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Global debt has now rose to $305 trillion, $45 trillion higher than before the pandemic. Crazy right, and you may ask who do we all, on planet Earth, owe money too.
The answer shouldn’t surprise you. There are surplus producers and asset producers, the surplus producers buy debt from the asset producers.
Everyone talks about how much US government debt China and Japan own, and that is a perfect example of what I am talking about. The US is a asset producing nation, we run fiscal deficits funded by debt ($30+ trillion in debt), and Japan and China are surplus producing nations, financing future endeavors with cash flows received and very little (on a global scale) issued debt.
But another example is you reading this article. If you are spending less than you make, you are a surplus producer. You should be using that surplus to finance future endeavors, and keep in mind that cash is a real investment (whether or not you realize that), it just may not be the best asset for maximizing future purchasing power. You buying a slice of global debt allows you, as a surplus producer, to build and grow your net worth. It allows you to build that lake cabin in 15 years because you were a diligent surplus producer for 15 years.
But, you can also be an asset producer. If you take out a mortgage for said cabin you are building or buying you are now a asset on someone else’s balance sheet. This is not a bad thing. Surplus producers often times will use debt to finance projects that make sense. For instance if your mortgage rate is 3% and your US government bonds are earning 5%, you are still capturing a 2% spread. However for this to really work you need to keep contributing to your surplus. You can’t allow debt to pile or for cash flows to become zero or negative.
Every person should strive to be a surplus producer. Only governments should be asset producers. The reason is you, as a surplus producer, should be buying from the asset producers and currently the asset producers are the ones that are controlling and stimulating global trade.
Let’s take the simplest example. If the US wasn’t printing and SELLING dollars you wouldn’t have dollars to buy, and other nations wouldn’t have dollars to trade in. Simply put, someone has to produce assets at scale. Companies also produce assets, equity and debt, but if you are an investor in a company you should reasonably expect them to be generating surpluses, at least soon, so they can pay you back since they can’t print new money.
There is $305 trillion in global debt, but it also means there is $305 trillion in global debt assets owned by governments, institutions, corporations, people, etc. Without these assets it is challenging for buyers to buy.
Anyways that is my rant on the way the world of assets and liabilities works, here’s everything I read, wrote, and spoke this week.
Markets
How to Find Investment Opportunities in Any Economic Cycle
Google, Generative Search, And The Web’s Uncertain Future (bigtechnology.com)
I will go for outperformance, thank you very much (substack.com)
Reliance on Mega-Cap Tech Stocks - by Eric Soda (substack.com)
Paper Bears - A Wealth of Common Sense
Investing
Google to use new AI models for ads and to help YouTube creators (cnbc.com)
AI is in its regulation era (morningbrew.com)
Netflix Advertisers Clamor for Fledgling Ad Tier to Grow Faster - WSJ
Target says organized retail crime-fueled losses have shot up (cnbc.com)
Walmart Earnings: Full-Year Outlook Lifted as Quarterly Sales Surge - WSJ
CRISPR lettuce for your summer salad (morningbrew.com)
ESPN Lays Plans to Stream Flagship Channel, Eyeing Cable TV’s Demise - WSJ
Economics
What Happens if the US Defaults on its Debt? (ofdollarsanddata.com)
Charting the Rise of America's Debt Ceiling (visualcapitalist.com)
Shoppers Boosted Retail Sales in April, Reversing Two Months of Declines - WSJ
Personal Finance
The Spectrum of Financial Dependence and Independence · Collab Fund
