Too much debt (Australsk morgenrapport fra Morgan Stanley)

[diskoduck]

Denne artikkelen tar for seg statsgjeld, og eventuelle løsninger land må ta for å kutte i statsgjeld.

 

http://www.scribd.com/DUD100217-1/d/26993207

 

Downunder Daily

 

It’s Simple: Too Much Debt

 

It seems there is still too much debt in the world. It’s largely in the developed world. The great recession led to the great debt swap, so debt-stress is now a greater problem for the public sector than the private sector. There may be more swaps dressed-up as solutions – say, core Europe bailing out the periphery – but swaps won’t fix the problem. The essential problem is there’s too much debt. Worryingly, in many countries aggregate leverage is now at levels where there is no historical precedent for debt reduction to not involve crisis, default or inflation.

 

Les mer:

 

 

 

Exhibit 1 provides a snapshot of economy-wide debt levels in major OECD countries. Not one of them has total debt of less than 245% of GDP. Greece, as an aside, has total debt-to-GDP of around 225%. Greece is not unusual because of its indebtedness, but because of its cash-flow: Greece’s budget and external deficits are both over 10% of GDP.

 

How much debt can an economy sustain? In principle, any level of debt is sustainable so long as the debt funded an asset that generates income that services the debt. If the average debt cost is, say, 5%, then a debt-to-GDP ratio of 300% is not a problem if there are assets generating returns equivalent to 15% of GDP.

 

The problem now is, in aggregate, the debt was not used to produce assets that generate those returns. If debt isn’t self-funding, a borrower has three options.

 

First, service the debt (by increasing saving). Second, transfer the debt (get bailed out). Third, default on the debt, either overtly or covertly (say, via inflation).

 

A few points about this:

First, reducing leverage – regardless of how – typically requires considerable time. Exhibit 2, from a McKinsey’s report, shows that the typical deleveraging phase following a financial crisis is 6-7 years.

 

Second, an extended period of de-leveraging does not require an extended period of sub-trend growth. This is for two reasons. First, the growth in debt is not linked to economic growth: it’s the change in the rate of debt growth that affects economic growth. The stock of debt is like the stock of inventories: the change in inventories (or debt) affects the level of GDP; and it’s the change in the change that affects the growth in GDP. Put another way, once spending is below income (saving is positive), leverage can be reduced even if spending growth is in line with income growth.

 

The second reason that extended deleveraging doesn’t imply extended sub-trend growth is because much of the recently borrowed debt was not used to finance expenditure, but to acquire pre-existing financial assets. Borrowing can slow due to a slowdown in asset purchases, rather than spending.

 

Exhibit 3 shows private sector GDP growth in the US, and the acceleration (the change in the four-quarter change) in private non-financial debt. Note that the link between debt acceleration and GDP growth loosened in the 1990s and 2000s. This, in our view, is because a rising share of debt was

used to fund asset purchases.

 

Third – and this is an important point – because the response to

the great recession was the great swap, in many economies deleveraging has not yet started. The private sector has moved to reduce leverage, but the public sector has increased leverage. Take the US as an example.

 

Exhibit 4 shows the four quarter change in government debt and private non-financial sector debt. Total non-financial debt increased by 10.4 percentage points of GDP over the year to September quarter. (Including financials, debt fell by 4 percentage points of GDP over the two quarters to September 2009 quarter.)

 

Finally, deleveraging now is likely to be more difficult than usual.

 

First, the adjustment is more difficult because it involves more countries. Prior debt crises typically involved regions that were, in a global macro context, relatively small. Even the Asian crisis of 1997-98 did not have a material impact on the developed economies. This time, however, high debt exists in economies that account for a very large proportion of global output. Increasing national saving is clearly easier to achieve in a buoyant global environment. Asia’s adjustment, for example, was assisted by strength in developed economies. Now, however, a synchronized move to reduced leverage would have second round effects through the developed world, threatening a double-dip recession in developed economies.

 

The second difficulty is that the starting point is very elevated

leverage. Prior successful deleveraging – that is, deleveraging that avoided default or serious economic distress – started from lower leverage levels. Of the episodes McKinsey identified, the highest starting point leverage for ‘growing out of debt’ was 180% of GDP. This is roughly half the level of leverage in many developed economies. Of episodes that required ‘belt tightening’ – but did not also include financial crisis – the highest leverage starting point was 242% of GDP.

 

In other words, there is no historical precedent for an economy with debt to GDP of over 250% of GDP – many developed economies now have debt of around 350% of GDP – to avoid financial crisis (or inflation) as they de-lever.

 

We’ve had a financial crisis, of course. But that crisis was centered on the financial system. Importantly, that led to little or no decline in non-financial leverage. In the US, for example, non-financial sector leverage is now (September 2009 quarter) at a new all-time high. In short, there’s still too much debt, and achieving debt-reduction from here will be a painful, risky, task.

 

 

 

 

 

Endret 17. februar 2010 av Cauldron2

[Euklid]

Legg til hvordan offentlig gjeld historisk har økt dramatisk i perioden etter finanskriser – skatteinntekter faller, i tillegg til at utgifter til dagpenger etc. øker – så er vi på god vei mot noen tunge omstruktureringer (historisk sett har faktisk bailouts utgjort en relativt liten andel av gjeldsøkningen). Blir spennende å se hvilke institusjoner som viser seg å være levedyktige; det er i alle fall lett å smile av konseptet «the end of history».

[diskoduck]

Legg til hvordan offentlig gjeld historisk har økt dramatisk i perioden etter finanskriser – skatteinntekter faller, i tillegg til at utgifter til dagpenger etc. øker – så er vi på god vei mot noen tunge omstruktureringer (historisk sett har faktisk bailouts utgjort en relativt liten andel av gjeldsøkningen). Blir spennende å se hvilke institusjoner som viser seg å være levedyktige; det er i alle fall lett å smile av konseptet «the end of history».

Kan jeg sitere deg på det i bloggen min?

[Euklid]

Du må gjerne sitere meg på hva som helst hvor som helst, men hvis du vil ha noe litt mer saklig å gå etter enn min synsing kan du prøve kilden: Reinhart, C. og K. Rogoff (2008): “The Aftermath of Financial Crisis.” American Economic Review, 99(2): 466-472. Samme forfattere som skrev boken «This time is different», forresten. Anbefalt lesning for den som er interessert i finanskriser!

[diskoduck]

Takker, supert