Debt, what is it good for?

From a piece in the FT on the massive $15 trillion dollar surge in debt in the first nine months of 2020

One passage stood out:

From 2016 to the end of September, global debt rose by $52tn; that compares with an increase of $6tn between 2012 and 2016. The pace of growth in global GDP changed little over that period until the onset of the pandemic triggered a historic recession.

The change in debt — without a corresponding change in the pace of output growth — “suggests we are seeing a significant reduction in the GDP-generating capacity of debt”, Mr Tiftik said. “Aggressive support measures will be with us for some time and will inevitably increase debt significantly.”

Well, it depends. In the developed world, the proportion of GDP going to debt servicing has been declining since 2011, so clearly debt servicing is not a significant drag on debt’s GDP-generating capacity. To be more specific, we are seeing a significant reduction in the GDP-generating capacity of debt as it has been used over the period. It is a separate question whether the use of debt in the years since 2016 has been optimal.

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