Debt levels and flows

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Debt is used to finance and pay for undertakings and business around the world. Debt levels are worth 3 years of GDP in many countries that have an annual GDP/person above $10,000. Global debt levels are perhaps worth two or three years of GDP. GDP (at currency exchange rate) was $40 trillion during 2004. Debt levels may therefore be about $100 trillion.

$5.7 trillion of debt was issued in 2004 according to Thomson Financial numbers, while GDP grew $4 trillion (currency exchange rate). That does not mean that debt grew faster than GDP on a global average (even if it has done so for years after 2001 in the USA). Debt is often issued with a repayment plan (a "time to maturity" in some cases), repayment times may be between a few days (interbank cash flow management) and 50 years or longer (consumer real estate debt). The average repayment time of all global outstanding debt is perhaps 10 years.

When debt matures new debt is many times issued to repay the old debt, perhaps from the same creditor. That is one reason why debt issuance far surpasses equity issuance in currency value. Equity is another way of financing business, as it has no set time to maturity and pays no set interest. It pays profit from the company it is a claim on.

Contents

[edit] Accounting

All credit is debt, a liability. Debt is created by lenders and borrowers agreeing to exchange the use of money for the promise to repay. The unit of money loaned is the asset of the creditor and the liability of the debtor.

Notes are paper with terms of exchange, hence credits or access to money. All currencies are notes ("This note is legal tender for..."). Money is a faith based initiative where in all agree upon the exchange values of similar pieces of paper with different numbers on them. This extends to savings and checking accounts which are depository receipts for money loaned to bankers who in turn lend it to other borrowers. And thus it multiplies, a deposit becomes a loan that becomes another deposit and so on. Paper while essentially worthless remains money because it loses purchasing power slowly enough that the faith -- that imbues it with value exceeding its substantiability -- may be challenged or shaken but not lost.

The terms of the lending agreement are the key elements of the contractual terms of a promissory note regarding repayment including the amount(s) loaned and to be repaid, loan fees, time value and risk value interest charges, due dates, balloon payments, default terms and more. All material information should be disclosed on financial statements or footnotes.

[edit] Flows

[edit] 2004

Global debt and equity underwriting reached a record $5.69 trillion. Global debt underwriting grew 4.3% year-over-year to $5.19 trillion. Syndicated lending was up 34.3% year-over-year. Global high-yield corporate debt climbed to over $163 billion eclipsing the previous record of $150 billion set in 1998. US Asset-backed securities volume increased 41.7% to $857 billion.

Global equity & equity-related issuance totaled $505bn for the year, representing a 29.9% increase over the $389bn raised in 2003. Initial public offerings increased nearly 220%.

[edit] 2003

Global Debt, Equity and Equity-related issuance reached record-breaking levels with over $5 trillion in proceeds raised, surpassing 2001’s record of $4.4 trillion. The $5 trillion of borrowings represented 14% of the GDP flow during the year (4.938/36.3) (see world economy). 93% of the issuance was debt, 7% was equity. Note that these numbers don't include all mortgage borrowing, which was $3.8 trillion in the United States during 2003. $900 billion of it is in mortgage-backed securities, at least $546 billion in US Federal Credit Agency.

[edit] Flows

Flows mean issued and sold debt. Debt and equity issuance reported by Thomson Financial ([1]) ($ billions and number of issues).

Global Debt, Equity & Equity-related

  • 2004: 5,693 (20,066) (Q4 2004 report)
  • 2003: 5,326 (19,706) (Q4 2003 report)
  • 2002: 4,257 (?) (Q4 2003 report)

Global Disclosed Fees

  • 2004: 15.401 (6,890) (Q4 2004 report)
  • 2003: 14.461 (8,023) (Q4 2003 report)
  • 2002: 14.762 (6,696) (Q4 2003 report)

Global Equity and Equity-related

  • 2004: 505 (3,628) (Q4 2004 report)
  • 2003: 388 (2,418) (Q4 2003 report)
  • 2002: 319 (?) (Q4 2003 report)

Global Debt

  • 2004: 5,187 (16,439) (Q4 2004 report)
  • 2003: 4,938 (17,287) (Q4 2003 report)
  • 2002: 3,938 (?) (Q4 2003 report)

Global High Yield Corporate Debt

  • 2004: 163 (606) (Q4 2004 report)
  • 2003: 146 (524) (Q4 2003 report)
  • 2002: 63 (?) (Q4 2003 report)

Global Loans (syndicated, leveraged)

  • 2004: 2,640 (7,147) (Q4 2004 report)
  • 2003: 1,966 (?) (Q4 2004 report)
  • 2002: ? (?) (Q4 2003 report)

[edit] Europe

All Euromarket Issues

  • 2003: 1,397 (3,568) (Q4 2003 report)
  • 2002: 877 (2715) (Q4 2002 report)

European Leveraged Loans

  • 2003: 107 (222) (Q4 2003 report)
  • 2002: ? (?) (Q4 2002 report)

[edit] United States

US Investment Grade

  • 2003: 659 (1,868) (Q4 2003 report)
  • 2002: 549 (?) (Q4 2003 report)

All US Federal Credit Agency Debt. FHLB dominated the agency market in 2003, raising $545.5 billion in proceeds, a 35% increase in volume from 2002.

  • 2003: 1,191 (13,152) (Q4 2003 report)
  • 2003: 923 (?) (Q4 2003 report)

US Mortgage-backed Securities

  • 2003: 900 (1,203) (Q4 2003 report)
  • 2002: 805 (?) (Q4 2003 report)

US Asset-backed securities

  • 2003: 581 (1,175) (Q4 2003 report)
  • 2002: 456 (?) (Q4 2003 report)

US Syndicated Loans

  • 2003: 980 (2,962) (Q4 2003 report)
  • 2002: 1,051 (?) (Q4 2003 report)

US Leveraged Loans

  • 2003: 368 (1,549) (Q4 2003 report)
  • 2002: 344 (?) (Q4 2003 report)

[edit] Levels

Levels mean market or balance sheet liability of borrowing party (or asset of lending party) value. Numbers are end-of-year levels, unless otherwise stated.

[edit] Euro area

Credit market debt

  • 2003: ?

Households

Non-financial corporations

  • 2003: 78.9% of GDP

Government

  • 2003: 70.7% of GDP

[edit] Japan

Credit market debt

  • 2003: ?

Households

  • 2003: 110.5% of households’ gross disposable income

Non-financial corporations

  • 2003: 110.5% of GDP

Government

  • 2003: 141.3% of GDP

[edit] United States

Dollar amounts are debt owed by each sector (amounts borrowed by each sector)

Credit market debt

  • 2006/Q2: $42.7 trillion (323% of GDP) [2]

Household sector

  • 2006/Q2: $12.4 trillion (94% of GDP) (130% of "households’ gross disposable income") [2]

Financial sectors

  • 2003: $11.6 trillion (100% of GDP)

Nonfinancial corporate business

  • 2003: $4.973 trillion (67.5% of GDP "Non-financial corporations") (data from ECB)

Nonfarm noncorporate business

  • 2003: $2.241 trillion

Farm business

  • 2003: $208 billion

Government

  • 2003: $5.594 (4.034+1.560) (47.7% of GDP "Government") (data from ECB)

Federal government

  • 2003: $4.034 trillion

State and local governments

  • 2003: $1.560 trillion

[edit] See also

[edit] Lists

[edit] References

This does not adequately cite its references or sources.
Please help improve this article by adding citations to reliable sources. (help, get involved!)
Any material not supported by sources may be challenged and removed at any time. This article has been tagged since June 2006.
  1. ^ Laura Rinaldi and Alicia Sanchis-Arellano (2006-01-01). Working Paper Series No. 570 (page 8). European Central Bank. Retrieved on February 25, 2007.
  2. ^ a b Flow of Funds Accounts of the United States. Federal Reserve (2006-09-19). Retrieved on February 5, 2007.

[edit] External links

[edit] International

[edit] Thomson Financial

[edit] Europe

[edit] ECB

[edit] United States

[edit] Federal Reserve

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