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Speaker 1: Welcome to Ask Fear and Greed, where we take your

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Speaker 1: questions and do our best to answer them. I'm Michael Thompson,

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Speaker 1: and good afternoon, Sean.

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Speaker 2: Aylmer, Good afternoon, Michael.

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Speaker 1: Sean got a great question for you today. Well, I

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Speaker 1: don't have it personally. It has come from a listener

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Speaker 1: by the name of Locke who's sent it in via Facebook.

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Speaker 1: And if you've got your own question, then Facebook, LinkedIn,

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Speaker 1: Instagram or the website Fearangreed dot com dot au. You

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Speaker 1: can use any of those means to get your question

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Speaker 1: through to us. Locke has done that, and he says,

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Speaker 1: Morning Team, a question for your next Ask Fear and

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Speaker 1: Greed if it makes the cut, and Lockie, it has

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Speaker 1: made the cut. I understand that most of the countries

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Speaker 1: or economies in the world are in debt. Singapore and

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Speaker 1: some of the Scandinavian countries are in exception. I think

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Speaker 1: he says. If that's the case, who has all of

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Speaker 1: the money? Is there more debt? This is interesting? Is

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Speaker 1: there more debt than credit in the world? How is

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Speaker 1: it reconciled? I don't know. Look likecky. The answer short

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Speaker 1: answer from me is no idea. I'm going to hand

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Speaker 1: over to Sean for this one.

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Speaker 2: Wow, let's think about this. So governments borrow money to

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Speaker 2: fund all the spending that taxes don't pay for. We're

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Speaker 2: talking huge numbers here, So I think the United Nation

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Speaker 2: puts global public debt at close to one hundred trillion

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Speaker 2: US dollars, and some of the fastest growth rates are

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Speaker 2: coming from developing countries, so you're certainly having more spending

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Speaker 2: than saving. Generally, there was a very big jump during

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Speaker 2: and after COVID when governments went on a spending spree,

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Speaker 2: or governments all over the place went on spending sprees

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Speaker 2: to keep economies ticking over, so that kind of increased

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Speaker 2: all this public debt. So where does the money come from. Well,

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Speaker 2: it comes from big institutional investors like superannuation funds. It

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Speaker 2: also comes from other countries, so countries lend money to

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Speaker 2: each other and from international agencies like the World Bank

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Speaker 2: called the International Monetary Fund. Now those two world baked

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Speaker 2: the International Monetary Fund. Mostly they're dealing with under developed nations.

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Speaker 2: Government debt is repaid over time, might be three years,

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Speaker 2: ten years, thirty years now, and when we talk about the

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Speaker 2: ten year government bond yield on the show, we are

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Speaker 2: talking about government debt, that's exactly what that is. And

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Speaker 2: government pay back the debt in increments, so they might

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Speaker 2: pay it a quarterly coupon rate or probably more likely

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Speaker 2: a half yearly coupon rate or annually, So they borrow

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Speaker 2: the money at five percent, they pay back that five

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Speaker 2: percent two and a half percent each half year as

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Speaker 2: they go forward. So that's kind of familiar to us.

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Speaker 1: At the risk of trying to oversimplify things here, Sean,

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Speaker 1: is it a bit like how we repay our mortgages.

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Speaker 2: Yes, yes, yes, that's that's kind of exactly what it is,

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Speaker 2: not oversimplifying at all. But there is a really big

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Speaker 2: difference when it comes to government debt versus your mortgage,

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Speaker 2: my mortgage. Countries can raise taxes or issue more of

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Speaker 2: their own currency to help pay back debt.

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Speaker 1: So saying I can't, I can't print money on my

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Speaker 1: take it into the bank and say here's my payment

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Speaker 1: for August.

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Speaker 2: Unfortunately you can't. I mean that that is a big

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Speaker 2: difference between a country issuing debt is that they can

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Speaker 2: just raise taxes so they can always paid back, or

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Speaker 2: at least appear to pay it back. Now, the US

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Speaker 2: government debt is considered safest of all because of that

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Speaker 2: country's ability to tax and raise money. Now I'm from memory.

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Speaker 2: I think gross debt is about thirty five trillion US dollars.

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Speaker 2: We are talking a massive amount. And when I say

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Speaker 2: gross debt, that's actually the amount that it owes. A

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Speaker 2: lot of people would owe the US money. So that's

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Speaker 2: differ between gross and net debt. Net debt would be

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Speaker 2: a lot less. Certainly, the US budget spends more than

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Speaker 2: it earns, so much more than it gets from taxation receipts,

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Speaker 2: and it has done since two thousand and one. Like

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Speaker 2: the last time the US had a budget surplus was

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Speaker 2: two thousand and one. Debts usually measured as a percent

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Speaker 2: of output. The big debtonations are the US, Japan a

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Speaker 2: big one initially, Canada.

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Speaker 1: Et cetera.

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Speaker 2: So the question is how's all that reconciled. So as

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Speaker 2: countries grow, they earn more income, mostly via taxation, and

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Speaker 2: that's used to repay the debts. Think of it. You know,

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Speaker 2: when you're at your first home loan and you've got

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Speaker 2: it for three hundred thousand or four hundred thousand dollars

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Speaker 2: to buy the apartment, and then you get a better job,

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Speaker 2: you get paid more, you end up getting a bigger house,

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Speaker 2: and then you get another job and you get a promotion.

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Speaker 2: It's kind of a think of it that way in

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Speaker 2: terms of countries growing. So what the debt they take

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Speaker 2: out initially, they end up earning more income and are

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Speaker 2: able to repay it. So like a good example in

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Speaker 2: Australia where there's a mining boom, all this extra revenue

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Speaker 2: comes through the door. In Australia can repay down its

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Speaker 2: debt and it has done that over the years. In fact,

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Speaker 2: under the Howard Cascello government, it kind of repaid all

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Speaker 2: its debt. It's a never ending cycle. So you know,

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Speaker 2: is there a complete reconciliation point. Probably not. I mean,

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Speaker 2: countries just keep raising debt and keep repaying and it

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Speaker 2: goes on and on and on. Now sometimes you hear

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Speaker 2: of countries defaulting, not being able to repay the debt.

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Speaker 2: Gharana did it a couple of years ago, a bunch

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Speaker 2: of African countries have done it, Argentina did it. In fact,

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Speaker 2: the World Economic Forum reckons one hundred and forty seven

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Speaker 2: governments not necessarily nation governments, but governments have defaulted on

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Speaker 2: debts since nineteen sixty and the vast majority of those

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Speaker 2: come from underdeveloped nations, So the bottom lie to this

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Speaker 2: who has all the money? Well, it's kind of a

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Speaker 2: circular economy because the money that's owed to superfunds or

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Speaker 2: other governments or international agencies like the IMF and well

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Speaker 2: Bank is repaid, but more debts are taken out, and

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Speaker 2: so I don't think we ever get to a net zero.

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Speaker 2: But I'm sure we would never get to any net zero.

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Speaker 2: Is there more debt than credit in the world. It's

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Speaker 2: a good question. I don't quite I think because governments

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Speaker 2: can print money and raise taxes, there probably is more

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Speaker 2: debt than credit in the world. But I'm going to

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Speaker 2: ask Kirk about that one, because you actually have to

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Speaker 2: have the money to borrow it, or someone has to

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Speaker 2: have the money to borrow it. So I'm not quite

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Speaker 2: sure about that one. I might have to ask Kirk

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Speaker 2: about that one.

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Speaker 1: Tell you what we get some good questions, don't.

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Speaker 2: We yes, And they're never simple. I mean, great thing

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Speaker 2: about economics and finance. It's often when you talk to

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Speaker 2: these professionals and you actually ask these sorts of questions

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Speaker 2: that like luck you ask today, they don't know the

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Speaker 2: answer to themselves. Like it's sort of just assumed, and

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Speaker 2: so when you actually dig into it, it becomes quite fascinating.

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Speaker 1: You know, what we should do one day is a

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Speaker 1: Ask Fear and Greed live show where we take well,

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Speaker 1: we take questions from a live audience and there is

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Speaker 1: no research, no preparation.

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Speaker 2: Any ability to use Google on the spot.

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Speaker 1: Yeah, you just have to answer with the first thing

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Speaker 1: that comes into your head. That's pretty much what I

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Speaker 1: do on this podcast. Really, that would be our challenge,

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Speaker 1: wouldn't it. And you see that's kind of then when

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Speaker 1: you see people like the Kook as well, who kind

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Speaker 1: of deals with all of these questions as well, like

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Speaker 1: on a fairly regular basis. What would it take to

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Speaker 1: stump the Kook? Maybe that's a good segment, Stump the Cook.

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Speaker 1: See if you can come with the curliest question you

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Speaker 1: possibly can. Anyway, great answer, very comprehensive. I'm surprised. The

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Speaker 1: thing that actually probably surprised me most is the number

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Speaker 1: of governments that have defaulted on their debts.

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Speaker 2: Yeah, I was surprise. Yeah, like countries like Spain, not

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Speaker 2: not in decades, in decade, I mean probably hundreds of years.

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Speaker 2: But Spain was famous for defaulting on debt so you know,

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Speaker 2: like the I'm going to get the dates wrong, but

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Speaker 2: it might have been the fifteen and sixteen hundreds. A

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Speaker 2: lot of those European monarchs, they just kept defaulting, and

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Speaker 2: so you know, sometimes you see those TV shows and

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Speaker 2: they're talking about, you know, how much money do we have?

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Speaker 2: And they're always faulting. Oh in the old days.

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Speaker 1: No, we turned into a history lesson. Is there anything

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Speaker 1: that you do not know, Sean?

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Speaker 2: Anything that I can't make up? Michael, No, I'll make

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Speaker 2: up anything.

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Speaker 1: Ah. Perfect. We have been doing their shows long enough

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Speaker 1: that I'm starting to rub off on you.

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Speaker 2: Well we are close, Michael, We are close.

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Speaker 1: Goodness me all right, thank you very much, Lockie for

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Speaker 1: the question. Thank you, Sean, Thank you, Michael. Remember, if

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Speaker 1: you've got something that you would like to know, then

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Speaker 1: please send me your question on LinkedIn, Instagram, Facebook, or

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Speaker 1: at Fearangreed dot com dot au. I'm Michael Thompson and

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Speaker 1: this is asked Fear and Greed