Debt-driven economic growth, the preferred method of economic protection and growth particularly by politicians in a short election cycle, has been heavily leaned upon in the last five years in particular. It gets “quick results“ for optics but poses several risks. The cushion in the US from pre-pandemic repatriation of overseas corporate funds and attention to trade deficits and reversing the manufacturing lapse in the US, provided some pandemic and post pandemic protection. However, the current commitment to debt-driven economic growth in the United States, including various gifts, entitlements, and voter bribes, as well as infrastructure debt in China, have certainly and absolutely increased vulnerability to financial crises, higher interest rates leading to immense debt-service costs as a percentage of GDP, and potential misallocation of resources one money is changing hands amongst politicians and contractors rapidly. This can undermine future economic health and sustainability — once the incentive of the election cycle is complete. Watch.
Countries or companies or families with significant debt-driven growth have always, and 100% of the time, proven to collapse or seriously falter under stress. There is a reason that banks do thorough, if not vicious “due diligence“ on those seeking lending and leveraged acquisitions or purchases.
Even Moodys, not always an honest broker since it can be influenced by power players to “hedge” a little bit on its ratings, recently shifted the outlook for the US government from “stable” to “negative” due to concerns over fiscal management and political polarization.
And this BRICS topic is no joke. It really matters. US leadership, US national security, US prosperity and general standard of living, currency, safety, human security, rule of law, and even air traffic control towers using English as its universal language worldwide… So much is tied to the success of the last 50 years of the United States as a safe haven. No matter where you live, don’t scoff at the importance of the United States continuity and stability. There’s more at stake than US politics, though those in politics may not recognize that.
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Right, do you want to know the story behind this #datavisualisation? Read on…
Back in 1992, the G7 produced a whopping 45 percent of the world’s economic output. But look at that dramatic nosedive as China emerged.
China’s has been the real star here – that red slice is growing like it’s on steroids, set to hit nearly 20 percent by 2028! India is making moves too, while Russia, Brazil and South Africa are along for the ride. Collectively, these countries are traditionally called the BRICS.
The question is whether this will actually happen? Is there really a shift in global power underway?
It’s a great narrative, but I wonder if there is more to this. The world seems to be binging on debt. While the focus is often on the US and its huge US Treasury market, there is very little focus on the tough position China is now in.
Indeed, while China’s growth has been impressive, the country’s real estate bubble and massive infrastructure projects have led to an alarming debt situation. That growth has been debt driven and it’s important not to forget that.
Unlike the US, China’s financial system lacks transparency, making it difficult for outsiders to assess the true extent of the problem. But in fairness at least China has used that debt to marshal resources and completely transform its infrastructure to first world standards.
The same can’t be said for the US, whose governments have borrow heavily, while infrastructure remain a sore point.
The US, however, despite its high debt, maintains its position as the world’s reserve currency. This status reflects global trust in American institutions, rule of law, and economic transparency. Investors worldwide still view US Treasury bonds as a safe haven, allowing the US to borrow at favourable rates.
By contrast, China’s closed capital markets and opaque financial reporting create uncertainty. The “ghost cities” phenomenon – entire urban areas built but left largely unoccupied – symbolise the potential misallocation of resources in China’s state-driven economic model.
The problem is that economic size doesn’t necessarily equate to economic health or sustainability. Any thoughts here?
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Music: The Sweetest Love (Instrumental Version) by Ornatia, Epidemic Sounds
