Global Wave of Debt Is Largest, Fastest in 50 Years | Hacker News Reader

Global Wave of Debt Is Largest, Fastest in 50 Years

worldbank.org

170 pointshhs111 comments

The full report, titled “Global Waves of Debt,” is available at https://openknowledge.worldbank.org/bitstream/handle/10986/3... -- it is easy to read and follow. Do yourself a favor and read at least the Foreword and Overview. I also find the advance reviews from prominent economists in the initial pages of the report illuminating.

The report documents four major waves of debt accumulation in emerging and developing countries since 1970:

* The first such debt wave ended in the Latin American debt crisis of the 1980s.[a]

* The second such debt wave ended in the the Asian financial crisis of the late 1990s.[b]

* The third such debt wave ended in the global financial crisis of 2007-2009.[c]

* The fourth such debt wave started in 2010, and is the fastest rising as well as the largest.

[a] https://en.wikipedia.org/wiki/Latin_American_debt_crisis

[b] https://en.wikipedia.org/wiki/1997_Asian_financial_crisis

[c] https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80...

Just a +1 comment, but thanks for sharing this, it’s very much worth reading, the foreword and overview is very much written in layman language. I might try and dig into the rest of material as well.

For an even simpler but informative intro to debt cycles check out this video by Ray Dalio, it’s the best layperson explanation of debt I’ve ever seen: https://youtu.be/PHe0bXAIuk0

> The fourth such debt wave started in 2010, and is the fastest rising as well as the largest.

It's largest because unlike the first 3 regional debt waves, this one is global. US, EU, China, Japan and every major economy just printed money to kickstart growth since 2009. Should be interesting to see how this one resolves itself.

Well, anything later should be larger just because of time and inflation. Is it larger proportionally, and if so, how much?

>Is it larger proportionally....

It is hard to measure, if you only measure Debt Per GDP Ratio, you ignore the interest rate which may be very low or even zero. May be Interest per GDP Ratio would be a better metric, which I have yet to see any numbers of figures given out. ( And I cant be bothered to work it out myself )

Then there is the Debt Per Asset. For example while China has on the surface a huge debt problem, they also have much more asset ( on paper, assuming it can be trusted ) in their book.

There are also other things like those previous Debt Crisis were trigged by bubble, which was the result of people taking debt into those bubble and bursted. We dont have a bubble right now. Everything is ridiculously stable in relative terms, growth is low compared to previous decade, and nothing much to bet against. S/P 500 P/E are still in 20s despite it being in record high. Most companies have very decent cash flow. And most of those cooperate debt were if money if so cheap why not take it. Apple has 150B debt, people didn't freak out because they are still 100B Net Cash positive.

I just dont see another crisis happening yet.

If by interesting you mean devastating then I concur.

Also read Bridegwater / Dalio on long term debt cycles [1]

[1] https://economicprinciples.org/downloads/ray_dalio__how_the_...

For a blueprint as to what will happen, there's really 2 scenarios: 1) hyperinflation 2) deflation. If hyperinflation is the possibility, which the Fed will favor much more than deflation, then you want to own as much debt as possible, in the form of property. Then your debt will hyper-inflate away and you'll be left with a ton of property.

If the Fed loses control and we end up with deflation, you want to own as little debt as possible and as much cash as possible. If you are lucky enough to be with a life partner, you can arrange all your debt to be with one person, and all your assets to the other person, and then get a divorce if need be. Then the person holding the debt can claim bankruptcy in the case of global deflation, which would then wipe the slate clean.

Usually assets and liabilities are linked in the form of specific collateral. Lenders have no upside but repayment and interest and are pretty wise to bad faith structures on the part of borrowers.

There's a more likely third scenario, which is 3) neither hyperinflation nor deflation. The US hasn't seen serious deflation since the Great Depression, and has never seen hyperinflation. Hyperinflations tend to go along with some sort of political or military disaster.

A big wave of defaults is only a serious threat to the US economy if it leads to a banking crisis. That's why the global financial crisis was so much worse than the deflation of the NASDAQ bubble.

I think when most people say hyperinflation they just mean unusually high inflation. That did exist at least once in the US (around Volker's time), but it's probably safest to bet on the status quo.

Yes. The possibility of Hyperinflation in US, EU, or even China, as much as I wanted it to happen is practically zero. Deflation isn't likely to happen either because money supply and actual value dont seems to be balanced well at the moment, not to mention money supply continues to increase.

I am betting we will continue to see the current trend of ultra low growth, ( but still growth ) in the next few years before another stupid thing come along. That may be geopolitics and multiple smaller counties default triggering chain reaction.

I've seen the current national debt situation compared to the U.S. national debt situation following WW2 a number of times (e.g., national debt to GDP ratios), but there is a key difference between now and the past: past episodes of rapid national debt increases were limited to only a very few years and the government then moved to reduce debt. For example, most of the expenses related to WW2 occurred in under a decade and the national government immediately started taking measures to start paying it off. Instead of taking measures to reduce our national debt, the federal government currently is actually increasing it to the tune of a trillion dollars a year in an economy that's only approximately 20 trillion (GDP). People hear the word "deficit" and they think that means "national debt" when in fact the deficit is how much is being added to the national debt each year. Politicians never talk about reducing debt - only reducing the deficit. Do you think Congress or either party has the self discipline to eliminate the deficit entirely and to actually meaningfully reduce the actual debt? It will be a lot more painful if they do that during an inflationary crisis than today. (If you aren't familiar with it, look up the Misery Index and talk to someone who dealt with the inflation in the 1970s.)

What's actually happening currently is that the Fed is monetizing a larger and larger part of the debt as (1) other nations are reaching the limit of how much they will put into US gov bond purchases and/or even starting to plan to scale back their purchases in future years, and (2) the deficit continues to grow.

As Milton Friedman pointed out, inflation is always a monetary phenomenon. There are a number of deflationary forces at play as well, but these types of inflationary forces seem to be stronger - and hyperinflation doesn't seem as far fetched as it used to.

If we ever reach the point that the US federal government can no longer service its debt then they will certainly choose deflation (default) rather than hyperinflation. Recent history in other countries shows that default can be managed with much less disruption. The most likely scenario is that they would force bondholders to exchange short term bonds for longer term bonds with artificially low coupon rates.

The only way that can happen would be for Congress to willfully choose not to pay. You literally can't run out of money as long as you lend in the same currency you control the supply of.

Yes Congress would choose not to pay, just like Russia and other countries have done in that situation. It's the least bad option.

Worldwide debt forgiveness? That'd be a first. Interesting to see.

However, every country will try to eke out some advantage in this. War, economic and otherwise, is not out of question. But if taxpayers say no...

There would be no debt forgiveness involved. It would be a forced cram down imposed on bondholders against their will.

Sure, but this would only work on private debt. Countries tend to shrug it off or get involved if said massive debt is related to their economy - e.g. China.

No that's incorrect. All bondholders would be subject to the same terms. China has no power to enforce anything different.

I wonder if there is some seedy group of people in power actively driving us towards one of these outcomes.

One reason to have not only property, but more liquid assets such as gold and bitcoin. Both are globally recognized as valuable and will increase in value as governments inflate their currencies. Putting 5% of your wealth split between gold and bitcoin may save you if total financial disaster occurs.

In a true deflationary environment, then only thing that is going to do well are US Treasuries. Gold and Bitcoin will plummet just like every other asset class because by definition, prices for assets will drop. Then people will try to sell things as quickly as possible, causing the prices to drop even faster.

Or, as the original article pointed out, hyperinflation nd/or deflation happens in emerging economies where there have been the largest surges in debt, but developed countries like the US need more muted intervention by central banks because the debt increase has been relatively muted.

As always when talking about debt, this article only discusses the right side of the balance sheet (debt) but ignore the left side (asset): every piece of debt created is someone's else asset. And if the amount of debt is rising, it means that the amount of debt security is rising also. Who owns it, and why some institutions and people are able to hoard such an increasing amount of assets should be as important to the discussion than how much debt there is, yet it remains undiscussed. (Yes QE/central banks is part of the answer now, but it only came after the previous crisis, which where caused by too much debt, so it's not at all the full answer)

This.

One of factors allowing the rising of debt, theoretically speaking, is the value of the corresponding asset. When the latter is over-valued, debt follows.

IIRC, the answer is largely pension funds. Baby Boomers are starting to retire, and in order to do so they need to either own a bunch of debt securities or have a pension or retirement fund that does so on their behalf. In my view, this is pretty much entirely responsible for a large secular trend in indebtedness over the last several decades - retirees will need to sell off financial assets later, so the aggregate dollar value of their current financial assets has to rise as they save up for it.

Actually, of the $55 trillion in global debt, China owns $20 trillion. Much of this debt is going to developing countries. The rest is a mixture of private equity and governments, which would include pension funds, but they are not the largest debt holders by any means.

There's a big confusion here:

- your $55 billions is only public debt.

- the private debt is way higher (more than $130 trillions).

Sources:

- public debt: https://www.economist.com/content/global_debt_clock

- total debt: https://blogs.imf.org/2019/01/02/new-data-on-global-debt/

Real wealth is a bit like a grain silo - if the owner stops filling it with grain but takes a cup of grain out every day to cook with then they might not run out for years.

Any metrics they care to use - apart from the level of the silo - will also be really rosy. They are doing less work (no need to find grain to refill the silo!) and potentially get much more benefit (instead of finding grain for the silo, maybe the owner can go and learn to play a Ukulele; so they get grain, fun and fullfillment).

This illustrates the problem with a building wall of debt - if there is a problem, by the time the problem is revealed at the point in time when options disappear and a crisis is forced. Until the moment of crisis life has been going on the way it has been for a while and everything seems work or maybe even to be getting easier.

In the real world wealth doesn't behave like my imaginary grain silo, but by golly it makes me nervous watching people invest so much energy into billion dollar cash-burning machines like Uber while debt levels keep climbing. If people with money think that is acceptable, are they actually investing in building up real wealth? iPhones are lovely, but they are pretty small in the grand scheme of what is needed for physical comfort.

> iPhones are lovely, but they are pretty small in the grand scheme of what is needed for physical comfort.

I disagree. The ability to securely communicate with anyone around the world instantaneously, take pictures and video, and access almost all information online is pretty valuable.

Try living without it. It's not that big of a deal.

I would define physical comfort as including contact with friends and family.

Yes, iPhones are impressive pieces of technology and can enhance people’s lives a bit. But remember, they‘ve only been around for about a decade. We were able to have contact with friends and family without iPhones.

At exorbitant costs, especially with people living across borders. This is an example of what smartphones (along with internet and higher bandwidth connections) have enabled people to do:

https://www.wnycstudios.org/podcasts/radiolab/articles/break...

While they don’t solve immediate needs like hunger and heat, they clearly are a very capable and useful tool in people’s lives.

So live near family!

Some people aren’t lucky enough to be born in a location with a growing or sustainable economy or a secure society, or myriad of other reasons one might find themselves away from friends and family.

And in such cases would you survive not remaining in constant, daily contact? I suspect the answer is yes.

The higher needs are not about survival in the short term. They're about sustainability - mostly intergenerational.

All secondary concerns when you're hungry, cold, homeless, without transportation, without medicine, or any of our actual real physical needs -- smartphones are mostly a convenience, especially if you also have some form of computer at home or a laptop, it's almost never so urgent it can't wait a few minutes or hours.

The cheapest smartphones that are practically usable cost less and are more available globally than the cheapest laptops and desktops.

A desktop or laptop is a convenience.

Once you look to the used market, computers are ... often free for the taking (though utility may be limited).

It's hard to sort through the misclassified cruft, but $20 desktop and laptop systems can be found on Craigslist in San Francico. (I've specified a minimum $20 price just to clear the more egrigious cruft, I'm certain you'll find full systems for less than this. Hell, RaPi would qualify under most defintions.)

https://sfbay.craigslist.org/search/sys?query=%28laptop%7Cde...

A/K/A the "Maslow's Smartphone" fallacy:

There's nothing innate to the iPhone itself which provides for basic needs: water, food, shelter, clothing. It can play a role in the procurement or execution of task, but does not of itself provide them.... Pulling Maslow's hierarchy into this really hammers home the disconnect: poverty is defined by access to the necessities of life.

Toys by definition are not necessities.

https://old.reddit.com/r/dredmorbius/comments/2vwfb6/maslows...

The person I responded to wrote:

> iPhones are lovely, but they are pretty small in the grand scheme of what is needed for physical comfort.

So I wasn’t writing anything about Maslow, nor do I know anything about Maslow. To me, physical comfort is not just the next meal or sleep. Of course those are important, but to minimize the impact of a device that can email, apply to jobs, pay bills, talk to people, fill out immigration forms, etc is nonsensical.

After you have your next meal and next night’s sleeping quarter sorted out, you need to worry about the following night and the one thereafter. So for tasks like getting a job, networking, educating oneself, it’s a very powerful tool, and has changed the world.

If you don't know who Maslow was, his work, or Maslow's Hierarchy of Needs, I strongly recommend discovering these.

https://en.wikipedia.org/wiki/Maslow%27s_hierarchy_of_needs

https://en.wikipedia.org/wiki/Abraham_Maslow

The broader point is that though a phone is a means to survival needs (air, water, food, clothing, shelter), it is not a substitute for them. "The ability to securely communicate with anyone around the world instantaneously, take pictures and video, and access almost all information online is pretty valuable" does little if you're thirsty, starving, naked, and exposed.

Unless you can call someone who brings you food, clothing and book a living space. Oh and have a chat. (Of course very little is free.)

It does not satisfy needs directly, but it is first order interacting with them.

Now, without means you cannot satisfy anything. Food is means too, as is house, these are directly satisfying a need. Communication can only maybe directly satisfy the high level needs. (Belonging and up.)

You seem to be trying to assert disagreement by agreeing with me.

The question isn't whether or not a comms device can be an adjunct to accessing necessities of existence. I've already specifically addressed that.

It's whether or not it is a substitute for that access, as @lotsofpulp impliedly asserted.

Generally phones are communication. Historically people deprived of communication (relatively speaking) had economical trouble and not just because they couldn't afford it.

It opens opportunities.

iPhone might be a toy, but an old PC with web and email and an old phone with voice and SMS are much needed these days. Heck, there are very cheap and usable smartphones out there.

Density and latency are important though to a point. If you cannot download video due to bad ISP, you won't have access to certain educational opportunities. If your connection is accessible only once a week, you might miss something as simple and critical as accurate weather predictions.

I think next step would be integrating the communication device with body either via haptics or implants, to even further open bandwidth and reduce latency.

Obviously you cannot directly escape poverty with just information. But you can network locally, which can be even better solution. Networking, especially longer range, has a way of making big problems solvable.

"Opens opportunities" != "substitutes for necessities".

The usual form of the fallacy, and the one made by @lotsofpulp here, is that the capabilities of infotech toys are intrinsically valuable and sufficient.

They're not.

Most of everything is optimization indeed on top of our basic human capabilities, thus not strictly necessary.

But there is intrinsic value in fast long range audiovisual communication itself. The easier they are to use and more available, the higher this value, because now people can use them.

It's exactly as if you're arguing that advanced farming tools have no intrinsic value. But without them starvation is the only outcome. The value of them is conditional, but not extrinsic.

Mind you, communication is not as critical. We have instant local communication built in, speech and body language. And it is very easy to write or paint. Harder to distribute it for sure.

Transportation is communication too, just higher latency but much more useful. We have that built in as well, it's walking, and can go quite some range of hundreds of kilometers. It's just slow and low carrying weight.

Whether modern comms allow us to do something useful and otherwise impossible remains to be seen. Transport and farming already have done it.

What is the value of communications if you cannot access air, water, food, clothing, shelter? The basic necessities at the base of Maslow's Hierarchy?

Does technology create a treadmill of necessity?

You definitely cannot access resources you don't know about - and that is the value of communication. It also optimizes trade, travel and work including worker allocation. On its own, it does not solve any problem but makes big problems more tractable. Organising on bigger than village scale with any semblance of speed. There are problems you cannot even begin to attack on local scale.

Even in ancient days, hunters communicated where to hunt for best results. Farmers taught methods that worked.

And then there's the basic social need of belonging. Though our impersonal modes of phone and net do not exactly work, they make face to face easier to set up.

On the other hand, whether low latency broadcast communication is needed remains to be seen, or what it affords us if anything.

Usually mail, press/radio is good enough, cheap too. Books for more in depth learning. Phone is good enough for emergencies, including text. Video is situationally useful.

The main gain here is that you can access the needed information on demand rather than wait for it to become available and potentially miss out.

Computing power is a different matter entirely, you can solve optimization problems if you want, guess weather, predict climate, population and economy. That is somewhat difficult but not impossible to run on a smartphone reasonably. But you can always use a phone as a thin client to access such data.

It's a lot easier to answer hard questions by changing them to different ones.

That's not what I asked.

And there are alternatives to mobile phones for comms. Sufficiency of those is also a different question.

What does this mean for a lay-person in the so called "emerging and developing economy"? How do they prepare for any fallout?

If you expect a wave of debt defaults then that will cause asset price deflation. So accumulate cash now and then use it to buy assets at a discount after the fallout. Of course trying to time the market seldom works for individual investors.

The problem is that most cash money market or savings accounts are only insured to $250K each. If I move money out to them to await my big moment, I have to open several accounts.

Back in 2007 I had funds in NetBank which happened to be the first bank to fail during the crisis. My money was bailed out 100% by the FDIC. But it was a tense time and a lesson I won't ever forget.

Today, banks can fail and the laws have now changed such that savings accounts may be used to "bail in" this time. So beware--cash is not safe, actual hard cash is not safe (can get stolen, safe deposit boxes are not allowed to hold any cash), gold and silver must be in hand, but are not safe for the same reasons as cash. No investments are safe, not even money market funds--those nearly broke the dollar peg in 2009/10.

So what should we do? Bitcoin? Give me a freaking break, lol!

We went to FL in 2009 and I remember vividly how many condos were on sale for unbelievable prices. The thing was, you could not get financing and I had no idea how long any recovery would take if it ever came at all. I expected another leg down, not a recovery. The only reason we had a recovery is because Bush fired up the printing presses and Obama kept them going. Then gas prices went totally insane which is how they bailed out all the banks--on our fucking backs! And NOBODY went to prison! Oh, and the worst part was all the "Peak Oil" propaganda all over the Internet which had to be a psyop because they had to justify the high oil prices which were in no way justifiable at all.

So after long consideration, I think this time we really should just shoot the bastards.

The real take here is 'it depends'. The important number is the debt-to-GDP ratio for each country, and which countries we're talking about.

The biggest debt growth has been with China that now has a debt-to-GDP ratio of 255%. Does that number spell doom for China? Not really. It's high, but China can handle it. If it continues to grow in an uncontrolled fashion, it might be a different story.

So in each case, each country is different story, and you have to look at them individually.

The numbers are thrown around with nobody really understanding what they mean. China have a collective debt to GDP ratio of 255%, which means all persons, corporations, local government, and central government have a debt that collectively sum up to 2.5 times the GDP. The Central government itself have debt amounting to 47.6% of GDP.

Meanwhile, US federal government have debt approaching 100% of American GDP, and guess what? Private people and corporations in US hold more debt, I have yet to find a comprehensive collective debt to economy ratio for the US, and I would very much appreciate that number since we can then compare apple to apple.

Also, honorary mention to Japan, whose public government debt exceeded 200% of their economy.

Wikipedia claims close to 300%: https://en.wikipedia.org/wiki/Financial_position_of_the_Unit...

> The financial position of the United States includes assets of at least $269.6 trillion (1576% of GDP) and debts of $145.8 trillion (852% of GDP)

From the first paragraph.

It says 279% in the second paragraph. (And in the third paragraph it says 350%.)

I would beg to differ. China introduced loan securitization back in 2005 - and so there´s a quietly ticking time bomb there, similar to 2008´s US crash, that will eventually go off.

For hyperinflation risks - keep an eye on your countries money supply, specifically the total amount of money held in bank deposits. This shouldn´t be growing at more than 6-7% a year. If it is, owning gold or a stable currency growing less than that(Euro, US dollar) is a good idea.

Try to find out how much loan securitization is going on - this is a financial instrument that lets banks and others trade loans - it is highly destabilising over time, as it increases the ratio of debt to money. It there is a lot of that going on, without a high monetary expansion, try to build up a buffer to take advantage of the forthcoming crash.

Otherwise, just hang on. These are multi-year processes, and usually global financial crashes actually originate in the USA, for systemic reasons, so keep an eye on what´s going on there.

What are the systemic reasons that global crashes start in the US versus other countries?

US is extraordinarily import based while having remote businesses.

That makes it very global impact. Any failure in the USA will be felt by those offshore businesses causing effects on the related economies. Some are more resilient to this than others. It depends on how healthy is the internal manufacturing. E.g. a China crash would also have a similar impact nowadays because the offshore businesses would have problems, but has not happened yet.

What? The poor in developing countries have no cash. They're the ones in debt? They'll find it impossible to borrow any more; impossible to earn enough to survive. They'll go hungry, some will starve and die. Like always?

Isn't there a vast middle-class in these emerging economies...historic financial events might not change things for the very rich and the very poor, but it will definitely change things for those in the middle -- either they become poor or they might be able to either become rich by being prepared and taking advantage of the situation or at the least avoid becoming poorer.

Also I don't think the debt being talked about is the debt of the poor...

No. Most emerging economies have high inequality. Usually there is a small super elite of high net worth, and the majority of other people are poor.

The growth of a large middle class is usually what pushes countries out of this state. A middle classes grow, they demand political power to go with their economic power. This then puts a check on the excesses to either the mega-rich and extreme promises to the poor.

Note that when they exclude China, that has predominantly domestic debt as opposed to external, it doesn't look nearly as bad.

Well, they said emerging countries debt is raising nearly as fast as China's (which is up 72 points since 2008).

I wonder who has the most exposure to this debt. My understanding is that a lot of foreign emerging debt is owned by China.

It's absolutely not just emerging or developing economies. This article is extremely misleading in that regard and its very dangerous.

Do some research on your own. Many if not most wealthy countries are in serious trouble including the US and China.

Take a look at what Ray Dalio says about it. He says that this is part of a pattern of long term debt cycles, it looks like 1937 and implies there is risk of a global depression, dollar losing its status and even WW III.

My opinion is that at some point there will need to be a new paradigm introduced deliberately if we are going to avoid the terrible natural conclusion of the existing one.

There has been risk of WW III since 1946. What else is new. If you keep predicting disaster for long enough then eventually you'll be right.

In 1933, there were 80 millions young German. Today, most inhabitants in the western world are too old to fight in a WW3, but at the same time, there is no more need of a massive army to trigger a WW3. :-/

I don't know where you got that number from. Germany had a population of around 65M in 1933, so probably closer to 10M young Germans?

A mandatory reminder: if the economists could actually predict the future, they'd all be ultra-rich. That is evidently not the case. So take any prognostications with a boulder sized grain of salt.

They would need to be able to predict the future plus put a significant portion of their net worth on the line likely many times.

How would prediction of the future allow an economist to become ultra rich? The maximum profit you can obtain from arbitrage is fixed, it does not grow as you add more market participants. Therefore as you add more and more experienced economists you would expect them to get average returns or worse.

You may argue that if only a single person is able to predict the future then that person could have all the arbitrage profit for themselves. Although this is possible in theory the problem is that you are talking about a non restricted group of people called "economists" who all share a similar education background which is the exact opposite of a single person with exclusive advantages.

The flaw in this logic is that you're imputing a uniform level of predictive power to all "economists". In any given group there will be people who are much better at a certain skill than others. Such people would be ultra-rich if the skill is to predict the economic future, largely at the expense of those who are not able to predict quite as well.

Ultimately one man can do only so much. Thus you start to involve middlemen who do not necessarily make optimal decisions - and you have to predict their result at least in the median. Stack many levels of this, each accumulating error and delay. Good luck.

There is such a thing as control efficiency gain, which you have to balance against stability and constraints. It's a really tough problem, and since economists only work with slow averages, the gains they can make are relatively small over the general growth if present.

And that presumes your optimization condition is ultimately correct and complete, which most of these are not.

Even an oracle would have limited efficiency unless it could reproduce itself. Even if you can observe all states that does not mean you can control them.

The thing I learned over the years are economists are actually historian, they explain the past, and judge the future with historical patterns.

Most other people never learn this bit of common sense.

Looks like yet another warning sign of dirty work afoot.

Do you have a strategy to deal with economic black swan events?

I'm looking for reasonable, affordable measures that could shield my partner and myself should black swans ever strike. I'm NOT looking for alarmist prepper style rabid craziness...

It's not going to be a black swan event. It's the long term debt cycle which is a clear pattern in historical data. See Ray Dalio's explanation.

Preparing for the possible collapse of the financial system does not make you crazy. Ask people in Greece or Venezuela, or great grandparents who went through the depression.

I think the first smart thing is to diversify investments such as buying gold or different currencies or real estate.

I have lots of other idea but based on your comment you would accuse me of being insane if I mentioned them.

Absolute worse case scenarios, some cash and gold and a title to a paid off property go a long way. Cash to pay property taxes for a couple years goes pretty far.

I'm sorry if I made you feel like I wouldn't welcome all well thought through input. That's certainly not the case. I love outside the box thinking!

I think the answer to strategies for black swan events is the same it always has been. Own a piece of land, some portion of your portfolio should probably be in gold/silver. You might toss in some crypto. Get/stay out of debt. Get a passport. Have enough savings so you can GTFO your country if necessary.

Also, here's the math on catastrophic events. It's more likely than you think.

https://medium.com/s/story/the-surprisingly-solid-mathematic...

I call this upper class prepper-ism, and it has similar problems.

Actually in real hard black swan events debts are easy to escape...

Land is also easy to take or can be worthless. What are you going to do with it, farm it? Live in the middle of nowhere with no amenities and no preparation?

Assets are easy to steal, and are only useful short term, besides something like living space or private transportation to get away.

Most useful are connections, as always. Then means of production, especially of necessities. And finally, just having the right kind of canny thinking.

Something like BTC is even impossible to cash in without an internet, working like a glorified IOU.

I disagree with the other posters about buying real estate if you think it's the peak of the bubble. The price of real estate is strongly correlated to that of other assets, such as stock. Unlike stock, it can be illiquid in downturns. Undeveloped land is especially difficult to sell at market value even during good times.

I see your point. Hardly applicable in our case though.

We bought a humble fixer upper countryside retreat with two hectares of productive farmland for under 10k€ in cash. A one time insurance premium really rather than an investment. Even if it generates some income beyond covering the recurring costs for real estate tax, electricity and maintenance.

The difference to consider here is in 'crisis'.

Banks can fold. Companies can and will go bankrupt. But land will be there. And it's not just about the crisis event, it's riding the bounce after. Sure you might buy at the peak today, but it will return to growth on the other side of the cycle plus have more security of most other assets.

A friend of mind manges investments for high net worth individuals. I said once do they all come to you and look how big your past returns are? They said no, most come to them and say 'how can I make sure I'm never poor'.

Depends on whether the crisis results in war or not. If it does, land is very hard to move or recover.

See, it's almost 100 years past World War 2 and some property disputes are still alive...

So it can be a part of a strategy but not whole of it. Especially any undeveloped land is extra problematic. (It will fall to whoever developed it by law most of the time, requiring a buy out at most.)

And if the emergency is something requiring immediate liquid assets land is especially worthless. There are many such emergencies.

Yeah but the point is that you don't want to sell in downturns anyway. If you need emergency liquidity then focus on owning Bitcoin or gold.

Put options on broad market ETFs or go long volatility ETFs.

2008-2009 was not totally black swan, but even then crazy things happened in the options market. An option is a contract. Counterparty insolvency, or in some other way allowed to not cough up. Both have happened under less extreme circumstances than a black swan.

I'd rather avoid the counterparty risk.

If you’re in the US, the legal counterparty for any exchange-traded (or OTC-traded-but-exchange-reported) is the Options Clearing Corporation (OCC). The idea is that it’s a consortium of many exchanges and broker-dealers that can absorb any counterparty risk should the party who sold you can option contract become insolvent / unable to deliver.

https://www.theocc.com/

https://en.wikipedia.org/wiki/Options_Clearing_Corporation

Hold a substantial amount of cash in short-term Treasuries so you can buy in when things decline. You will know when to buy when Warren Buffett (or whoever replaces him when he dies) starts spending substantial amounts of his $120B cash pile.

It's kind of ironic that the more a society is efficient and productive, the more it's subject to a overproduction crisis and massive unemployment. We need to change the model.

This is a kind of nineteenth century understanding of the economy. You can only have overproduction and massive unemployment if you have a shortfall in aggregate demand, which the government and the central bank have the power to correct.

More like a tsunami with the epicentre at the 2008 US Fed; propagating as unevenly distributed hyperinflation, eventually reaching those furthest away from privileged access.

Money is free for the credit worthy.

And by credit worthy that has nothing to do with your social/credit score.

At the same time the business media can't stop talking about both US and global savings glut being the issue. The Fed says the average American doesn't save enough. Every few hours talking heads turn around and say something completely different with no change in fundamentals.

The whole system has turned into a joke. We get to see Powell answering the same questions with less sophistication than a fifth grader. While serious analysts actually do the math and prove policy makers' models diverged from their stated goal decades ago.

The saving glut and the wave of debt are the exact same phenomenon. Savers can only save if someone else is borrowing.

Collectively low US savings rates show up in the current account deficit -- the US attracts savings from abroad.

> The saving glut and the wave of debt are the exact same phenomenon. Savers can only save if someone else is borrowing.

I've heard this before and it doesn't go far to explain any of this. The modern plumbing between savers and borrowers makes this almost meaningless. There is the fractional reserve system to begin with. Savings are only a tiny fraction of the money actually borrowed out there. On top of that, the collateral is historically overvalued while rates are low. I don't know if you are suggesting that savings = debt, that's a subject to interpretation but the way most economists understand it that's not true in this system by a long shot.

> the US attracts savings from abroad

I assume by savings from abroad you mean foreigners buy dollars to buy stocks and (to a lesser extent) bonds. I don't think this refers to actual cash which is the savings from "the savings glut".

These are related issues.

The debt glut exists because interest rates are low, interest rates are low for the specific goal of making savers feel like owning US debt or parking money in bank accounts is a waste of time. The goal is for those savers to give random entrepreneurs their money to do fuck all with to "stimulate the economy", and the market is saying "hell no, instead of me earning minuscule interest, I'll literally pay you so I don't have to do that", so governments and corporations issue even more debt at lower and even negative yields.

Leaving banking to one side, here are the key facts about foreign investment:

1) Nobody sells stuff for free. This includes foreigners selling us imported goods. They will always be compensated somehow. 2) Investors try not to lose money. This includes foreign investors. 3) The U.S. has been running a trade deficit for decades.

The result is that foreign investment in the U.S. keeps going up. As long as imports don't balance exports, the difference becomes an increase in foreign ownership of US investment assets.

There are two ways for foreign investment to stop increasing. Either the trade balance reverses (fewer imports and more exports) or foreign investors lose their investments and write them off.

This does happen sometimes; consider the Saudis, Softbank, and WeWork. In a way, this is good from the US point of view, because foreign losses mean we did eventually get some of our previous imports for free. It's a good trade! But, usually investors learn from their mistakes, so this can't be guaranteed. Not wanting to lose money (but not wanting to spend it either) means there is a high demand for safe investments like Treasury bonds. This drives interest rates down.

In the meantime, more imports fuel ever more demand for apparently good investments. This is part of the demand side of the "global savings glut" (it doesn't mean actual cash). Many countries would like to increase exports and own more foreign investments. Much of Wall Street financial innovation comes from attempting to give these investors what they think they want. Some of the things they come up with may actually be good investments and others might just look good.

This trend can keep going as long as there are countries trying to become richer via export-led growth, foreign investors don't lose confidence, and foreign consumers aren't empowered and encouraged to buy enough international goods to match their countries' exports. Even troubled times might not cause investors to stop investing in the more stable countries due to lack of good alternatives. Instead there is a "rush to safety".

> more imports fuel ever more demand for apparently good investments. This is part of the demand side of the "global savings glut" (it doesn't mean actual cash)

Can you clarify what else other than cash it means?

"Cash" is often used broadly to mean any low-risk, stable investment that could easily be exchanged for cash.

So for example a reporter might write that Google has "over $100 billion in cash", but if you look at the balance sheet, "total cash" includes both "cash and cash equivalents" and "short term investments." These investments might include short-term government and corporate bonds.

Sure but then the savings reference breaks down. Bonds and corporate bonds in particular shouldn't be considered "savings" because the money is being circulated. I am sure everybody has a different definition but in the "global savings glut" phenomenon those savings shouldn't include bonds?

Yes, this is a matter of definitions, but it looks like the people writing about "global savings glut" are including short-term corporate bonds.

But the reason there is a choice of definitions is because all lending creates money if the debt is considered reliable and can circulate like money. It's quite similar to the reasons that bank deposits are considered money.

You can use a stricter definition that doesn't include bonds but I'm not sure why you prefer it?

The problem with talking about averages is that it hides differences between people. Apparently some people save too much (there is a lack of profitable investments and interest rates are low due to supply and demand) while other people save too little (they don't have enough savings for emergencies, let alone retirement).

It sounds like inequality to me.

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