Economics

Jaký dluh už je příliš velký?

Jan 28, 2016 Robert Skidelsky

LONDÝN – Existuje pro domácnosti určitý „bezpečný“ poměr dluhu k příjmu nebo pro vlády k HDP? V obou případech je odpověď kladná. A v obou případech nelze přesně říct, o jaký poměr se jedná. Nicméně právě to se momentálně stalo nejnaléhavější makroekonomickou otázkou, a to nejen kvůli bobtnajícím dluhům domácností a vlád po roce 2000, ale také – a co do významu především – kvůli přehnaným obavám, jež dnes vyvolává dluh vlád.

Podle zprávy z roku 2015, již vypracoval McKinsey Global Institute, se v mnoha vyspělých zemích zadlužení domácností v letech 2000 až 2007 zdvojnásobilo, na víc než 200 % příjmu. Domácnosti v zemích, jež v letech 2008-2009 postihla hospodářská krize nejsilněji, od té doby svůj dluh už poněkud snížily, ale ve většině vyspělých zemí poměr zadlužení domácností nadále rostl.

Po krachu let 2008-2009 následoval velký vzestup vládních dluhů. Například dluh britské vlády se zvýšil z hodnoty těsně převyšující 40 % HDP v roce 2007 na dnešních 92 %. Setrvalé snahy silně zadlužených vlád zbavit se schodků zapříčinily vzestup míry zadluženosti, protože srazily HDP, třeba v Řecku, anebo zpomalily zotavení, třeba v Británii.

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Robert Skidelsky

Writing for PS since 2003
200 Commentaries

Robert Skidelsky, a member of the British House of Lords and Professor Emeritus of Political Economy at Warwick University, was a non-executive director of the private Russian oil company PJSC Russneft from 2016 to 2021. The author of a three-volume biography of John Maynard Keynes, he began his political career in the Labour party, became the Conservative Party’s spokesman for Treasury affairs in the House of Lords, and was eventually forced out of the Conservative Party for his opposition to NATO’s intervention in Kosovo in 1999.

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Ralph Musgrave Oct 19, 2016

Normally I'm a fan of Skidelsky's, but this article is just waffle. His grasp of the subject is nowhere near that of the average advocate of Modern Monetary Theory. For example he doesn't seem to get the point (pointed out by MMTers and Martin Wolf) that at low rates of interest there is little difference between national debt and money (base money to be exact).
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Mark St. Angelo Feb 4, 2016

With all due respect to the author, I think his statement that "[a]ll governments nowadays aim for a fiscal surplus to pay down debt" is not consistent with the facts. While it may be true for some countries, it is clear that many countries, including the United States, China and Japan, are not aiming for a fiscal surplus that would enable the government to pay down its debt. They may say that is what they are aiming for, but their actions are inconsistent with such a goal.
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Howard Johnson Jan 31, 2016

"In the long run, (paying down debt by Increasing GDP growth) can be achieved only by raising productivity." This would work so much better if increased productivity would be widely shared, but we are still in a cycle where increasing productivity exists with downward pressure on wages. In fact, much of the productivity increases are being shielded from tax.
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Angel Gavieiro Jan 31, 2016

This is a very intriguing comment, which effectively was as well mentioned in a previous article (Apr. 17th) by Adair Turner (former Chair at UK FSA) and Susan Lund (from McKinsey's MGI): the fact that we can simply reduce the Debt/GDP ratio by the amount held in the respective Central Bank.
For that article, and this one again, I bring this argument to its reduction to the absurd, by asking: so why not we go all the way down to reduce the ratio to 30%, 25%, or... even 0%? (i.e. one-scoop QE increase that suddenly eliminates public debt, by just increasing Reserve Balances with the sweep of a finger).
Can we actually make disappear debt in a such simple fashion?... without consequences?
And that is the crux of the matter: the consequences. The problem is that, at this point, we are in the middle of the largest experiment in monetary policy history, QE, and we DO NOT know the consequences, nobody really knows!
I content that the creation of debt, it DOES HAVE A LIMIT... but, given the dynamics at play, it is impossible to estimate at any point of time what is that limit for a given country... because depends totally on Market Expectations (by themselves, unobservable).
Thus, we decide to be on the cautionary side of things trying to avoid too much debt overhang (by ear, as we do not know how much is too much)... and this is why probably nobody would propose to bring the Debt/GDP to 0% using the central bank balance sheet... however, netting it at 63% (like UK's example), seems more reasonable to the author... but the underlying logic is still Unexplained (same goes for the Apr. 17th article), other that "all is the same gov. balance sheet".
Prof. Skidelsky has a point about the Keynesian principles predicated in the article, however I would question whether Keynes himself would share the same support to the logic above for public debt evaporation via Central Bank QE so to undertake a Keynesian public infrastructure programe.
- jack lasersohn Feb 10, 2016
  
  I completely agree with you. It is actually quite frightening that full monetization of government debt has been proposed by three different authors in the space of a few weeks. It suggest this idea is really 'in the air' as QE and negative interest rates fail.
  The line between too much such monetization and hyper inflation and too little and no impact at all, is unknowable and likely to be highly unstable. Just letting this genie out of the bottle could have destabilizing consequences that are hard to anticipate.
  Moreover, just exactly how would such a move stimulate growth?
  No individual is going to leverage up again just because nominal government debt has decreased. I suppose in theory one might imagine a reduction in future taxation as interest expense goes away, but in reality interest payments to the FED are simply returned to the Treasury anyway.
  Bottom line is we need to figure out how to grow again beyond monetary and fiscal tricks. Japan used to talk about 'a third arrow' for growth: structural reform. You don't hear anyone talk much about that anymore.
  They should.
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Michael Bain Jan 31, 2016

To my mind some of the core problems with the U.S. economy (society) are:

1. Expectations, as normal, of ever increasing economic growth at an unsustainable rate by most everyone (as the article, and the Great Crisis, point out);
2. Deregulation and devolution of the financial industry into a hyper-predatory, scantly regulated state;
3. Failure of government regulators to use what regulatory powers they had, and/or to ignore those regulatory powers without fear or concern for the impact on America’s lower and middle classes;
4. Moral hazard is now a joke in the financial industry (no one but the public pays);
5. Offloading, via offshoring, our costs of production (negative externalities) with the working classes and the environment paying the costs;
6. The fallacy of Trickle-down economics being turned into the reality of Flood-up economics—wealth being appropriated by the corporation and its major shareholders with the blessing of government (while the clueless American working class public watched);
7. Trade Agreements high-jacked by corporate interests;
8. The tremendous advances in the power of marketing and advertising as it affects human consumptive behavior;
9. The use of that marketing power by corporations and our government to brainwash the public into a state of mindless consumptive addiction based on debt;
10. The willing ignorance of the voter/consumer to ignore the above and by into the idea that economic growth and mindless consumption is the goal of life;
11. One dollar, one vote political reality.

Want to fix things like the problem of debt, and other ailments?

Start with addressing the above in an unbiased, adult, and meaningful manner.

Michael Bain
Glorieta, New Mexico
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Fernando Ferreira Jan 30, 2016

... and the context explains a huge range of possible situations since debts may turn powerful tools to enforce politics
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Shane Mage Jan 30, 2016

Why do so many, who should certyainly know better, quote Polonius's "advice?" in Hamlet, Polonius is a figure of contempt and ridicule. Hamlet tells him to his face that if he were treated "according to his" he would surely not " 'scape whipping.' " And his last word to the dead Polonius is "I took you for your better" (ie., his boss, the fratricide murderer and usurper Claudius!). If Shakespeare has Polonius say anything he is holding it up for our contempt as sententious nonsense. So why does everybody go on quoting it as if it was anything to be taken seriously?
- Shane Mage Jan 30, 2016
  
  "according to his *deserts*"
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Stamatis Kavvadias Jan 29, 2016

Mr Skidelsky is very picky about the half-truths he spells out. Picky in such a way that he miserably fails to name solutions for the glo0bal situation, but restricts the usefulness of his essay to the countries that have been historically rich and have been setting the rules, essentially enslaving the world.

Mr Skidelsky, comparing Greece with Japan, does not mention that Japan's debt to the tune of 60% of GDP is in its central bank balance sheet --he only parenthetically mentions BoJ. If Greece had an independent central bank and 60% of GDP worth of Greek debt was in the central bank's balance sheet, Greece would likely have lower interest rates than Japan, because it has far lower private debt to GDP.

Of course, he does not mention that there is no way for Greece to guide its government debt to domestic hands, because it is part of the EU. Further, because it is also part of the EZ, its banks have been advised (or instructed?) to diversify the government debt in their balance sheets, away of Greek debt and that is how they did not collapse when the ECB denied ordinary liquidity in the beginning of the 2015 negotiations (February, I believe). In fact, Greece being in the EZ is such a problem that Greek banks have to move away from Greek debt, and what debt pension funds and domestic population had at hand, in 2010, has taken a tremendous haircut, crippling any chance that domestic debt will be held domestically in the future!

Mr Skidelsky should also tell us how he picked Denmark to compare with the US, on private debt. It is amazing that he forgets to mention the tremendous inequality in the US, in stark contrast with Denmark. It is, of course, obvious that "the bottom quintile" will be more leveraged in the US, when half the wealth is at the hands of the 1% and (which must be near true for the US, if it is for the globe, of which it accounts for 22.5%). It is tremendously difficult to get leveraged for this 1% and, indeed, for the rest of the top 10% in the US.

In fact, the drivers of gigantic and increasing private and public debt globally, are in trade and investment deals, like those the US are putting forward (TPP and TTIP), in currency unions without matching fiscal and political authorities to recycle the benefits, and also in tax heaven regimes remaining untouched. Of course Mr Skydelsky won't tell us anything about these. They are sensible political issues, important to great vested interests.

Mr Skydelsky's ideas are very uninteresting. Only US and China can make use of them, because of their near self-sufficiency. The rest of the world depends on demand and free trade and investment zones are gradually killing it with over-indebtedness.
- Stamatis Kavvadias Jan 29, 2016
  
  Of course, these free trade and investment zones are creating countries like Germany... It is the same reason England insisted on China "opening its market" to Indian opium in the past, when India was a colony...
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Michael Public Jan 29, 2016

No amount of debt is too much when the investment returns to society exceed the interest paid thereon and the depreciation in value of the capital asset. The focus must move towards calculating the long term benefits of investments, and this is where everything goes pear shaped. Business get involved and diverts public expenditure for private ends. The end result of this is negative value added to society while the business owners earn stratospheric profits.
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Steve Hurst Jan 29, 2016

The US housing market was uniquely positioned like a house of cards to collapse. To be sure shovelling mortgages out onto anybody walking down the street did not help but the key problem was the US 1930s legistlation that allows houseowners to throw the front door keys over the counter and walkaway free of obligation. Many did just that when they could in fact continue covering mortgage, it was simply the best outcome to avoid servicing massive negative equity to no apprarent benefit. As a raw doubling of available of available housing stock form the longterm average puts the housing market into freefall there was no way back.

'...if, as is likely, economic recovery grinds to a halt.'

The problem in the UK is tax revenue level recovery which has not been on plan and shows no sign of being on plan and is flatlining

The unsafe level of debt occurs when you cannot service it. There is no greyscale, it is black and white. It is quite simple. There is no safe debt because debt is income from the future and the future is unknown. You can hardly expect the sellers of debt to advise anybody of that simple fact or they would have little business

Banks ruthlessly exploited consumers naivety aided and abetted by guvnts who saw ever increasing tax revenues

As global debt has done nothing but gallop on regardless the cusp of the next chaotic outcome is already built, its just a question of when we find it. More debt was the kneejerk reaction by guvnts in 2008, that get out of jail card has been played, as has the dip into the community chest for a card.

Will Goldilocks find the bear markets porridge is just at the right temperature. Its more that likely the bowl will be empty before she gets there. It is all about timing if you want porridge
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Procyon Mukherjee Jan 29, 2016

For a country where 61% of the population face a cash crunch if an emergency $500 unplanned need arises outside of the known expenditure, the perils of credit creation makes a stunning case where far too many products and services allure the consumer. It must be marvels of consumerism that so much credit still leaves so little balance for savings.

This is the crux of the problem and rich or poor are no different.
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M M Jan 28, 2016

Robert, the basis / economic fundamentals changed constantly throughout the period that you stated and therefore one cannot draw a sound comparison / conclusion based on the figures / percentages that you and others have stated. Governments of leading economies always utilize the same old weapons that they always use and that is the fluctuations in the forex / price of assets and commodities to manage their Debt to GDP ratios (Greece should have been excluded from your essay, Greece is an exception to all rules). The current low prices of oil should contribute to reducing the debts of the importing countries since most of the savings from the low price of oil (from over $100pb a year ago to under $30pb today) have not and shall not be passed on to the consumer but rather to the Treasury of Debtor countries. So in short, it has been a cyclical trend to utilize (manipulate) the commodities & asset markets to bring up or down the debt.
- M M Jan 29, 2016
  
  Steve, you know what a Greek Ship owner once said to a government minister? He said, for us the best government is a government that just leaves us alone, we have our own compasses, we know where to sail and how to sail, we do not need more compasses to take us off course.
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- Steve Hurst Jan 29, 2016
  
  @MM
  'Greece is an exception to all rules'
  
  I prefer to see GR as the manifestation of all rules
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Clive MacDonald Jan 28, 2016

"Mortgage debt, unknown a century ago". The first UK building societies began operating in the 1830's.
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