Let me explain why I don’t think we’re in for another depression, like the great depression.
The great depression if you looked at it and you looked at all the facts and figures and the lead up to it and all the things it looked very similar if not the same as what we’re seeing now and what we saw in 2008. The difference was in 1929 the FED was defending the gold standard and therefore they kept raising interest rates which caused massive deflation and it wrecked the system. And that took you know years and in fact probably a decade in most cases to actually recover from that.
That was what happened back then. The distinction now is that what we’ve done is the opposite, we’ve injected massive amounts of money to promote spending which has created the opposite thing. Basically what’s happened is it’s not a case of you know what happened there is what happened there. The reaction was totally different, the opposite of it and actually I think that has been much better and you know I’ve been very complementary to the government for doing this. Not just the UK government but a lot of governments around the world have done exactly this and are getting exactly the same results. Now, we might say well hold on we’re in for a massive sting in the tail and we’re gonna kick in the ass later on you know and we may well do that you know they may well have spent too much money borrowed too much money.
Let’s talk about debt because it’s one thing to sit here and say well hold on they’re borrowing you know GDP has gone up you know, GDP has gone over and this and that you know which sounds terrible. And for you and I that is terrible yeah because if you know our entire income for a year is this much you know that much and our debt goes from here to there and this is the thing I’ll point out. If we have a little debt to GDP. So you can see this is the United States and Britain. I don’t know why they didn’t do the UK but at the end of the day Britain is by far the biggest so you know no disrespect to Wales and Scotland and Northern Ireland. The bottom line is the forecast and if you have a look at those things in 2000 you know so sorry since 2000 to 2020 you’ll see we’re at about 80% in 2016, 88%- 87% I think we’ve just crossed over and I think I’ve got a slide here where the UK in june of this year crossed over the 100 barrier. In other words our debt to our GDP was the same and obviously that was in June so we’ve had July, August, September, October, November you know and or coming to November so we’ve had five months of serious borrowing since then.
Let’s have a look at debt around the world. So if we have a look at the you know debt around the world Japan 237%, Italy 135%, United States 106%. This is in 2018. All right UK 2018 sorry it was not 2016, 86.8% yeah so obviously that’s gone from 86 to 100. Now if you think about it last recession we decided to do austerity and we kept austerity to just before the election. So interesting if we have a look at debt around the world and debt as a percentage of GDP so there’s about 70 trillion worth of debt around the world 31% of that is the United States then you got Japan then China and the UK is right down the bottom there at 3.5 percent. Now for the fifth or sixth largest nation in the world you know yeah that’s you know it’s not ideal but it’s also not you know not gonna kill us if you like. It’s potentially good if it got too high all right now here’s the interesting thing so many people talk about debt to GDP as being the be all and end all but actually it’s not because if we think about it you’ve got to consider debt versus debt repayments over time or over the term of the thing. What happens is you know debt is the overall value so we can say we owe you know GDP is 20 billion and our debt is 20 billion it’s 100% but the reality is if that 100% is due in a year’s time and that 100 percent is at 7% borrowing or interest rate that becomes an issue.
But imagine if that was at 0.1% or 0.2% over 20 or 30 years okay now that’s a lot more affordable. So you’ve got to take, you know you’ve got to look at the right metrics. And actually it’s not necessarily about the level of debt, that is a consideration but it’s actually a lot more about the term of the debt how long it’s over. It’s also the interest rate and it is the level of debt. There’s different things and I think you’ve got to account for all those and when you account for all those you start to build a slightly different picture than what the media may be giving you.
I’m not saying that adding 40% of the money supply isn’t going to have a kick in the tail. You know it may well do we don’t know that yet. The interesting thing is and one of the issues is that obviously GDP drops, which means tax revenue drops, which means you know the income of the country drops, which means that debt you know rises considerably above potentially what you’re earning. We’ve had the borrowing and the income drop.
Interestingly if we look at China, okay China has gone and they you know they had a big drop you know for them a massive drop because they’ve been growing it sort of you know seven you know that sort of eight nine ten percent that sort of thing and then they’ve dropped into the negative but they’ve gone straight back up to where their five percent growth this year you know 4.9 in q3 which actually isn’t all that bad. So can we do that because we’re seeing exactly the same thing here as Australia and Singapore and China where they’ve actually been able to bounce back. I think that’s really interesting that these things are happening. So guys it’s it’s an interesting thing but look is 40% this 40% are really concerned the question is over what period is it and if we have a look at it the interesting thing that I find with this is actually when you have a look at it a lot of the debt that’s coming due now that needs to be refinanced is going to be refinanced at such a low interest rate that governments can afford to borrow more now because the rate is so low. If the rate was at seven percent and now having a remortgage at seven percent you know that’s that’s a serious consideration but now if you’re borrowing a point one percent you know or even negative it could get down to you know which government bonds have gone down and negative some of them. And you’re borrowing over five or ten years it’s not so much of a concern and that’s why there’s a lot of people now economists and that sort of stuff saying actually do you know what this is manageable. This is not a case of where we are definitely going to be screwed and we’re going to you know fall over and lots of stuff.
In some ways it’s not as bad as it’s being made out of the media by a lot of things and look you know I’m on youtube and we’re you know we’re playing with the youtube algorithms now and I’m putting videos out I’m starting to work out what day I should put them in and all this sort of stuff. And I go on there and I have to shake my head because i look at you know my contemporaries and you know my peers and all that stuff and some of the stuff they’re saying about how you know we’re in for an almighty crash and it’s gonna happen and we’re predicting it and and you know 20% to 40% and the share market going to drop and all this doom saying.
The problem is some of these guys I know some of these guys I chat with and when I chat with them they know that that’s not necessarily going to be as bad but you know what the youtube rankings perform a whole lot better if you put a negative keyword. The interesting thing is and so I was chatting to the marketing team today and we’re saying you know what let’s let’s run the next two weeks not this week next week two weeks let’s put really like negative you know crash you know housing crash 2021, you know or why the housing market will crash and that sort of stuff because that gets a lot more and I’m talking in the in the region of tenfold more hits than just putting my house price predictions for 2021. It’s not as bad as we might think for 2021 you know and unfortunately that’s the thing we live in right now so things aren’t as bad.