The global debt crisis – Is the world on the brink of collapse? | DW Documentary

The global debt crisis – Is the world on the brink of collapse? | DW Documentary

The working day begins for one of the men who in Spain are as legendary as they are infamous. Debt collectors in tails have been around for 30 years. The company’s heyday was during the 2008 financial crisis, when thousands of Spaniards went bankrupt. In the worst cases, debtors are confronted on the street.

Today, the whole world is in the same position as the Spaniard who can’t pay. Private individuals, companies and whole countries have been struggling with steadily rising debts for over 15 years. The problem has been severely aggravated by the Corona pandemic and the war in Ukraine. Does this mean the world is about to

Collapse under a huge mountain of debt? The world’s total debt currently exceeds 300 trillion dollars. That’s a colossal number with 14 zeros. To pay off this debt, everyone in the world would have to work three and a half years without pay. To find out what’s going on in the world,

We decide to explore the stories behind global debt. We want to find out what’s happening away from the headlines. We visit people in debt and learn about the dramatic impact it has on their lives. And we go to countries with vast levels of national debt.

We want to find out how the lives of ordinary people are affected. Is the situation hopeless? Or are there any ways out of the debt trap? After the financial crisis of 2008, many states fell into debt. Back then, after a phase of unbridled lending in the USA, a property bubble burst.

Major banks went bust and the stock market collapsed. The US government had to take on staggering debts to save the economy. The debt crisis in the USA triggered a global chain reaction that still resonates. To trace the long-term impact of the 2008 crisis,

We travelled to a country where money seems to be no object. The Emirate of Dubai. There we meet Sajjad Maroof, an estate agent, who wants to show us something exquisite. A map of the world consisting of artificial islands. In 2003, a state-owned corporation began constructing The World Islands and selling them to investors.

They wanted to build retreats for the super-rich, palaces like this one. Welcome to Sweden Beach Palace, welcome to the home of Vikings. Only the kings are allowed to stay over here. The palace provides an astonishing refuge from the outdoor temperatures topping 45 degrees Celsius. Scandinavian people they have a tradition

To take sauna to open up the body pores. So we have a sauna over here. We can make it as a dry or a steam room. Then immediately, when sauna is done they have to take an ice bath. So we have our own snow room. That’s how you enjoy the snow.

So the idea was this: How to bring the whole world to Dubai. So that’s Spain, you can see Portugal over there, and that’s France. We try to follow Mr Maroof’s logic, but we find it difficult to make out the outlines of European countries. The sharp contours have eroded away.

Since 2008, the project called “The World” has lain dormant. Nevertheless, one man still wants to keep building on the artificial islands and create a mini Europe. Josef Kleindienst, an Austrian businessman, has wound up here in the Persian Gulf. Part of his grand vision can already be admired.

Welcome to see our Heart of Europe project. I want to point out first the location, where we are right now. We are here in the roof of Sweden Beach Palace number one, overlooking the Germany island, 32 villas on the beach and pool. And you can see the “Strandkörbe” already waiting for tourists.

You see here our main island, Europe, hosting our hotels. Monaco Hotel was our first hotel to open, and it is a party hotel: 24/7 party. This is typical of Dubai, the epitome of abundance. A Switzerland beneath palm trees welcoming anyone who wants to take their wealth to the emirate.

Postmodern towers soar up into the sky. They include the tallest building in the world. The Burj Khalifa skyscraper was originally going to be called Burj Dubai. But the prestigious building had to be renamed after the ruler of Abu Dhabi, Sheikh Khalifa. The powerful neighbor helped Dubai out with an emergency loan in 2008.

The emirate with relatively little oil was on the verge of bankruptcy. Half-finished buildings bear witness to the credit-leveraged madness a few years ago. Instead of lavish real estate, it would have been better to invest in more sensible things, says sovereign debt expert Christoph Trebesch. When the inevitable crash hit Dubai’s real estate market,

Many international investors pulled out. They included some who’d invested in the painstakingly created world map. Some went bankrupt, others were left with piles of sand whose value plummeted. One even committed suicide during the debt crisis. The other Europeans, they did not have the trust to stay,

Or maybe they ran out of money or out of funding, and it was not easy in 2008. And then we realized there are chances. When 40 others run away, you have a chance to take over part of their business, for example. Even though “The World” keeps stalling, life is creeping into it.

Recently, another investor began building on the island that represents Argentina. Despite its past as a debtor, Dubai’s image hasn’t been tarnished. The emirate was lucky to get help so quickly. At the southernmost end of the world lies the undisputed bankruptcy champion of our planet. Argentina has been bankrupt nine times.

Sometimes international financiers stepped in; sometimes no aid was received. We can see here what happens when a state has too much debt to meet its obligations to the poorest people. The slum called Villa 31 spreads beneath the motorway bridges in central Buenos Aires. Thousands of Argentines rely on charities. A century ago,

Argentina was one of the five richest countries in the world. It has mineral resources and a well-educated population. How could such a country fall so low? Alejandro Bercovich is an economist and radio journalist. He’s been studying why Argentina can’t escape the debt trap. The result is ever higher deficits.

And being so badly in debt, Argentina can’t always borrow money abroad. But it still has to pay pensions and unemployment benefits, so it uses a trick. Argentina simply prints large amounts of its own currency, the peso. As we can see here, there’s a money supply that can be used to buy goods.

In order to meet the costs of the state, more and more money is printed. But the quantity of goods remains the same. People can buy more with the new money. Retailers respond to higher demand by raising their prices. Inflation takes hold. Many Argentines can’t afford everyday items. So people meet up to barter.

Meetings are arranged on Facebook and WhatsApp and then the group meets here. Instead of money, they use points to determine the value of each item. Clothes, for example, can then be swapped for personal hygiene items and food. Bartering looks set to persist for a long time.

In Argentina, there’s no end in sight to the price spiral. Inflation is now a serious problem in the northern hemisphere, too. In wealthy Germany, more and more people are suffering from price rises for energy and food. The share of income that low earners spend on living costs is disproportionately high.

That’s why the poorest people fall into debt especially often. Duisburg is a city with many over-indebted people in Germany. 16% of its inhabitants are on the debt register, compared to not even half that many in Munich. Frank Wendler, a local jack-of-all-trades, knows first-hand just how bad it is to be hopelessly in debt.

For decades, Wendler sold gas cannisters. But the business had its pitfalls. Fate took its course. After a tax audit, he owed a large amount of back tax. Like its citizens, Duisburg is also struggling with a debt trap. Starting with the crisis in the steel industry in the mid-1980s, things went downhill.

And the once affluent city now has an army of unemployed. Germany has been systematically saving for decades. The debt level is low… but the result is potholes, bridges in need of repair, and rundown railways. With Duisburg’s drastic cuts now behind it, a Consolidation Pact has been introduced

To make the city more attractive for investors. Nearly half of its debt has been paid off, partly thanks to the development of Duisburg as a logistics hub. The Port of Duisburg is the biggest inland port in the world. It lies at the end of the Northern Silk Road —

A branch of a huge trade network being set up by China to connect with the rest of the world. In Duisburg, money is being pumped into the debt-laden budget by cooperation with China. But Chinese collaboration isn’t always this beneficial for its partners. This map shows hard-up countries

That built infrastructure for the Silk Road by taking out huge loans from Chinese banks. China expert Thomas Heberer is aware that China’s loans can also have a positive effect. This is how economic growth is created in Africa. However, China grants loans without assessing whether the recipients can manage the money properly.

Heberer finds this problematic. In the US, where people think big, debts are breaking all records. During the Covid pandemic, the country’s obligations skyrocketed. The debt clock currently stands at over 33 trillion dollars. This amount is still rising and has serious consequences for society, says banker Richard Vague. Growth in debt increases inequality.

The reason is that the top 10% of most economy, certainly in the United States, own 60 to 70% of the real estate and stock in that economy. Increase debt levels, increase the value of real estate, and increase the value of stocks. Financial expert Sandra Navidi understands the impact

Of unequal wealth distribution on US society. The economically weakest in society suffer the most. Mississippi has the highest proportion of poverty in the USA. Known debtors make up 29% of the population, 7 percentage points higher than the national average. For Annita Husband, severe debt led to drastic repercussions.

Years ago, me and my husband, we were going through financial difficulty. He wasn’t working. I was working. I was in between pay cheques, because I started a new job as an office manager. One morning I came in to work, my truck was being repossessed.

Another coworker came in and she said ‘I’m gonna tell you what to do’. She said: ‘Write a check for John Doe. For 365. Get the cash, then when you get paid, replace the cash’. Okay, so I did that. And, um, payday comes

And, of course, you know, I have a million other bills, so I didn’t replace the cash back. So, you know, I’m thinking in my head, okay, this is pretty easy! So, I started, um… I guess forming a habit. I would keep my pay cheque and I would pay my light bill with

The fake cheques or the fraudulent cheques. Altogether, Annita embezzled $13,000. Her larceny was found out. She was sentenced to five years’ probation and had to pay back the money. She was in a mess because she lost her job. Her husband suffered a stroke and was confined to bed.

Annita regularly reported to a probation officer. In return for his services, he expected fees. They have what they call a supervision fee. We have to pay 60 dollars a month. I didn’t have it. I didn’t even pay on the 13,000 dollar restitution. You know, no one’s working. So the probation officer said:

‘Well, if you don’t have it, that is a violation of your probation, because you have to report and pay.’ So, I’m not going to leave my basically paralyzed husband, three little kids home, so I’m not gonna come back. Annita was arrested and put in a restitution center.

This means a debt prison in Jackson, Mississippi, where prisoners serve time until they have worked off their debts. These debts might be damages owed to victims of crime or overdue court costs. Even for trifling amounts below $1,000, people can end up in this converted motel.

But it has nothing to do with holiday accommodation. It’s barbed-wire, just like a jail. When you get in, they go through your stuff, just like a jail, a prison. They strip search you, just like a prison. And I’ll never forget this: They brought me there on a Friday.

Mother’s Day was on a Sunday. So. They allow me one call. I called my son, my oldest son, and the first thing he said was ‘Happy Mother’s Day, mother!’ And that was so heart-breaking, because I’m not gonna be there. Besides the prison-like conditions in the restitution center, Annita was in for another shock.

She was charged 11 dollars a day for board and lodging, which was added to her debts. Inmates even had to pay when the center was seeking employment for them, no matter how long it took. Annita was relieved to get a part-time job at Church’s Chicken, a fast-food restaurant.

Annita remembers that she had high hopes of escaping the system. By doing additional tasks, she earned valuable bonus-points that could be used to reduce her time in custody. But she had a rude awakening. I was, you know, scrubbing vans. I was working in the cafeteria, I was doing everything.

Got my merits, so I went to the Warden and she read my sentencing paper. Now, here I’m thinking all I had to do was get, you know, so many merits and I can go back to my normal life. She said: ‘No, you have to stay here until 13,000 dollars is paid off’.

With a part-time hourly wage of $7.25, less detention costs, Annita’s release was a distant prospect. It became apparent that she’d have to serve the maximum term of five years in Jackson. Mississippi is joined by states like Iran, Egypt and Afghanistan that also imprison debtors. Nowhere else does being in debt lead to incarceration.

We’re interested in finding out what sort of people employ debtors, like Annita from the restitution center. Businesswoman K.K. Kent has several decades’ experience of such temporary workers. When I was 19, I bought my first rental properties and a lot of them had to be excavated, remodeled.

And it was hard to find labor, especially labor that was sober. So the restitution center opened up here in Greenwood when I was 19. And I used to go and get labor to help me do all my day-to-day operations: Handle my livestock, cows, horses, load hay, unload hay, load feed, unload feed.

Just stuff you have to do every day when you’re on a farm. But the staff she recruits from the restitution center cause her problems. I may go through four or five before I find one that I’m compatible with and I can work with. Because a lot of them think they’re entitled.

And as soon as you pick them up, they start asking, Can I use your phone? Will you stop at the store and buy me a drink? Will you buy me some cigarettes? And there’s been some that I’ve picked up and hadn’t even driven a half a mile, that just, their demeanor has —

I didn’t approve of it and I turned around and took them right back and sent them back in and got two more. Some are very appreciative. Some are thankful. Grateful for everything you do for them. You know, I’ve had some of them say,

You know, if I had a mom like you growing up, you know, my life would have been totally different. I don’t try to cure them. I just tell them, you know, you need to pray about yourself. You need to figure out your own self-discipline and do something about yourself.

You don’t need to look for other people, because it’s not other people’s problem, it’s your problem. Annita Husband was in over her head with her problems. She had to think of something. Otherwise, given the amount of money she owed, it would be years before she was released. 13,000 dollars!

With a minimum part-time paying job. I said: Annita, you need a plan. You know, you need a plan. I just took my chances and ran. But the challenges were huge. She was only allowed to leave to go to work. She was strictly searched twice a day.

And she only got $10 a week for personal use. They used to give us a roll of quarters, you couldn’t have dollars. So, every morning I would wear my hair in a pony tail. I would put the roll of quarters in my hair, cause you know, in between the pony tail.

I would leave with a roll of quarters. Come back, I would change the quarters for dollars. I would roll the dollars or two fives, put it in my hair, cause I can get change at work. I hand-washed my clothes, you know, stuff that I would take the ten dollars for,

I would, you know, do without. So I saved up enough for a bus ticket. This one particular day I planned to leave, I had on my Church’s uniform, but had on a pair of blue jeans and a shirt under my Church’s Chicken uniform.

So I got a friend to take me to the bus station and I got on the bus and I came to Biloxi. Eventually, Annita was arrested there and had to serve part of her suspended sentence in an ordinary prison. After nine months, she was released. Her debts were cancelled.

She doesn’t have a good word to say about the system of restitution centers. My debt was pretty large, but there has been people that spent, at the restitution center with maybe a 2,000 dollar debt, and three years later they’re still in the restitution.

You say, well, one day I’m gonna get to go home and, you know, be with my family, but you don’t know when. I felt like restitution centers should be wiped out. It is just an undercover of slavery. The systemic discrimination of Black people after slavery continues to this day.

It’s not just the neglected cemeteries of the freed slaves — like this one in New Jersey — that bear witness to this. More than a quarter of Blacks can’t get loans at all, compared to just 17% of whites. And in Black neighborhoods, debt collectors pursue debtors especially often and hard.

Court cases are more frequent than for whites. Differences in the USA concern not only skin color, but also generations. In the majority-white middle class, twenty-somethings are groaning under tuition fees which are higher than ever. The cost of student loans in the US is rising sharply.

In 2006, American students owed half a trillion dollars in student loan debt. This figure has since risen to $1.7 trillion. If the government taxes individuals, it means those individuals are able to spend less. And a government uses that to pay off debt,

The government itself is not using those tax dollars to spend more. So the math is obvious. The folks being taxed spend less. The government spending the same. GDP shrinks. So tax where you repay debt actually contracts GDP and creates the opposite effect that you want. But what about starting with government spending?

Couldn’t states just save like mad until their debts have disappeared? Much of what looks like a solution can actually be harmful. If so, how can we get control of the global debt problem? Perhaps there are old ideas outside the world of finance? This leads us to a synagogue in Brooklyn.

Sandra Navidi meets rabbi Emily Cohen. So I guess you could say that debt isn’t anything new in society. If we go back all the way to some of our earliest texts, you find this discussion of debt. So, there’s a concept called shmita. And what shmita is, is a” land rest”.

It’s this idea that for six years you plant grain, you plant your crops, you harvest them as you normally would, and then in the seventh year, you don’t plant anything. It’s a time where the land is supposed to get a chance to reset.

And as part of that process, as part of that reset, there’s also remission of debt. So there’s this idea that any debt that you have that you’ve taken on during the six years leading up to the shmita year is released in the seventh year.

It’s unlikely that this debt remission was ever implemented to the letter. But the ideal of this, the ideal of saying that people sometimes will be in debt, that there will be people who are in need, and that ultimately, that can’t be something that continues forever,

I think that that ideal is something to strive for, even if we haven’t figured out how yet. Critics claim that debt remission might be an invitation to get recklessly into debt. But financial experts disagree. So the moral hazard argument is the one that is always advanced.

If we give an inch, borrowers would take a mile. Irresponsible behavior will proliferate. And yet when we examine the facts, we see that that’s not the case. Bankruptcy is a miserable experience in the best of circumstances, for the average individual borrower. It’s not something they go into lightly.

And, in fact, when we examine bankruptcy, it relates to just two or three key things most of the time: unexpected health emergency, unexpected job loss, and divorce. If those are the things that constitute almost all bankruptcies, that’s not evidence that there’s folks out there purposely (saying)

‘Listen, I’ll lose my job or I’ll have a health care emergency in order to get out of my debt.’ It just doesn’t happen. Debt cuts for individuals are often advisable out of compassion. But they also make sense for the general public. We’re back in Duisburg, the stronghold of debt.

One of those who’s undergone personal bankruptcy is Frank Wendler. The pop singer and failed gas retailer was overwhelmed by a mountain of debt. Eventually, he contacted debt counsellor Adam Carfora, who helped him file for personal bankruptcy. After three years, Frank Wendler will be debt-free.

He’s found a new rewarding job as an ambulance driver. And in his private life, too, things have taken a turn for the better. But even if all the debts in the world were written off, how could the endless cycle of over-indebtedness snapping shut every few years be stopped?

Is it possible to imagine a world in which much less debt is incurred? In the African neighborhood in Paris known as Goutte D’Or, they’re looking for an answer. Aita Magassa, who runs an estate agency for homes in Africa, believes in a traditional solution. Her clients, all French citizens of African origin,

Had problems investing in Africa. The banks refused to get involved. “Tontines” are traditional African savings schemes where women join together and pay in a fixed amount at each meeting. Each time, the money collected is distributed to one of the participants, who can spend it as she chooses. Aita Magassa applied the centuries-old system

Of tontines to property purchases. It states that Aita’s clients must pay in ?250 every month. In turn, ?5,000 will be distributed to each of the 20 group members to finance a house or land in Africa. None of her clients has to go into debt for a home.

This is an unbeatable advantage over the usual financing system. We learn that the principle of tontines also works in Europe at Fily Sidibe’s hairdressing salon. Aitia visits the resourceful lady, for whom a bank loan was never an option to finance the shop. These two women show

How our financial system can become more people-friendly. But a world without any debt at all might be illusory. Perhaps it’s not even desirable. Not everyone benefits from our system, and debt has become a trap for many. The world must act — in everybody’s interest.

Because behind all debts are human beings and human destinies.

Experts are sounding the alarm: the world is caught in a debt trap. The global mountain of debt has increased to more than 300 trillion US dollars. To cancel it out, the Earth’s population would have to work for nothing for three years. Is this a cause for concern?

Will private individuals, companies and even entire nations at some point collapse under the weight of this debt mountain? The film looks for the stories behind the debts to discover what can be done to address the problem. In Argentina, for example: Over the past 200 years, the country has faced bankruptcy eight times.

In the United States, people are punished for their poverty. Annita Husband was detained for months in a debtors’ prison in the state of Mississippi. Her fate is just one extreme example from a society in which more and more people in debt find themselves in a hopeless situation and lose their freedom.

But debts per se aren’t a bad thing, insists economist Christoph Trebesch. Particularly when the borrowed capital is used for sensible investments, debts make sense. But there are plenty of negative stories. One standout example of the credit-fueled hubris is the project “The World”, artificial islands off the coast of Dubai that, seen from the air, resemble a map of the world. Luxury properties built on the islands were designed as resorts for the super-rich. But the project ground to a halt in the financial crisis of 2008. Since then, the wind and the sea have blurred the outlines of some of the islands.

The film explores the question: what are the consequences of debts – for both debtors and creditors? And what sort of solutions might be on hand to deal with the gigantic volume of debt taken on by nations, companies and private households?

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