Debt levels and flows

Debt levels and flows are a measure of the levels of debt – how much debt is outstanding – and the flows of debt – how much the level of debt changes over time. This is basic macroeconomic data, and varies between countries. Debt is used to finance enterprises and business around the world. Within mainstream economics, levels and flows of public debt (government debt) are a cause of concern, while levels and flows of private debt (especially households and corporations) are not seen as being of central importance. Debt levels and flows are a measure of the levels of debt – how much debt is outstanding – and the flows of debt – how much the level of debt changes over time. This is basic macroeconomic data, and varies between countries. Debt is used to finance enterprises and business around the world. Within mainstream economics, levels and flows of public debt (government debt) are a cause of concern, while levels and flows of private debt (especially households and corporations) are not seen as being of central importance. In measuring debt, stocks and flows are both of interest: stocks are amounts, levels of debt (e.g., $100) and have units of currency (such as US Dollars), while flows are changes in levels – in calculus terms, the derivative – (e.g., $10/year), and have units of currency/time (such as US Dollars/Year). In order to make these stock and flows comparable between countries and across time, one may normalize these by some measure of the size of the country's economy, most often GDP, that is, compute the debt to GDP ratio. For instance, $10 billion in 2000 is a small amount of debt relative to the size of the economy of the United States, but large relative to the size of the economy of Iceland, and dividing by the GDP reflects this. Because GDP is generally quoted with units of currency/year, and debt levels have units of currency, the debt level/GDP ratio has units of years, which may be interpreted as 'how many years it would take to repay the debt if all income went to debt repayment'. In practice this cannot happen – some of GDP must go to survival – and historically debt repayment rates during periods of repayment have been about 4%–10% of GDP (as in the United States during the Great Depression and World War II), so practical time to repay debt is rather Debt/GDP times 10–25. Debt levels are worth 3 years of GDP in many countries that have an annual GDP/person above $10,000. Worldwide 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 gross debt was issued in 2004 according to Thomson Financial numbers, while GDP grew $4 trillion (currency exchange rate). That does not mean that net debt grew faster than GDP on a worldwide average (even if it has done so for years after 2001 in the USA), as debt issuance may be refinancing of existing debt, often 'rolling over' debt that comes due into new debt. 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. 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 worldwide outstanding debt is perhaps 10 years.