The Obesity Index

"This is what people don't understand: obesity is a symptom of poverty.  It's not a lifestyle choice where people are just eating and not exercising.  It's because kids - and this is a problem with the school lunch right now - are getting sugar, fat, empty calories - lot's of calories - but no nutrition." - Tom Colicchio

Well the world's central bankers could learn a thing or two from the above statement however their "obesity" is in the form of debt.  A recent article published in the CFA magazine highlights that global debt has risen by $57 trillion between 2007 and 2014.  That is more than $8 trillion a year added or roughly $700 billion a month!  This puts global debt at more than 286% of global GDP.  The sad part is this number only counts the debt that has been issued and does not include what is referred to as "off balance sheet" debt.  These are debt obligations that are owed but have not yet been paid and have no formal debt associated with it.  Examples of this kind of debt would be the unfunded Social Security benefits, pension liabilities and entitlement programs.  If we were to include these obligations the number would be far greater.  Just taking the pension obligations the estimate is $50 trillion more pushing debt to global GDP over 300%.

This has not deterred the globe's central bankers from issuing more debt.  The reasoning seems to be that if the world has taken on this much debt what does it matter if we take on more?  Furthermore, without this infusion of capital in the form of debt the global economy would not be growing and we would be in a world of trouble, so the central bankers say.  But there are two main problems associated with this continued increase in the debt burden; the first is that borrowing no longer generates growth and the second is that instability is increasing.

Taking the first issue regarding the lack of growth, I do not know how much more of an example is required than the post Great Recession's anemic recovery.  As the debt level rises more and more money is spent on servicing the debt and ultimately it crowds out productivity.  Back in the 80's when debt was first added as a stimulant each unit of additional debt resulted in roughly a unit increase of productivity.  Today that marginal productivity has all but evaporated.  Adding more debt is have no impact on growth which is why no matter how much money is thrown at the problem or how low interest rates go there is no economic expansion.

The second issue is that as you pile more and more debt onto the world it results in shorter boom periods and longer periods of bust and recovery.  Defaults are becoming more and more common and people are becoming more and more angry at the establishment and the rules; just look at the mess created by the massive obligation of student loans in the United States.  This instability is feeding into politics as angry voters throw their weight behind people like Trump.

To me adding more debt to the global economy is like piling more sand onto a sand castle, eventually it will buckle under its own weight.  A reverse strategy would be far more effective and stimulating.  Imagine if the United States wrote off all of the student debt in one go.  All of that money would be spent on housing, cars, vacations and the like.  The stimulus would be huge.  Any consumer knows that removing the burden of debt brightens your whole day, the outlook is not cloudy and your are excited to buy something new.  Unfortunately the world has burdened its citizens with the yoke of debt and until this is lifted global economic growth will remain anemic.

If growth therefore is anemic (as it has been) and good paying jobs hard to find (as they are), the world's middle class will continue to shrink as people roll backwards.  In order to stave off the debt collector families are cutting expenditure (creating slow to no economic growth) and, according to the quote above this is one of the main causes of obesity.  Hence the birth of a new index, the Obesity Index.  If obesity continues to grow economic "stimulus" is not working.  Once there is true economic growth you should start to see obesity come under control.  As it is now a growing global problem it would point to continued poor economic growth and a disconnect between the policies of the central bankers of the world and the impact of their "stimulus" on the global economy.

Until such time as there is true global economic expansion, not growth based on fictitious money that is blindly thrown at banks, but real expansion based on growing consumer spending derived from wage increases and jobs, I guess the world will continue to consume the $1 Big Mac and deal with its waistline!