Debt the dark horse in bubble debate

Charles Gave, of GaveKel Research in Hong Kong, wrote in a note last week that roughly a quarter of the world's financial assets are in equities and three-quarters are in debt.

Out of an estimated $209 trillion of total global financial assets (excluding real estate), $52 trillion sits in equity, $45 trillion is in government debt, $65 trillion in loans (possibly a good chunk of which finances real estate) and $46 trillion in corporate debt.

Considering the relative weights of equities and debt, it is somewhat surprising that most of what we read and hear about the global financial markets is about equities, not debt.

Debt is also much, much more powerful than equities. Look at what started the global financial crisis; wrongly rated collateralised debt obligations held and/or issued by over-leveraged investment banks.

Then there was the euro zone crisis, triggered when the threatened default by Greece exposed the parlous debt condition of Spain and Portugal and the banks that had bought their sovereign bonds.

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Max Walsh

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Max Walsh was for many years one of Australia’s top economic and political commentators, highly regarded as a journalist, author and broadcaster. Throughout his career, Max was involved in all dimensions of the media industry, which has encompassed positions with two of Australia’s largest publishing companies and television networks.

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