As Global Debt Soars, Where's The Big Recovery?

A new study says governments around the world boosted their debts by more than 40% to over $100 trillion in response to the global financial crisis. Where's the promised recovery from all that spending?

From mid-2007 to last summer, the world added $30 trillion in government debt to its balance sheets, the Bank for International Settlements says. By comparison, that's twice the size of the $15 trillion U.S. economy.

After the financial crisis, governments around the world, but especially in Europe, the U.S. and Japan, went deeper into debt so that they could spend more. They were following the old Keynesian nostrum that more government spending ignites the flame of economic growth.

But it doesn't. Look across Europe. Look at the U.S. Look at Japan. All those economies are growing slowly at best, as higher government spending sucks capital out of the productive private sector and puts it in the hands of bureaucrats and welfare recipients.

"Stimulus," as it's called, hasn't worked at all. And yet, the notion has spread that somehow we've all undergone a kind of austerity, with governments pulling back sharply on spending.

In the major countries of Europe, for instance, spending surged after the financial crisis. And in the U.S., federal spending soared from roughly $2.7 trillion before to $3.6 trillion in just two years — a record jump.

Did all that spending work? In a word, no. Despite five years of Keynesian debt-fueled stimulus applied by world governments, including our own, the world's economy hasn't grown nearly as much as the debt.

Borrowing money simply to spend it on day-to-day wants and needs ends in a tangle of obligations and counter-obligations that eventually become impossible to sort out.

“Spending”, with no intent of actually investing in an enterprise that will provide a return on that investment, is a sure way to eventually develop stasis in the flow of money. Part of the value that is signified by money (most of it, actually), lies in the velocity with which it changes hands, in exchange for something else of perceived value. If money is spent for something of no more than momentary value, it simply evaporates.

When the velocity of money is slowed significantly, it begins to pile up in large volume and its circulation is stopped, making “the rich get richer and the poor get poorer”.

The “rich”, of course, may be inclined to rent out their store of money, and in the normal course of events, this is exactly what happens. Or, depending on the guilt level than can be induced, they may even give large sums of money away. But if the money is rented out, or simply given away, for no useful purpose in GROWING the total economic landscape, it simply withers and dies, as a seed scattered on dry, rocky, barren ground.

If the “poor” are so limited in their hierarchy of needs, that they seek only the bare minimum to scratch out an existence, then they BECOME the dry, rocky, barren ground, with the supply of seed used up to no avail.

There are clearly right ways and wrong ways to spend money. The right ways have been denied for so long that their original benefits are forgotten, and in a rush to atone for the plight of the “poor”, the wrong ways become the normal state of things.

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