Private Debt Apocalypse

I like the title… It’s a little apocalyptic, but it conveys the idea. We all know about public debt, a constant reminder of how many countries have been living beyond their means for decades now. I am not talking about public debt tho, I am considering private debt, and specifically the debt of individuals, as opposed that of companies.

When we say that many people in western countries live beyond their means, at an individual level means that each person has an average debt of several thousand euro / dollars. For many a large portion of it constitutes their mortgage, but also student debt, and even just the credit card debts account in average for several thousand dollars/euro.

If you google today “unemployment rate  2030” you will find wildly ranging estimates, only rarely they are lower than 30% tho.

When you have hundreds of millions of unemployed people being unable to repay their debt, you may as well call that a private debt apocalypse.

In real life numbers the household debt of USA + Europe is currently over $13+$9 trillion and growing At 30%, we are talking over $6.5 trillion.

By comparison the Global Financial Crisis in 2008 was ignited by a crisis in the subprime mortgage market whose value was estimatedly around $4.6 trillion.

It’s also worth noticing that getting to that 30% will not be a linear process, but rather a logarithmic one, with relatively fewer job losses in first 2 to 5 years, and increasingly more as time goes by: towards the end of the 2020’s job losses in western society will be counted by the millions each week.
More importantly, the trend  won’t  necessarily invert in 2030.

It is fair to assume that the people losing their jobs won’t have a mean to repay their debt, but unlike in 2008’s GFC, this won’t be an incidental parenthesis in history where speculation convinced people to buy a house beyond their means.
This will be a very structural problem in which one third of the population will remain unemployed for a fairly long time, during which consumption levels will be hit hard, causing further economy slow down. Many companies -not just small and medium, but even huge corporates- wouldn’t survive such a decrease in demand, igniting a chain reaction.
Under that scenario, the process of reabsorbing one third of the workforce in the productive system will not be an easy task. In fact, it could prove simply impossible.

It’s a ticking bomb and we have a decade to stop it, and as often, our democracies are slow bureaucratic machines, and sadly they are ill prepared to react promptly to a fast changing world like the one we live in.

The introduction of an universal basic income is still being abstractly considered at a very embryonic stage, no meaningful-scale experiment has been conducted, nor it seems likely to happen any time soon. Most countries don’t have the financial coverage to proceed either, and yet, it seems to be our best bet to pull the brakes in time.

Tic toc tic toc…

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