Illustration: Anand Kumar
A few days back, I came across an interesting graph that would likely alarm a lot of people around the world. It showed that over just the last two years, the US government's interest payments as a percentage of its tax revenue have gone up from about 20 per cent to 36 per cent. We all know that carrying too much debt is a bad thing. Carrying an amount of debt that is comparable to your income is even worse. Carrying an amount of debt whose interest payout alone is a significant part of your income is the absolute worst.
Typing the word 'neither' into Google's search bar prompts the autocomplete feature to suggest the phrase 'Neither a borrower nor a lender be,' a famous line from Shakespeare's Hamlet. As part of a father's counsel to his son, this quote has become one of Shakespeare's most well-known proverbs, and it has an air of essential wisdom that is universally true.
But what is this wisdom? That there should be no debt in the world. That sounds ridiculous to anyone from the perspective of modern finance and investing. Among the ordinary financial dealings that constitute an economy and commercial life, personal and professional, debt singularly bears the weight of moral condemnation throughout history. Frequently deemed sinful and ruinous to individuals and interpersonal ties alike, assumptions of ethical failure persist around indebtedness, even as contemporary systems of business and finance prevail. Of the prevalent economic transactions embedded in routine affairs, borrowing money uniquely provokes enduring moralistic judgments.
And when you are the biggest borrower in the world, and much of the world has been running on a fountain of money that you are operating, then your problem is everyone's problem. I do not have expertise in macroeconomics. However, it is evident that even among supposed experts, some are alarmed by the current economic situation while others are ignoring it. I cannot find anyone who is optimistic.
You may wonder what relevance this has for us here in India since we are focused on domestic investments, our markets are doing well, and our economy is buzzing along very nicely indeed. Conventional wisdom says that it is, in fact, highly relevant. Global economies are deeply interconnected, so economic turmoil in the US sends ripples around the world. Due to its dominance of global financial markets, volatility in America often causes tsunamis elsewhere. There is truth in the saying that when the US sneezes, the world catches a cold. One could add that when the US catches a cold, the rest of the world may get the flu.
Even so, the tightness of money that is being felt around the world may not be such a bad thing. It could be a welcome dose of stress that makes it stronger. It's undeniable that occasional stress is good for the markets, good for your investments and good for business, exactly in the way that the stress of strenuous exercise is actually good for the body. There are many reasons for this.
The garbage gets cleaned out. When money is easy, companies with fundamentally weak businesses can create an illusion of being much stronger than they are. Challenging times often strengthen the strongest. There is a well-worn adage that 'when the going gets tough, the tough get going,' which rings true because of the kernel of truth within. As we witnessed during the pandemic, as well as earlier tight periods, many businesses exemplify this resilience. While all companies suffer, the most robust ones weather the storm with less damage, adapt rapidly, and rebound quickly. Consequently, they emerge even further ahead of competitors. Better-managed enterprises respond to crises more effectively, eventually reaping outsized rewards.
While the prospect of a global economic slowdown is concerning, 'what doesn't kill you makes you stronger.' Economies that can adapt and evolve during global downturns emerge healthier and more resilient - for once, it's good to be living in one.
Also read: Fake money, fake prosperity
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