. More than the combined gross national product of the US, the EU, China and Japan combined. That’s how much sovereign (issued by governments) debt is currently outstanding. More than 25% of this debt carries a negative interest rate. Investors are paying governments for the privilege of getting less money back in 10, 20 or 30 years — and that’s less money back in today’s dollars.
As central banks strive to increase inflation, they enjoy the double benefit of having investors pay them once for the privilege of holding their money, then yet again as the bankers depreciate the value of the dollars, yen, yuan or euros they have “invested” in. Nice work if you can extort it, nicer when people are dumb enough to line up for it.
By the way, the $60 trillion is but a drop in the bucket of actual “indebtedness.” Yes, that figure accounts for the sovereign bonds currently outstanding. But it does not include the indebtedness of promises made. All developed nations and many developing ones have assured pensioners that they will enjoy a social security safety net when they end their working years. Still others have added the assurance that heath care, no matter the cost, will be provided to all.
Given advances in health care technology, enhanced drug therapies and significantly longer life spans, this last political promise alone could dwarf the $60 trillion in currently-outstanding sovereign debt! (Of course, it might also allow us to be more productive longer, allowing each individual to contribute to an expansion of the national wealth well into our 70s or 80s – or, worst case, it could create a generation of people barely alive or at a significantly diminished level of competence and health. We simply don’t yet know.
