authored by

John Kierans
March 2019

The 2007/08 global financial crisis was largely a crisis of debt.   It is hard to envisage a recovery from this crisis without an improvement in debt.   That is, an intelligent person would reasonably expect debt levels to be lower now in 2019 if we are in fact in a recovery.  However this is not the case, global trends in debt and interest rates have taken no discernable change in direction.

This series of commentaries were first written in 2014.  I have updated and refreshed the commentaries with up to date charts etc.

We can tell the story of growing global debt crisis using the United States as a proxy for the rest of the world.  In the 2007/08 period benchmark interest rates were as high as 5.25% in the USA.  As you can see from the chart below - debt at that time stood at about $55Trn.  Obviously this combination of interest rates and debt was unsustainable.   The subprime crisis in the USA was not the root cause of the global financial crisis in 2007/08.  Subprime debt was a symptom of unsustainable levels of debt at ‘normal’ interest rates.

Moving forward from 2008 we can see that debt has risen by 33%.  The Federal Reserve is learning once again that it is hard to raise interest rate as debt levels rise.  Their most recent attempt to ‘normalize’ interest rates came to a shuddering halt in December as markets began to crash.   The chart above shows a 35 year trend of lower rates and higher levels of debt.

We know that governments via their central banks have forced rates lower but they haven’t been entirely honest with us as to the reason why.  We have heard market commentary about ‘kick starting growth’ or supporting the economy / market.  Even when central bankers talk about supporting asset prices they are still not telling us the whole truth.  But I suspect that the charts below give us a greater insight as to why rates are so low.  These charts cuts through the bullshit.  This chart shows total US government tax collections divided by the national debt.

The extraordinary truth is that even at today’s low rates the United States cannot service its debts and fund the government from existing tax collections.  This is a trend that is almost 40 years in the making.

Worldwide governments cannot service their debts – even at negative interest rates!!  If they could their levels of debt would be declining - not rising.  The US charts above are very representative of worldwide trends.  This is unlikely to change regardless of whether we are in an economic boom or recession.

Our democratic systems are unable to service debts from their own resources.   They all must keep borrowing to maintain the charade.   Most western sovereign debt is a Ponzi scheme.  This Ponzi scheme is maintained using a fiat currency Ponzi scheme managed by central banks, themselves little more than an agent of government.

The burden of all of this debt ultimately falls on the private sector.   After all, governments don’t earn money - they collect it from the private sector.  


Government policies in democracies are generally populist.  Clearly low interest rates are pleasing to a majority of the electorate.   Higher interest rates would imply higher repayments on personal debt and higher taxes to service government debt.  In the interest of self-preservation governments will continue to enforce ultra-low interest rates.

Most investors are unaware of how dependent their portfolios are on artificially low interest rates.  As such they are totally unprepared for what happens next.   When the market for interest rate reasserts itself the current system of Ponzi finance will cease to exist.  History teaches us some very uncomfortable lessons about government attempts to control markets.  Firstly they always end in failure.  Secondly that failure is generally catastrophic.

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