Before we begin we want to ask you a simple question Have you ever bought a loan thought about buying or have bought the latest iPhone on credit thinking that you will pay your mortgage in time. If the answer is yes then we dare you to read this article till the end. We all have at least once in our lives taken alone to buy our dream car house or education and have definitely used our credit cards to buy things we don't need or can't afford. Believing the fact that we will easily pay off our mortgages in time. But have you ever wondered what might happen to you if you are someday unable to pay your mortgages and even default on your debt. You could lose everything. It is estimated that more than 10000 people and their lives every year because of credit defaults. Feeling scared it's just the beginning. Now think about big multinational corporations which provide us with products for our daily needs. What will happen if they are unable to pay their debt.
It's very common for corporations to take up huge debts. But if that debt is used to grow their business and thus increase their earnings then it's a good thing. But this is not what is happening these days. Now such desperate times have arrived that corporations take loans to pay their promised dividends and in some cases even to pay for the salaries for their employees. Now you think for yourself how long can this continue to go on.
Someday in the not so distant future many such corporations will find themselves buried under so much debt that it will become impossible for them to pay it off in such a situation. From where will you buy your favorite products. If the companies which made them shut down. What will happen to the banks who lend to these corporations money.
Just imagine a day when humble people like you and me who work hard everyday and sacrifice their desires to increase their savings and deposit it in their bank accounts go to their banks and ask for their savings and the bank says it doesn't have it any more. What will you do next for the people who never knew this but your bank is using the exact same money your hard earned savings to give loans to everyone and anyone who asks for it. What catastrophic day it will be when all the ATMs will run dry as the banks lost all your money in bad loans. We are talking about total economic collapse. But wait when the situations become so dire that it can lead to a total economic collapse the government is left with no other choice but to jump in and take control. As governments are the only entity with the authority to print money. And how does the government do that. It's by bailing out banks in the form of government bonds. Just recently the Indian government launched bank recapitalization bonds worth 1.35 trillion rupees or nearly 20 billion dollars to rub off the bad loans and save the banks in crisis.
Other international banks investors and even federal reserves of other countries buy these bonds and earn interests from it. This move is nothing more than taking more loans to pay off the previous one.
But now with added interest it just increases initial debt and moves it from the bank's accounts to the government's accounts. And now it becomes the government's duty to pay off its debt which the government does so by printing more money than ever before and everyone knows what happens when government starts printing much more money than it should. Yes you guessed it right. It causes rapid rise in inflation rates and when inflation rate rises everything becomes expensive. As a result demand falls as no one is buying anymore. In order to control inflation the government is forced to increase interest rates when that happens it becomes difficult for corporates to borrow loans and run their daily business. This in turn increases unemployment rate. Even worse the bond yield falls. And now no one wants to buy your previous debts. This whole scenario is termed as stagflation and is considered to be the initial stages of an economic collapse and it seems that we have reached the beginning of a global economic collapse as the total global debt has crossed a staggering 164 trillion or 0.164 quadrillion dollars. With countries like Japan, Greece, Italy, Portugal, Singapore, the United States and Belgium having a debt of more than 100 per cent of their GDP and rising by the minute.
This means that these countries will not be able to pay off their debt even if they spent their entire GDP in mortgages. This is a seriously troubling fact especially for countries like Japan which is having debt 2.27 times its GDP. In terms of dollar figures the country which should be most worried is none other than the United States of America as it currently has world's largest debt which is in tune of 20 trillion dollars which is in excess of 60 thousand dollars per American. And instead of easing the national debt by accelerating economic growth. President Trump is worsening the situation by starting a trade war with China or rather with all of the world's most powerful economies. But it seems that the only country serious about its debt is surprisingly India. India currently has a debt to GDP ratio of 70 percent which is zero point seven times its GDP. Such a number is actually healthy for an emerging economy that has a whole lot of economic growth still to achieve. But still as soon as Prime Minister Narendra Modi came to power he set a goal to reduce India's debt to GDP ratio to about 66 per cent by 2022. This is very commendable and countries like China, Australia, Sweden, Hong Kong, South Korea, Canada and Norway must do something similar and fast as they are next most vulnerable to a debt crisis after Italy Greece, Portugal, Belgium and very recently Turkey. So what do you think. Will these nations be able to control their debt before it's too late. Or will global debt lead the world into the next great economic collapse. Share your thoughts in the comments section below.
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