Global Sovereign debt is now roughly equal to Global GDP – about $60T. Private debt is greater. Globally, according to the World Bank it was at 140% global GDP in 2016, and is probably higher now. In some cases like US & JP, private debt approaches 2x GDP. The entire world – all the land, mines, factories, houses, sub-surface minerals, etc, etc – is valued at roughly $200T. That’s how much the planet is “worth” if some aliens came along and wanted to buy it. We’ve collectively borrowed some 60-70% of the value of everything there is. Debts at those levels are unsustainable except at very high growth rates and even then one wonders about the real collateral left to borrow the necessary currency against. Growth is nowhere to be found, so big time defaults are coming our way.

On top of that basic fact regarding debt-backed currency issuance, the financial world has built a staggering edifice of currency swaps, credit default swaps, mortgage backed securities, and a bewildering collection of various derivatives, many of impenetrable complexity. All of them, repeat all, amount to little more than bets on bets derived from that original debt obligation that brought the currency into existence. Thus, at the end of the day all are subject to counter-party risk however “hedged” they may claim to be.

This is particularly so for the large currencies that underpin the system, namely the EUR & USD and the banks embedded in the FR & ECB systems. The total, nominal value of this edifice is >$1Q, or some 5x the value of the planet. It’s mostly “hedged” in a matrix of counter-party obligations, but that matrix fails when a default at a critical node cascades through the system.