This post is my attempt to try and consolidate my understanding of certain things, and is kind of a blog post more than anything, but I think it’s interesting, so I thought I’d post it here. So: Global debt now stands at the highest it’s ever been: about $244 trillion, which is 300% (!) of GDP in 2017. In other words it would take about 3 years to pay off if the entire combined economies of the world did nothing else but attempt to service that debt, starting now. Now this debt itself is split between a few different actors; Governments (~$65 trillion), Households (~$46t), and Corporate (~$130t). This debt is itself spread unevenly across the globe, with so-called developed nations being far more indebted than poorer ones. These debts continue to grow across all sectors of the economy, and continue to set records.

So the question is: how did we get here, and what are some of the implications of this ballooning debt? Well, the story starts in the US in the 1970s, with the onset of ‘stagflation’. Stagflation is when economic growth slows down (stagnation) and the prices of things rise (inflation): stagnation+inflation = stagflation. Now, while this state of affairs was not all that good for anyone, they were particularly not good for the monied classes, whose returns on long term investments were offset by things costing more in general. Facing revolt by a bunch of very angry rich people, and as a response, the US federal reserve forced interest rates to rise dramatically in what has been called the ‘Volcker shock’, after the head of the Fed at the time, Paul Volcker.

The Volcker shock was, in effect, an effort to force a recession in order ‘purge’ unproductive businesses out of the economy and force something like an economic reset. This happened because rising interest rates made it incredibly hard for businesses to borrow money (you have to pay a lot more back, making borrowing unaffordable): without access to credit, the economy fell into recession. The flip side of this however was that rising interest rates also saw investors flock to the US, able now to get a massive rate of return on their investments - by 1981, interest rates were above 19%, and would stay double digit for the next two years.

Two important things happened as a result. First, there was a massive shift in where investment money now flowed. With interest rates high, investors put their money into financial assets (stocks, bonds, mutual funds) rather than fixed, brick and mortar assets (like factories and retail). This was a deep, structural change in the economy, and arguably constituted the beginning of what we now call the reign of ‘financial capitalism’, in which finance and investment (stocks, bonds, etc) drives the economy, rather than traditional brick and mortar enterprises, which instead focus on making stuff (and which employ people to make stuff).

So, second, the financialization of the economy happened to occur right when Western governments decided that cutting taxes was the best way to go about things (Reagan, Thatcher). The cut in taxes of course meant a decline in government revenue, which put pressure on their ability to fund social services. To make up for the lack of revenue, governments turned to their second source of income: borrowing. With the aforementioned growth of the finance industry, investors were all too keen to lend governments money in return for a relatively safe return. However, the combination of falling tax revenue and increased government loans meant nothing less than increased government debt - something had to give, and this ‘something’ were the very social services that the loans were taken out to finance in the first place.

The cutting of social services had its own ramifications: in order to placate a population who they could no longer serve through government institutions, governments encouraged the ability of ordinary people to be able to borrow money in a way they weren’t able to before. This ‘expansion of credit’ meant relaxing the restrictions on who could borrow money, and amounted to what has been called the ‘democratisation of credit’. Where previously, banks were relatively selective about who they would lend to, relaxing the rules meant more and more people could access borrowed money: i.e. more and more people could place themselves in debt. This coincided with a push for home-ownership as a subtitle for social welfare too, with banks more than happy to provide the loans for the massive uptake in home ownership. That the last economic crisis was a real estate one was no mere accident.

Back to the cutting of taxes and the Volcker shock: combined, these American measures, like viruses, began to spread out to the rest of the world, with other countries now vying for a piece for the international investment pie. This lead - and continues to lead - to a 'race to the bottom' among different nation-states, each of which now began to compete for investment money. Learning from the US experience, states around the world all vied (and continue to vie) to make themselves attractive to financial investment by keeping taxes low, and feeding the cycle of cutting social services while indebting themselves further. Worse, this is a cycle that is reinforcing. To keep up with neighbours, each state is forced to destitute government services and labour protection ever more, each trying to out-prostitute the other for the sake of capital.

Finally all this debt - government on the one hand, private on the other - is what’s lead to so many regimes of austerity all around the world. And austerity has always been awful for everyone, everywhere. Anyway, I could go on, but I’ll stop there. But basically: the ballooning of debt has made a lot of things shit, and this is an attempt to sort my own understanding out by writing about it. Most of this is drawn from Melinda Cooper's Family Values and Michel Feher's Rated Agency, although you can find more of it in Wolfgang Streeck's Buying Time and Leo Panitch and Sam Gindin's The Making of Global Capitalism.