World Debt Is Rising Nearly Three Times As Fast As Total Global Wealth

by Steve St. Angelo, SRSrocco:

Some nasty dark clouds are forming on the financial horizon as total world debt is increasing nearly three times as fast as total global wealth.   But, that’s okay because no one cares about the debt, only the assets matter nowadays.  You see, as long as debts are someone else’s problem, we can add as much debt as we like… or so the market believes.

Now, you don’t have to take my word for it that the market only focuses on the assets, this comes straight from the top echelons of the financial world.  According to Credit Suisse Global Wealth Report 2017, total global wealth increased to a new record of $280 trillion in 2017.  Here is Credit Suisse’s summary of the Global Wealth 2017: The Year In Review:

According to the eighth edition of the Global Wealth Report, in the year to mid-2017, total global wealth rose at a rate of 6.4%, the fastest pace since 2012 and reached USD 280 trillion, a gain of USD 16.7 trillion. This reflected widespread gains in equity markets matched by similar rises in non-financial assets, which moved above the pre-crisis year 2007’s level for the first time this year. Wealth growth also outpaced population growth, so that global mean wealth per adult grew by 4.9% and reached a new record high of USD 56,540 per adult.

This year’s report focuses in on Millennials and their wealth accumulation prospects. Overall the data point to a “Millennial disadvantage”, comprising among others tighter mortgage rules, growing house prices, increased income inequality and lower income mobility, which holds back wealth accumulation by young workers and savers in many countries. However, bright spots remain, with a recent upsurge in the number of Forbes billionaires below the age of 30 and a more positive picture in China and other emerging markets.

There are a few items in the Credit Suisse’s summary above that I would like to discuss.  First, how did the world increase its global wealth at a rate of 6.4% in 2017 when world oil demand only increased 1.6%??

As we can see from the IEA – International Energy Agency’s Global Oil Demand table above, total world oil demand only increased 1.6% over last year.  Thus, the rate of increase of global wealth of 6.4% in 2017 was four times higher than the 1.6% increase in world oil demand.  I would imagine some readers would stand on their soapbox and emphatically claim that energy has nothing to do with wealth creation.  Unfortunately, these individuals somehow lost the ability to reason along the way.  And we really can’t blame them for making such an absurd remark because they probably believe their food magically appears on the Supermarket shelves.

Second, the financial wizards at Credit Suisse reported that global wealth also outpaced the population growth.  What they are suggesting here is that the “Millenials” who (many) are becoming wealthier by sitting in front of a screen and clicking on a mouse than their grandparents (the poor slobs) who were mainly working in the manufacturing industry by producing real things.

Third, while the Credit Suisse analysts stated that the Millenials were facing some disadvantages, there was a bright spot with a recent surge in the number of Forbes billionaires below the age of 30.  Well, ain’t that a lovely statistic.  What once took an individual at the ripe old age of 55-70 years to achieve a billionaire status, now can be done right out of college.  It’s probably not a good sign for the economy going forward that we are seeing more billionaires below the age of 30.

Global Debt Is Destroying Real Wealth

Okay, now that we know the global wealth reached a new record high in 2017, what about the other side of the story?  You know… the debt.  As I mentioned in my previous article, ECONOMICS 101 states:

NET WEALTH = ASSETS – DEBTS

Now, that equation above is a simple one… kind of like 2 + 2 = 4.  However, the financial industry likes to focus on the assets and not the debts.  But, according to a recent article on Zerohedge, Global Debt Hits Record $233 Trillion, Up $16Tn In 9 Months, the world added more debt in 2017 than total U.S. GDP:

As we can see, total global debt increased from $217 trillion at the beginning of 2017 to $233 trillion in the third quarter of 2017.  That is a $16 trillion increase in global debt in just nine months.  While U.S. GDP hit $19 trillion in Q3 2017, if we add another quarter for the increase in global debt, it could surpass $20 trillion for the entire year.

So, even if global wealth surged in 2017, so did world debt.  According to the data, global wealth increased by $16.7 trillion in 2017 while global debt expanded $16 trillion… nearly one to one. However, this is only part of the story.

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