DEBT past present future public private crisis

featured/intro updates below

see also >Ann Pettifor >Michael Hudson >David Graeber 2022 “A theory of debt is basically a theory of everything”Andrew J. Douglas

debt updates 4-2023 13-4-2023 Wealthy west has little excuse after finally waking up to global debt crisis – As recent banking failures in US and Europe show, rich countries can act quickly when they want to – by Larry Elliott

This week’s gathering of the International Monetary Fund and World Bank in Washington has been marked by a discussion about what to do about countries that are in debt distress or on the brink of it. The good news is that debt has climbed back up the policy agenda and is seen as a problem that needs sorting….

…After the blow of the Covid-19 pandemic, low- and middle-income countries have since been hit by two further unwelcome shocks: the war in Ukraine, which sent the cost of food and fuel soaring, and the sharp increase in interest rates by the central banks in large western economies. The upshot is that servicing debts has become much more expensive, with many countries now frozen out of financial markets altogether. …China, which has emerged in the past decade as a significant bilateral creditor, has been reluctant to offer debt relief unless the World Bank and the IMF are prepared to take a financial hit themselves. …

…the issue is not financial but political. “The US mobilised $400bn to guarantee the deposits of Silicon Valley Bank. That’s more than the developing world received in three years. The Swiss government took less than 48 hours to find CHF 100bn to underwrite the rescue of one of its banks.” The lesson from the recent banking crises is clear, he notes. Wealthy countries can act quickly enough when they want to. 2-4-2023 China’s loans to Africa worry World Bank President David Malpass – By Jonathan Josephs

…Beijing has become one of the biggest sources for loans to developing economies in recent years. A new study led by the Kiel Institute for the World Economy shows that globally China lent $185bn (£150bn) in bailouts to 22 countries between 2016 and 2021.

China refutes suggestions that it is exploiting other countries with its financial support. At a press conference this week Foreign Ministry Spokesperson Mao Ning said China “respects the will of relevant countries, has never forced any party to borrow money, has never forced any country to pay, will not attach any political conditions to loan agreements, and does not seek any political self-interest”.

Ghana’s Finance Minister Ken Ofori-Atta travelled to Beijing this month for talks on restructuring its debt repayments. The country also got $3bn from the IMF in December. Mr Malpass said the problems were not unique to Chinese financing but things were improving.

“If you think of the history of Western lending, sometimes it’s not for the full benefit of the people in the countries [being lent to]. Even World Bank loans haven’t always been for the best that could have been done in a country. So what we’re trying to do, and I think everyone should be trying to do, is improve the quality of the lending.”… 30-3-2023 European banks and the price of safety – Why the continent’s lenders are so different to those in America

…Europe also lacks money markets of the same depth and ease of access as Uncle Sam’s, so there are few liquid, lucrative alternatives to bank accounts. This is why most corporate overnight deposits that have been withdrawn—some €300bn ($325bn) since the summer—re-entered banks as “term” deposits, in less flexible accounts that offer higher returns.

A second threat to European banks is deteriorating assets. Here, too, the danger seems manageable. Like bonds, the value of existing loans on banks’ books diminishes when interest rates rise. But regulators in Europe have forced banks, big and small, to buy hedges against that risk.

The third is that borrowers fail to honour their dues. Investors particularly worry about credit extended to owners of commercial property. Rising interest rates and a worsening economic outlook are putting pressure on prices and rents at a time when owners have to pay more to service debts. The saving grace is that European banks are less exposed to commercial property than American ones…. 27-2-2023 China’s cities are on the verge of a debt crisis – Without intervention, the result could be more protests and bond-market chaos 27-2-2023 China has not resolved its past lending mistakes. But it is learning from them – How to speed up debt-relief talks 1-2023 Hedge funds holding up vital debt relief for crisis-hit Sri Lanka, warn economists – Exclusive: 182 experts say only debt cancellation offers chance of recovery but private investors are playing hardball – by Larry Elliott 

  • see guardian also 12-12-2022 IMF says global debt well above pre-pandemic levels despite steep 2021 drop – by Andrea Shalal

Public and private debt totaled $235 trillion – Swings in debt ratios due to rebound from COVID, high inflation
IMF sees further drops in debt ratios in 2022

financeyahoo/bloomberg 5-12-2022 ‘Huge, Missing and Growing:’ $65 Trillion in Dollar Debt Sparks Concern – by Greg Ritchie

There’s a hidden risk to the global financial system embedded in the $65 trillion of dollar debt being held by non-US institutions via currency derivatives, according to the Bank for International Settlements. In a paper with the title “huge, missing and growing,” the BIS said a lack of information is making it harder for policy makers to anticipate the next financial crisis. In particular, they raised concern with the fact that the debt is going unrecorded on balance sheets because of accounting conventions on how to track derivative positions.

The findings, based on data from a survey of global currency markets earlier this year, offer a rare insight into the scale of hidden leverage. Foreign-exchange swaps were a flashpoint during the global financial crisis of 2008 and pandemic of 2020, when dollar funding stress forced central banks to step in to help struggling borrowers.

To be sure, the debt is backed by an equivalent amount of hard currency. To understand how the system works, consider a Dutch pension fund buying assets in the US. As part of the transaction, it will often use a foreign-currency swap to exchange euros for dollars. Then, when it’s closed out, the fund will repay dollars and receives euros. For the length of the trade, the payment obligation is recorded off-balance sheet, which the BIS calls a “blind spot” in the financial system.

It’s that opacity that puts policymakers at a disadvantage, according to BIS researchers Claudio Borio, Robert McCauley and Patrick McGuire. “It is not even clear how many analysts are aware of the existence of the large off-balance sheet obligations,” they wrote. “In times of crises, policies to restore the smooth flow of short-term dollars in the financial system — for instance, central bank swap lines — are set in a fog.” …

bloomberg “Huge, Missing and Growing:’ $65 Trillion in Dollar Debt Sparks Concern 13-21-2022 The mortgage time bomb ticking beneath Poland’s banks – The legal fallout from a scheme to sell housing loans in Swiss francs threatens to push banks under — and rattle a fragile economy 11-2022 ‘More than 50 poor countries in danger of bankruptcy’ says UN official – Developing countries falling into default would be catastrophic and delay climate action, UN development chief warns – by Fiona Harvey 8-10-2022 Are we expecting sovereign debt to do too much? by Brendan Greely

sovereign Debt BoE gilt markets B Greely ft 8-10 2022

UK GOV budget debt costs 10-2022 bbc
sovereign cost of debt bbc newsnight 7-10-2022 9-2022 Now Britain is in the 100% debt-to-GDP club, what’s the spending plan? Covid has pushed many states’ debts above annual income, but the UK has lower credibility than some with lenders – by Phillip Inman 20-8-2022 Can buy now, pay later survive the cost of living crisis? 8-2022 China’s belt and road lending under more scrutiny after IMF tightens debt limits, experts say – by Kandy Wong

China is the largest bilateral creditor to developing nations, but it is often criticised in the West for not offering enough transparency around its lending. But tougher debt monitoring at the International Monetary Fund is pressuring borrowers to disclose more information on Chinese loans, observers say 30-7-2022 The Chinese Banking Bankruptcy Could Trigger the Mother of All Crises – An economic tsunami coming from the East could wipe out the plans of future generations. by Levi Borba 7-2022 How higher interest rates will squeeze government budgets – Rising borrowing costs will hit taxpayers sooner than you think 16-7-2022 What Sri Lanka reveals about the risks in emerging markets 3-3-2022 Sri Lanka’s economic crisis deepens as the country is snowed under its crushing debt – by Sumathi Bala

  • For Zahara Zain, the current times in Sri Lanka are  reminiscent of the early 1970s, when the country was fighting for its surviva, when the country was fighting for its survival amid crippling food shortages.
  • The economic pain inflicted upon the country has further complicated Sri Lanka’s increasingly difficult external debt crisis.
  • Policymakers are struggling with the dual challenge of managing overseas debt repayments while meeting domestic needs.

The shortage of U.S. dollars in the country has led to a ripple effect on the prices of most food items and raw materials that are essential for her food business, Zain said. “The situation is really bad and people are suffering.” The economic pain has further complicated Sri Lanka’s increasingly difficult external debt crisis, analysts said.

Policymakers are struggling with “the dual challenge of managing overseas debt repayments while meeting domestic needs,” said Shahana Murkherjee, an economist at Moody’s Analytics.

Sri Lankan President Gotabaya Rajapaksa declared an economic emergency in September. It allowed the government to take control of the supply of basic food items, and set prices to control rising inflation, which spiked to 14.2% in January.

The South Asian country’s tourism dollars dried up due to the pandemic. But even before then, Sri Lanka’s debt spiral was already on an unsustainable path, economists said.WATCH NOWVIDEO03:25Sri Lanka’s central bank governor discusses the country’s debt crisis

Since 2007, successive governments have issued sovereign bonds “without giving much thought to how we will repay the loans,” said Dushni Weerakoon, executive director at the Institute of Policy Studies of Sri Lanka.

“Reserves were built up by borrowing foreign currency funds, rather than through higher earnings from exports of goods and services. This left Sri Lanka highly exposed to external shocks,” she said.

Moreover, the government spent the foreign currency on repaying the debt and the central bank has been running down foreign exchange reserves to prop up the Sri Lankan rupee, which came under pressure, said Alex Holmes, Asia economist at Capital Economics.

As a result, “there’s not much foreign currency left in the economy to do things like import food, which is one of the reasons why we’ve seen inflation rise to double digits,” Holmes added.

Covid-19 dealt another blow to the island nation’s tourism-dependent economy aggravating the debt burden.

“The pandemic-induced strain on finances has been significant, with government revenues coming under excessive pressure as the important revenue-generating tourism sector has effectively been on pause since early 2020,” said Murkherjee. “Migrant worker remittances have also suffered a major setback.”The pandemic-induced strain on finances has been significant, with government revenues coming under excessive pressure

The tax cuts in 2019 made the situation worse as it led to a significant drop in tax revenue and further weakened the government’s hand to support the economy during the Covid crisis, said analysts.

The pandemic cut off the usual channels of capital inflows as already weak fiscal and debt indicators worsened,” said Weerakoon. “Sri Lanka’s sovereign rating was downgraded, drying up access to capital market borrowing,” she added.

The country’s official reserves fell by $779 million to $2.36 billion in January compared with $3.1 billion in Decemberaccording to Citi Research. The government’s next big challenge is a $1 billion bond repayment due in July, said analysts.

Debt payments worth nearly $7 billion are also due this year, Moody’s estimated.

To deal with the worsening financial situation, Sri Lanka has approached India and China for assistance.

In January, Rajapaksa met with Chinese foreign minister Wang Yi to request that China restructure its debt repayments. Last year, the country’s central bank and the People’s Bank of China entered into a bilateral currency swap agreement for a swap facility amounting to $1.5 billion  the move was aimed at reducing the risk of fluctuating exchange rates when there is financial volatility.VIDEO02:22IMF loan and fiscal reforms may help Sri Lanka out of debt crisis: Fitch Ratings

India has also recently offered credit and foreign exchange support, which includes a $500 million line of credit to help Sri Lanka purchase fuel.

Still, the government faces a difficult political decision in the next few months whether to prioritize international bondholders over preserving scarce U.S. dollars for critical imports, say economists.

Sri Lanka’s public debt is projected to have risen from 94% in 2019 to 119% of GDP in 2021. 

“For the government, it’s all a question of balancing the positives and negatives of defaulting on the debt,” said Holmes. “Definitely the cost of defaulting is probably lower than the cost to [keep] going for Sri Lanka,” he said, adding it’s better for policymakers to “bite the bullet.”

Analysts said the country needs to either restructure the debt or go to the International Monetary Fund for a relief package.

“We think the Sri Lankan government eventually will have to go to the IMF, though we cannot rule out the risk of a default before any agreement with the IMF were to be finalized,” Citi analysts said it a note.For the government, it’s all a question of balancing the positives and negatives of defaulting on the debtAlex HolmesASIA ECONOMIST, CAPITAL ECONOMICS

The government’s messages about pursuing the IMF option have been mixed. Finance Minister Basil Rajapaksa was quoted in the Financial Times as saying that all options were being explored, including an IMF relief. 

But central bank Governor Ajith Cabraal told CNBC that Sri Lanka did not need IMF help as it had an alternative strategy. In an interview in late January, he claimed Sri Lanka is able to finance its outstanding debt, especially international sovereign bonds, “without causing any pain to our creditors.”

In February, the central bank said Sri Lanka was committed to honoring all forthcoming debt obligations. It also denied media reports which claimed the country was on the brink of a sovereign default, and said “such claims are totally unsubstantiated.”

“It is possible that policymakers may prioritize stabilizing domestic conditions in the very near term by diverting a sizeable share of any additional foreign aid to meeting the country’s growing domestic needs and averting a deeper economic crisis,” said Moody’s Mukherjee.

For Sri Lankans, the country’s ongoing debt crisis has become a cause of growing anxiety and frustration.

“People are worried and there is a lot of anger directed at the government,” said Zain, the small business owner from Colombo. “The country is already in a hole, hopefully they don’t dig a bigger hole — and will just resolve the debt problem.” … 23-1-2022 Fears grow that US action on inflation will trigger debt crisis – Poor country repayments to creditors are running at highest level in two decades – Larry Elliot

…”Heidi Chow, the executive director of Jubilee Debt Campaign, said: “The debt crisis has already stripped countries of the resources needed to tackle the climate emergency and the continued disruption from Covid, while rising interest rates threaten to sink countries in even more debt.”…”… 6-2022 Governments will sink in a world drowning in debt – Rising interest rates and soaring inflation will leave many governments with unsustainable debts. Get set for a wave of sovereign defaults, says Jonathan Compton.  3/12/2021  Höhere Staatsschulden = weniger Wachstum?

Eine neue Metastudie hat auf Basis von knapp 50 Forschungsarbeiten untersucht, wie es tatsächlich um den berühmt-berüchtigten Zusammenhang von Staatsverschuldung und Wirtschaftswachstum bestellt ist. Von Philipp Heimberger

…”…Andere, ebenfalls viel zitierte Arbeiten, kommen jedoch mit denselben oder ähnlichen Datensätzen, aber teilweise anderen Methoden zu dem Schluss, dass die Evidenz für einen negativen kausalen Effekt, der von einer höheren Staatsverschuldung zum Wirtschaftswachstum führt, kaum haltbar sei. Darüber hinaus weisen mehrere Studien auf systematische Unterschiede in den nicht-linearen Auswirkungen der Staatsverschuldung auf das Wachstum in verschiedenen Ländern hin – was bedeuten würde, dass es keinen allgemeingültigen Schwellenwert für die Höhe der Staatsverschuldung gibt, jenseits dessen das Wachstum nachlässt….

… Weiteren könnten beobachtete negative Zusammenhänge zwischen der Höhe der Staatsverschuldung und dem Wachstum auf weitere Einflussfaktoren zurückzuführen sein, die sich auf die Schulden- und Wachstumsvariablen zugleich auswirken: etwa wenn eine Bankenkrise eine Wachstumsverlangsamung und eine Schuldenerhöhung verursacht. Jene Studien, die dieses sogenannte Endogenitätsproblem adressieren, kommen zu Ergebnissen, die weniger stark ins Negative tendieren und stattdessen mit Nullwachstumseffekten höherer Staatsschuldenquoten konsistent sind

…Das zentrale Ergebnis meiner Studie in dieser Hinsicht ist jedoch, dass die empirische Meta-Evidenz die Existenz eines uniformen Schwellenwerts in der Staatsschuldenquote, bei dessen Überschreitung das Wachstum zwingend sinkt, zurückweist. Die Ergebnisse deuten darauf hin, dass Schwellenwertschätzungen, die ähnlich wie bei Reinhart und Rogoff bei rund 90% liegen, auf besondere Daten- und Spezifikationsentscheidungen zurückzuführen sind, die jedoch in der Literatur als problematisch gesehen werden. Wenn wir dies berücksichtigen, kommen wir zu folgendem Schluss: Die empirische Literatur liefert bisher keine robusten Belege für uniforme Schwellenwerte über viele Länder hinweg, wenn es um die Auswirkungen höherer Staatsschuldenquoten auf das Wirtschaftswachstum geht…

… WirtschaftspolitikerInnen und ÖkonomInnen sollten ihre teils obsessiv anmutende Fixierung auf negative (Wachstums-)Implikationen erhöhter Staatsschuldenquoten nachhaltig überdenken und nicht im Nachgang der Covid-19-Krise wieder aufleben lassen… 10-2021 The next global economic emergency? Deepening debt in the developing world – Poorer nations were more fragile before Covid-19, had less scope to stimulate economies, and are on the wrong side of the vaccine divide – by Larry Elliott   2018  An anthropological contribution to rethinking the relationship between money, debt, and economic growth    Richard H. Robbins  3/8/2021 The Time the US Paid Off All Its Debt – The Indicator from Planet Money   by Stacey Vanek Smith, Darian Woods

The United States federal government currently has over 28 trillion dollars of debt and there are concerns about the ever-increasing debt level. The majority of that national debt is issued in the form of bonds and bonds are considered among the safest investment assets in the world. However, the U.S government once paid off all of its interest-bearing debt.

President Andrew Jackson was a staunch opponent of the existing banking system. He also wanted to get rid of the national debt. In fact, his administration paid off all the interest-bearing debt on January 1, 1835. Historian Ann Daly lists three reasons for this to happen. The federal government collected many millions in tariffs, sold massive amounts of public land, and President Jackson vetoed spending bills left and right. Then he decided to give the surplus back to the states. Jackson’s actions though and the zeroing out of the US debt contributed to the Panic of 1837, one of the worst recessions in American history.  GMcopy  4/2020  Out of Thin Air: Public Debt, the Pandemic and Beyond

Governments around the world are currently creating vast quantities of money ‘out of thin air’ to fund their emergency responses to the coronavirus pandemic.  As this happens, we can safely disregard scaremongering about a  ‘crippling burden of debt’   supposedly being left to our children.  The truth is, this money never has to be paid back in any meaningful sense and can cost us basically nothing. Crucially, this could also be the case for money created to fund other things we might choose to prioritise in the future, such as de-carbonising our economy.

Significantly, the Bank of England and the US Federal Reserve have already taken the next step by creating money out of thin air to purchase government bonds directly from their governments, on the ‘primary market’. This practice is known as ‘monetary financing’.  The Governor of the Reserve Bank, Dr Philip Lowe, has emphasised that Australia’s approach is, for now, strictly QE and not monetary financing. But whether it’s QE or monetary financing, the outcome is the same, with one part of the government (the central bank) creating new money and effectively loaning it to another part of the government. The ABC’s Alan Kohler asks the inevitable question:  “The Reserve Bank might be independent but it is part of the government. What happens when that debt has to be repaid – to the Reserve Bank? Well, no one knows […]”  The renowned economic historian Robert Skidelsky is less coy, explaining exactly what happens:  …

… As Alan Kohler went on, “What [Reserve Bank Governor] Dr Lowe won’t be keen to do is give politicians the idea that there’s a magic tree of printed money. There sort of is… just don’t tell the politicians.”  It is true that when new money is created and spent into the economy faster than the rate of growth in productive output then price inflation occurs.  The times when the spending of publicly created money has resulted in high inflation or even hyperinflation in this way are well known, resulting in the widespread and strongly held misconception that money creation by the governme …

… While the fear that if “central bankers lose their ability to say no to treasuries, things could turn out badly” is a valid concern, it is not so valid that we need to tie ourselves up in a straitjacket of false narratives and false constraints; especially with such urgent need for investments in health, education, energy and the environment.
The government’s ability to create money is a great power and there are different schools of thought about precisely how it should best be used and monitored. One comes from the UK advocacy group Positive Money, which suggests that we need an independent committee …

A system like this was once proposed by the great economist Irving Fisher in the 1930s.  Fisher argued that it would dramatically reduce business cycles, end bank runs and drastically reduce public debt. A 2012 study by International Monetary Fund staff found this plan could work well now.  The Financial Times chief economics commentator, Martin Wolf agrees …

… The groundwork is already being laid for the government debt to be used as a pretext for austerity and other ideological projects when we emerge from this public health crisis. A proper understanding of government finances will be a powerful tool to push back with.  We should also keep it firmly in mind when attention returns to the other great challenges of our times, such as fighting climate change.  If we can finance our response to one public emergency in this way, then we could finance our response to another, without debt, without interest, without inflation and without austerity.  If the public comes out of the crisis with a greater understanding of this and puts it at the centre of policy moving forward, it will be a silver lining. 

@Zann_A_Duu  10/2020  Why Foreign Debt Forgiveness Would Cost Americans Very Little  MICHAEL PETTIS

It is easy to assume that sovereign debt forgiveness involves a collective transfer of wealth from the creditor country to the debt-owing country, but this is only true under specific—and unrealistic—conditions. In today’s environment, sovereign debt forgiveness mainly represents a transfer within the creditor country. It benefits farmers and manufacturers in the creditor country at the expense of the country’s nonproductive savers. 5-2022 Visualizing the Snowball of Government Debt – By Marcus Lu

Visualizing the Snowball of Government Debt in 2021 5-2021 The State of Household Debt in AmericaPublished 8 months ago on By Aran Ali   2020  Wer steht bei wem in der Kreide?  Sarah Sommer  Die Kurve, an der sich die weltweite Verschuldung ablesen lässt, steigt und steigt. Die Ökonomen internationaler Organisationen sehen darin eine Gefahr für die Weltwirtschaft. Welches Ausmaß hat der seit Jahrzehnten anhaltende Trend zum Geldleihen? 3/ 2021. Sovereign debt downgrades in store for many nations unless they act on climate crisis  New study uses artificial intelligence to simulate first climate smart sovereign credit ratings. Fred Lewsey.

…” Dr Matthew Agarwala : “As climate change batters national economies, debts will become harder and more expensive to service” …  The first sovereign credit ratings to directly include climate science show many national economies can expect downgrades within a decade unless action is taken to reduce emissions. …  Sovereign ratings assess the creditworthiness of nations and are a key gauge for investors. Covering over US$66 trillion in sovereign debt, the ratings – and agencies behind them – act as gatekeepers to global capital. …”… 5-2017 Ukraine and the New Economic Cold War – by Michael Hudson

ABSTRACT – This paper examines the politics of two rival loans to Ukraine, one from Russia and one from the IMF. While the Russian loan was made at the behest of the elected government of Ukraine as a gesture of solidarity between two closely intertwined post-Soviet economies experiencing similar difficulties, the IMF loan was not only a tool of vain US policy to retain purchase on fast-developing events in Ukraine, it was made in violation of the IMF’s own rules. The loans form a critical chapter the contemporary transition from the geopolitical economy of US and Western dominance to one of multipolarity. 2010 Debt: The First Five Thousand Years – Debt has always involved institutions that control debt’s potentially catastrophic social consequences. It is only in the current era that we have seen the creation of a planetary administrative system that protects the interests of creditors. By David Graeber

…”…Towards a history of virtual money – Here I can return to my original point: that money did not originally appear in this cold, metal, impersonal form. It originally appears in the form of a measure, an abstraction, but also as a relation (of debt and obligation) between human beings. It is important to note that historically it is commodity money that has always been most directly linked to violence. As one historian put it, “bullion is the accessory of war, and not of peaceful trade.”[1]

The reason is simple. Commodity money, particularly in the form of gold and silver, is distinguished from credit money most of all by one spectacular feature: it can be stolen. Since an ingot of gold or silver is an object without a pedigree, throughout much of history bullion has served the same role as the contemporary drug dealer’s suitcase full of dollar bills, as an object without a history that will be accepted in exchange for other valuables just about anywhere, with no questions asked. As a result, one can see the last 5 000 years of human history as the history of a kind of alternation. Credit systems seem to arise, and to become dominant, in periods of relative social peace, across networks of trust, whether created by states or, in most periods, transnational institutions, whilst precious metals replace them in periods characterised by widespread plunder. Predatory lending systems certainly exist at every period, but they seem to have had the most damaging effects in periods when money was most easily convertible into cash.

So as a starting point to any attempt to discern the great rhythms that define the current historical moment, let me propose the following breakdown of Eurasian history according to the alternation between periods of virtual and metal money: …”…

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