Global Debt

"global debt has grown by $57 trillion since 2007, according to McKinsey and Company. Global debt is now 286% of global GDP." is quoted in Money Morning.

Surely this has to be bollocks. Global debt has to be zero, because for every debtor, there has to be a creditor, somewhere, and the two must cancel each other out. Unless, of course, it means that global credit is also 286% of global GDP, in which case it is a meaningless statistic. If A went out and borrowed $1 billion from B, B borrowed $1 billion from C and C then borrowed the first $1 billion from A, global debt would have gone up by $3 billion without any money actually changing hands.

Or am I missing something?

Student Loans

From the BBC

An activist group in the United States has been carrying out deeds that some might think the stuff of dreams - buying and cancelling other people's student debts.

Rolling Jubilee has purchased and abolished $3.8m (£2.35m) of debt owed by 2,700 students, paying just over $100,000 (£62,000), or as it says, "pennies on the dollar".

Blimey, that isn't much of a slice of the amount owed.

The group pulled off the deal to illustrate how cheaply the money owed can be sold on the secondary debt market, she says.

"We wanted to question the morality around repayment," she says.

"Your debts are on sale. They are just not on sale to you."

Which if true, is just terrible.

Many of Everest Colleges' debtors are single mothers and are on low income, she says.

"It is documented that they end up worse off and have no better chance of getting work than if they simply finished high school," she says.

Ah, right. So, the reason the debt was "pennies on the dollar" is because most of them took out student loans and are really bad risks. Single mothers on low incomes are not going to be paying back anything on their student loans, will struggle to get jobs that will mean they have to start paying back money or finding a rich man to pay it for them. A few will find something that pays well enough to start paying back and that's where the 1/40th of the original amount comes from.

Incidentally, I listened to a You and Yours program the other lunchtime about students saying they were worse off than their parents, that included a student complaining that she had to do a really boring job because there were no jobs for composers with her music degree (unlike Elvis Costello who worked as a data entry clerk and Mark E Smith who worked in a shipping office) and some freelance film bloke who for some reason had to be in London. Of course, the flip side was the idiots talking about how young people had lots of electronics, as though £600 for a phone is any more than a rounding error on people's costs compared to £250K for a house (I think when my father bought his Amstrad computer that it cost about the same as 2 months' mortgage).

Reader's Letter Of The Day

From The Metro, page 18, short and sweet:

Linda, you ask why MPs aren't fussed about the privatisation of public services - they're on the boards of the companies that get given public services to run.

Vanessa, London.

I don't know why this is front page news, though:

Young women who copy the lavish spending of their celebrity idols are spiralling into uncontrollable debt at twice the rate of men their age.

High-spenders aged 18 to 24 mimicking the likes of twice-bankrupt Kerry Katona are most likely to live way beyond their means, official figures show.

LVT will sort it out.

This time, it's our personal debt mountain. See here

Whether large amounts of debt is bad in itself depends on what it's used to purchase. A new car, fair enough, why not? However, if it's on wholly unproductive assets like location, it's just money down the LMBH.

UK personal debt now stands at £1.42trn. Of this mortgages count for £1.26trn.

Of this, let’s say 2/3 is land value, giving us a figure of 840bn.

Given historical trends in UK property prices, we can expect this to go up by 100% in around 25 years time.

So in today’s money £1.68trn. With the value of improvements added,  £2.1trn

If LVT were introduced tomorrow, and site values fell to zero, all outstanding debt on land values would be retired in 25 years time (given that’s the length of the average mortgage)*.

This would mean, all else being equal, the level of UK personal debt (mortgage plus unsecured) would be £580bn instead of £2.26trn.

About a quarter in other words, and not to be sniffed at.

*Naturally, under LVT, people would have more disposable incomes. So in all likelihood, a mortgage could be paid off in 10 years rather than 25. So the bulk of the projected savings would moved forward substantially in time.