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. Tailed

debt

collectors have been around for 30 years. The company's heyday came during the 2008 financial

crisis

, when thousands of Spaniards went bankrupt. In the worst cases,

debt

ors confront each other in the street. Today the entire

world

is in the same situation as the Spanish who cannot pay. Individuals, companies and entire countries have been fighting against constantly increasing debt for more than 15 years. The problem has been seriously exacerbated by the coronavirus 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. It is a colossal number with 14 zeros. To pay off this debt, everyone in the world would have to work for three and a half years without receiving pay. To find out what's happening in the world, we decided to explore the stories behind

global

debt. We want to know what's happening outside the headlines. We visit people in debt and learn about the dramatic impact it has on their lives. And we go to countries with enormous levels of national debt. We want to find out how the lives of ordinary people are affected.

Is the situation desperate? Or is there a way to get out of the debt trap? After the 2008 financial

crisis

, many states fell into debt. At that time, after a phase of unbridled lending in the United States, a real estate bubble burst. Major banks failed and the stock market crashed. The US government had to take on staggering debts to save the economy. The US debt crisis set off a

global

chain reaction that still resonates. To track the long-term impact of the 2008 crisis, we travel to a country where money appears to be no problem. The Emirate of Dubai.

There we meet Sajjad Maroof, a real estate agent who wants to show us something exquisite. A map of the world made up of artificial islands. In 2003, a state corporation began building The World Islands and selling them to investors. They wanted to build palaces like this for the super-rich. Welcome to Sweden Beach Palace, welcome to the home of the Vikings. Only kings can stay here. The palace offers a surprising refuge from outside temperatures exceeding 45 degrees Celsius. Scandinavians have a tradition of taking a sauna to open the pores of the body. So we have a sauna here. We can do it as a dry or steam bath.

Then immediately when the sauna is over, they should take an ice bath. So we have our own snow room. This is how you enjoy the snow. So the idea was this: how to bring the whole world to Dubai. That's Spain, you can see Portugal there and that's France. We try to follow Mr. Maroof's logic, but we find it difficult to distinguish the general lines of European countries. The defined contours have been eroded. Since 2008, the project called “The World” remains inactive. However, there is still one man who wants to continue building on the artificial islands and create a mini Europe.

Josef Kleindienst, an Austrian businessman, ended up here in the Persian Gulf. You can already admire part of his great vision. Welcome to see our Heart of Europe project. First I want to point out the location where we are now. We are here on the roof of the number one Sweden Beach Palace, with views of the island of Germany, 32 beach villas and the pool. And you can see the "Strandkörbe" that is already waiting for tourists. You see here our main island, Europa, which is home to our hotels. Monaco Hotel was our first hotel to open and it is a party hotel: party 24/7.

This is typical of Dubai, the epitome of abundance. A Switzerland under the palm trees that welcomes everyone who wants to bring its wealth to the emirate. Postmodern towers rise 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 with an emergency loan in 2008. The relatively oil-poor emirate was on the

brink

of bankruptcy. The half-finished buildings bear witness to the credit leverage madness of a few years ago.

Instead of luxury real estate, it would have been better to invest in more sensible things, believes sovereign debt expert Christoph Trebesch. When the inevitable crisis hit Dubai's property market, many international investors pulled out. Among them were some who had 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 didn't have the confidence to stay, or maybe they ran out of money or funding, and it wasn't easy in 2008. And then we realized there were possibilities. When 40 other people escape, you have the chance to take over part of their business, for example.

Although “The World” remains stagnant, life is infiltrating it. Recently, another investor began building on the island that represents Argentina. Despite his past as a debtor, Dubai's image has not been tarnished. The emirate was lucky to receive help so quickly. At the southern end of the world lies the undisputed champion of the bankruptcy of our planet. Argentina has been bankrupt nine times. Sometimes international financiers intervened; sometimes no help was received. We can see here what happens when a State has too much debt to meet its obligations to the poorest. The favela called Villa 31 extends under the highway bridges in the center of Buenos Aires.

Thousands of Argentines depend on charitable organizations. 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 a country like this fall so low? Alejandro Bercovich is an economist and radio journalist. He has been studying why Argentina cannot escape the debt trap. The result is ever-increasing deficits. And being so indebted, Argentina cannot always borrow money abroad. But he still has to pay pensions and unemployment benefits, so he uses a trick. Argentina simply prints large quantities of its own currency, the peso. As we can see here, there is a money supply that can be used to purchase goods.

To cover State expenses, more and more money is printed. But the amount of goods remains the same. People can buy more with the new money. Retailers respond to increased demand by raising their prices. Inflation takes hold. Many Argentines cannot afford everyday items. Then people get together to barter. Meetings are organized 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 be exchanged for personal hygiene items and food. It seems that bartering will persist for a long time. In Argentina, there is no end in sight to the price spiral.

Inflation is now a serious problem in the northern hemisphere as well. In wealthy Germany, more and more people are suffering from rising energy and food prices. The proportion of income that low-income people spend on living costs is disproportionately high. That is why the poorest get into debt especially frequently. Duisburg is a city with many over-indebted people in Germany. 16% of its inhabitants are in debt, compared to not even half in Munich. Frank Wendler, a local expert, knows firsthand how bad it is to be hopelessly in debt. For decades, Wendler sold gas cylinders. But the business had its drawbacks.

Destiny took its course. After a tax audit, he owed a large amount of back taxes. Like its citizens, Duisburg is also fighting against the debt trap. Beginning with the crisis in the steel industry in the mid-1980s, things went downhill. And the once prosperous 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 deteriorating railways. Once Duisburg's drastic cuts have been overcome, a Consolidation Pact has been introduced to make the city more attractive to investors. Almost 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 largest inland port in the world. It lies at the end of the Northern Silk Road, a branch of a huge trade network China is creating to connect with the rest of the world. In Duisburg, money is injected into the indebted budget thanks to cooperation with China. But Chinese collaboration is not always so beneficial for its partners. This map shows struggling countries that built infrastructure for the Silk Road by getting huge loans from Chinese banks. China expert Thomas Heberer is aware that loans from China can also have a positive effect. This is how economic growth is created in Africa.

However, China grants loans without assessing whether the beneficiaries can manage the money properly. Heberer finds this problematic. In the United States, where people think big, debts are breaking all records. During the Covid pandemic, the country's obligations skyrocketed. The debt currently stands at more than $33 trillion. This amount continues to increase and has serious consequences for society, says banker Richard Vague. Debt growth increases inequality. The reason is that the richest 10% in most economies, certainly in the United States, own between 60 and 70% of the real estate and stocks in that economy. Increase debt levels, increase real estate value and increase stock value.

Financial expert Sandra Navidi understands the impact of the unequal distribution of wealth in American society. The economically weakest in society are the ones who suffer the most. Mississippi has the highest proportion of poverty in the United States. Known debtors represent 29% of the population, 7 percentage points more than the national average. For Annita Husband, serious debt had drastic repercussions. Years ago, my husband and I were experiencing financial difficulties. I was not working. I was working. I was between paychecks because I started a new job as an office manager. One morning I came to work and my truck was being repossessed.

Another co-worker came in and told me: 'I'm going to tell you what to do.' She said, 'Write a check to John Doe.' For 365. Get the cash and then when you get paid, replace the cash. Okay, so I did that. And, payday comes and of course, you know, I have a million more bills, so I didn't replace 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 paycheck and pay my electric bill with fake checks or fraudulent checks.

In total, Annita embezzled $13,000. Her theft was discovered. She was sentenced to five years of probation and had to pay back the money. She was in a mess because she lost her job. Her husband suffered a stroke and had to stay in bed. Annita periodically reported to a probation officer. In exchange for her services, she 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 the $13,000 restitution. You know, no one is working. Then the probation officer said, 'Well, if you don't have it, that's a violation of your probation, because you have to report and pay.' So, I'm not going to leave my husband basically paralyzed and my three young children at home, so I'm not going to go back.

Annita was arrested and sent to a restitution center. This means a debt prison in Jackson, Mississippi, where prisoners serve time until they have paid off their debts. These debts can be damages to victims of crimes or back court costs. Even for insignificant amounts less than $1,000, people can end up at this renovated motel. But it has nothing to do with vacation accommodation. It's barbed wire, like a prison. When you enter, they look through your things, like in a jail, a prison. They strip search you, like in a prison. And I'll never forget this: They took me there on a Friday.

Mother's Day was a Sunday. So. Allow me a call. I called my son, my oldest son, and the first thing he said to me was 'Happy Mother's Day, Mom!' And that was very heartbreaking, because I won't be there. In addition to the prison conditions at the restitution center, Annita suffered another shock. She was charged $11 a day for food and lodging, which added to her debts. Inmates even had to pay when the facility found them jobs, 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. To makeadditional tasks, he earned valuable bonus points that could be used to reduce his time in custody. But he had a rude awakening. She was, you know, scrubbing vans. She was working in the cafeteria, she was doing everything. I got my merits, so I went to the director and she read my sentence. Now, here I am thinking that all I had to do was get, you know, so many merits and I could go back to my normal life. She said, 'No, you have to stay here until you pay $13,000.' With a part-time hourly wage of $7.25, minus detention costs, Annita's release was a distant prospect.

It became clear that she would have to serve the maximum sentence of five years in Jackson. Mississippi is joined by states such as Iran, Egypt and Afghanistan that also imprison debtors. Nowhere else does being in debt lead to incarceration. We are interested in knowing what kind of people employ debtors, like Annita from the restitution center. Businesswoman K.K. Kent has several decades of experience with these types of temporary workers. When I was 19 I bought my first rental properties and many of them had to be excavated, remodeled. And it was difficult to find labor, especially labor that was sober.

So the restitution center opened here in Greenwood when I was 19 years old. And I used to go get labor to help me do all my daily operations: handle my cattle, cows, horses, load hay, unload hay, load feed, unload feed. Just things you have to do every day when you're on a farm. But the staff he hires at the restitution center cause him problems. I may go through four or five before I find one that I am compatible with and can work with. Because many of them think they have the right. And as soon as you pick them up, they start asking: Can I use your phone?

Can you stop by the store and buy me a drink? Will you buy me some cigarettes? And there were some that I picked up and I hadn't even driven half a mile, but their behavior... I didn't approve of it and I turned around and took them back and sent them back and I got two more. Some appreciate it very much. Some are grateful. Grateful for everything you do for them. You know, some of them have told me, you know, if I had a mother like you growing up, you know, my life would have been totally different.

I'm not trying to cure them. I'm just telling them, you know, you need to pray for yourself. You need to discover your own self-discipline and do something for 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 lost 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 paid part-time job. I told her: Annita, you need a plan. You know, you need a plan. I just took a chance and ran.

But the challenges were enormous. They only allowed him to leave to go to work. She was searched strictly twice a day. And she only received $10 a week for personal use. She gave us a wad of quarters, you couldn't have dollars. So, every morning she wore her hair in a ponytail. She would put the roll of coins in her hair, because you know, in between her ponytail. She would leave me with a wad of quarters. Come back, I'd trade quarters for dollars. She would throw away the dollars or two fivers and put them in my hair, because I can get change at work.

I washed my clothes by hand, you know, things that I would take ten dollars for, you know, I would do without. So I saved enough for a bus ticket. This particular day I was planning to leave, I was wearing my Church's uniform, but I had a pair of blue jeans and a shirt under my Church's Chicken uniform. So I asked a friend to take me to the bus station, I got on the bus and came to Biloxi. Finally, 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 has nothing good to say about the restitution center system. My debt was pretty big, but there have been people who went to the restitution center with maybe $2,000 in debt, and three years later they're still in the restitution center. You say, well, someday I'm going to come home and, you know, be with my family, but you don't know when. I felt that the restitution centers should be eliminated. It is simply a covert form of slavery. Systemic discrimination of black people after slavery continues to this day. It is not only the abandoned cemeteries of freed slaves – like this one in New Jersey – that bear witness to this.

More than a quarter of blacks cannot get any loans, compared to just 17% of whites. And in black neighborhoods, debt collectors pursue debtors especially frequently and harshly. Court cases are more frequent than for whites. The differences in the United States not only refer to skin color, but also to generations. In the mostly white middle class, 20-somethings complain that tuition rates are higher than ever. The cost of student loans in the United States is rising sharply. In 2006, American students owed half a trillion dollars in student loan debt. This figure has since increased to $1.7 trillion. If the government taxes people, it means those people can 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. People who pay taxes spend less. The government spends the same. The GDP contracts. Therefore, taxes when debt is paid off actually shrink GDP and create the opposite effect to what is desired. But how about we start with public spending? Couldn't states save like crazy until their debts disappear? Much of what seems like a solution can actually be harmful. If so, how can we control the global debt problem? Maybe there are old ideas outside the world of finance?

This brings us to a synagogue in Brooklyn. Sandra Navidi meets Rabbi Emily Cohen. So I guess you could say that debt is nothing new in society. If we go back to some of our earliest texts, we will find this discussion of debt. So, there is a concept called shmita. And what shmita is is a “rest on earth.” It's the idea that for six years you plant grains, you plant your crops, you harvest them as you normally would, and then in the seventh year you don't plant anything. It is a time when the earth is supposed to have a chance to reset.

And as part of that process, as part of that reset, there is also debt forgiveness. So there is the idea that any debt you incurred during the six years prior to the year of shmita is released in the seventh year. It is unlikely that this debt forgiveness was ever implemented to the letter. But the ideal of this, the ideal of saying that people will sometimes be in debt, that there will be people in need, and that ultimately that can't be something that goes on forever, I think that ideal is something to strive for, even if We haven't figured out how yet.

Critics say debt forgiveness could be an invitation to take on reckless debt. But financial experts disagree. So the moral hazard argument is the one that is always used. If we give an inch, the borrowers would accept a mile. Irresponsible behavior will proliferate. And yet, when we examine the facts, we see that that is not the case. Bankruptcy is a miserable experience, at best, for the average individual borrower. It is not something they take lightly. And in fact, when we look at bankruptcy, most of the time it relates to only two or three key things: an unexpected health emergency, an unexpected job loss, and a divorce.

If those are the things that make up almost all bankruptcies, that's not evidence that there are people out there deliberately (saying), 'Listen, I'm going to lose my job or have a health care emergency so I can get out of debt.' 'It just doesn't happen. Debt cuts for individuals are often compassionately advisable. But they also make sense to the general public. We are back in Duisburg, the bastion of debt. One of those who has suffered a personal bankruptcy is Frank Wendler. The bankrupt pop singer and gasoline retailer was overwhelmed by a mountain of debt. Eventually, he contacted debt counselor Adam Carfora, who helped him file for personal bankruptcy.

After three years, Frank Wendler will be debt-free. He has found a rewarding new job as an ambulance driver. And in his private life things have also improved. But even if all the world's debts were cancelled, how could the endless cycle of debt overhang that closes every few years be stopped? Is it possible to imagine a world in which much less debt is incurred? In the African neighborhood of Paris known as Goutte D'Or, they search for an answer. Aita Magassa, who runs a housing real estate agency 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 plans in which women join and pay a fixed amount at each meeting. Each time, the money raised is distributed among one of the participants, who can spend it however they want. Aita Magassa applied the centuries-old tontinas system to the purchase of properties. She says Aita's clients must pay 250 euros each month. In turn, 5,000 euros will be distributed to each of the 20 members of the group to finance a house or land in Africa. None of their clients have to go into debt to buy a home. This is an unbeatable advantage over the usual financing system.

We found out that the tontines principle also works in Europe at Fily Sidibe's hair salon. Aitia visits the resourceful lady, for whom a bank loan was never an option to finance the store. These two women show how our financial system can become more people-friendly. But a world without any debt could be illusory. Maybe it's not even desirable. Not everyone benefits from our system and debt has become a trap for many. The world must act in the interest of all. Because behind all debts are human beings and human destinies.