Tags: debt | invest | stock | market

Global Debt Is Out of Control, But Investors Shouldn't Worry

By    |   Wednesday, 11 Feb 2015 07:53 AM

Governments, households and corporations around the world collectively owe about $200 trillion, an amount that's almost 2.9 times larger than the global economy is.

This certainly seems like a problem, but from an investment perspective, it doesn't matter to the stock market. We can see that a crushing level of debt isn't a problem for investors because many global markets are trading near record highs.

There's an important lesson for investors in that fact.

If we look at the news, we can always find a reason that the bull market is due to end. For example, there have been concerns about the global economy every day since March 2009, although stocks have gained approximately 240 percent. Some investors were worried about the coming crash, while others were benefitting from the six-year bull market.

Record levels of debt have been seen before, including in the 1920s when the stock market moved higher for a decade before it eventually crashed. Debt rose to new highs again in the 1980s as the greatest bull market of the 20th century began.

Debt is certainly a concern for the debtors, but it shouldn't be a concern for investors. Economist Herb Stein explained, "If something cannot go on forever, it will stop." It's very likely that the global buildup in debt cannot go on forever, and if that's correct, the buildup of debt will stop. But until it becomes a crisis, investors should continue to follow the trend in the stock market, which for now is up.

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MichaelCarr
Governments, households and corporations around the world collectively owe about $200 trillion, an amount that's almost 2.9 times larger than the global economy is.
debt, invest, stock, market
251
2015-53-11
Wednesday, 11 Feb 2015 07:53 AM
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