In 1989, New York real estate investor, a man called Seymour Durst spent $120,000 to erect a “National Debt Clock” in Times Square to track the exact amount of money that the U.S. federal government was borrowing to pay its bills. At the time, the country had run up a $2.7 trillion tab, but that figure seems almost quaint today.
“Howstuffworks”
In 2008, the clock briefly ran out of available digits when the US National debt topped $10 trillion … about 5% of the global total debt at this time which was around $110 trillion. And it was in 2008 that the collapse of Lehman Brothers happened.
“Howstuffworks”
The company, with $639 billion in assets and $ 619 billion in debt and 25,000 employees worldwide, had filed for the largest bankruptcy in history, throwing the entire financial world into turmoil. It happened on September 15, 2008. Within a week, Merryll Lynch sold itself to Bank of America for $ 50 billion and the Federal Reserve had to provide emergency bailout funding of $ 85 billion to the insurance giant AIG, which had trillions of dollars in mortgages worldwide, to avoid a collapse of the global banking system. Worse, Goldman Sachs and Morgan Stanley, two of Wall Street’s largest investment banks, followed suit, seeking the FED’s protection to turn into commercial banks. As the contagion spread, panicky investors withdrew a record $ 144.5 billion in a single day on September 17, 2008, as against only $7 billion during a typical week. On September 26, the Washington Mutual Bank went bust and three days later, the US Stock Market crashed …. The Debt domino effect with potentially pandemic proportions was playing out… That’s an old story, anyway.
What’s the story today?
By June 2021, the upgraded clock for US Debt — which can now display up to a quadrillion dollars — has registered more than $28 trillion [source: US Debt Clock]. This is 10% the global Debt in 2020 : $281 trillion.
“Howstuffworks””
Now, a man with sober (and common) sense is bound to look at facts and ask himself some somber questions:
It took 2 decades from 1989 to 2008 for US Debt to quintuplicate itself (i.e. grow 5X) but it has taken only a decade for it to nearly further triple itself since 2008! In the same timeline, more or less, the total debt of the rest of the world grew only from about $100 trillion to c. $188 trillion in 2018… less than 2X.
By 2020, the global debt, thanks to the profligate but compelling Corona pandemic “distress funding” , again largely thanks to the USA , stands at a humongous $ 281 trillion!
The long and short of it all is that it is the USA which is merrily adding to the global pile of Debt much more significantly and and a great deal faster than the rest of the world combined… while the latter simply looks on helplessly ! The world is being mired more and more in US Debt while being duped into believing that what gets reflected as Debt on the US Balance Sheet in turn however gets reflected as “semi-precious” Assets on the World’s balance-sheet! And therefore, US debt that is really good for the USA is indeed even better for the rest of the world!
As everyone with common sense knows there is direct correlation between the size of Debt and imminence of Risk of Default … and also that greater the size of default the more catastrophic are its consequences… for entire capital markets, financial systems and networks of the world. So, then should not one be fearing that the rest of the world, thanks to the unbridled debt-growth of the US, must expect to witness another Lehman Brothers happening sooner or later in a post Covid world?
A man of sobriety is likely to be asked then to look at the robust exuberance of all the global stock markets today and be told this: “what is there to fear? The credit-default spread rates and the VIX volatility rates are all within acceptable range, after all … it doesn’t quite look like God is not in his Heavens and all is not well on earth! Stop worrying too much”!
A man of sobriety might also be given a stern lecture about how the profile of the holders of U.S. debt today is vastly different from those creditors that held US Debt back in 2008.
For e.g. the USA doesn’t really owe that entire $28 trillion national debt outstanding to its creditors, which include individuals, businesses and foreign governments who purchased U.S. Treasury bonds and securities. More than 20 percent of the national debt, or $6.2 trillion, is incurred for intragovernmental holdings, which are funds the U.S. government owes itself, mainly for the Social Security and Medicare trust funds [sources: Amadeo, U.S. Treasury]. And there is Zero risk of the US government ever defaulting on its own debt since the US Fed can always simply print greenback notes to extinguish it.
“Howstuffworks”
But then the man of sobriety will of course persist in worrying about a possible, if not probable “Lehman Brothers” event lurking and looming somewhere … not in the dark, deep and murky woods of corporate capital markets in some corner or Wall Street corners of the world… but somewhere in real-world sovereign countries out there on the high seas under the bright blue skies of the heavens? That fear cannot be simply dismissed as ridiculous.
Take a look at who today are the prime owners of the US Debt of $ 22 trillion:
Creditor Name U.S. Debt Owned US $ Bn
India 211 Cayman Islands 217 Hong Kong 223 Taiwan 234 Belgium 234.8 Brazil. 255. 3 Switzerland 261 Luxembourg 291 Ireland 307 United Kingdom 431.8 China 1.1 trillion Japan 1.2 trillion
For the entire list of the “Sugar Daddys” of US Debt see this link https://ticdata.treasury.gov/Publish/mfh.txt
A Lehman Brothers like event, happening in any imaginable form or shape or avatar, in any of the above listed countries at any time in a fragile and uncertain Post-Covid world, will almost certainly send them rushing in panic to call up a substantial if not significant portion of their holdings of US Debt to save themselves and their souls.. And that event if it happens can snowball into a perfect financial storm that could potentially make the 2008 crisis seem like a storm in a teacup.
In the current tense and parlous state of relations between USA and China , the real hotspots are Hong Kong and Taiwan both of which China claims are its own sovereign territory. The US, UK and EU reject that claim. Considerations of global Realpolitik might cajole both parties in the short term to keep saying nice sweet things to each other about the matter … and how it ought to be constructively “negotiated across the table”.
But the world knows only too well that in the long term there is really no room for negotiation at all on the very crux of the matter for either parties… not definitely in the military sense. Sooner or later , the negotiation will stumble and falter and exhaust itself … And that is when there could be a Lehman Brothers moment … And that is when the rest of the world too might just decide it is high time its own US Debt asset-holdings are called up.
What then might follow will not be really for the economist or politician to contemplate about . It will have to be a historian to do so. And as for me, I, a sober man, can imagine that he/she might then view it as the perfect beginning of a great new chapter to be written for a new epoch unfolding in the history of the 21st century world.
Sudarshan Madabushi
PS: In 2008 I was serving in Cairo a multinational shipping & logistics company as their CFO. I led a project finance team of professionals to raise multilateral non-recourse debt funding for a $650 million project for construction of a greenfield deep-draft modern container terminal port at Port Damietta —- on the Mediterranean coast between Alexandria and Port Said. We had worked for 2 years to secure that funding from 13 banks in the GCC and MENA region.
In early 2008 we did the financial close and the port construction began … I got my bonus too … we were all happy!
Then in September that year Lehman Brothers went belly up … and the world financial and banking sector sank …
I got a letter from the Lead Lenders in November that the consortium of lenders for the project will have to completely review and revise the terms of lending. We were shocked. My BoD and Shareholders were livid.
The $650 MN port project was no longer financially viable. I tendered my resignation as CFO and returned to India in 2009. (before I took up another international assignment later) .
So, my memories of the 2008 financial crisis are vivid and personal too.



