The news that the US national debt is now $ 16 trillion and rising and that the UK total national debt is over £ 1 trillion are not easy pieces of financial information to digest.
The impact these numbers have on most of us is little or no different to the impact if these governments were to declare that the numbers were twice as large. There's simply a point at which most of us just throw our hands up in the air and say it's a big number.
These big numbers are, unfortunately, not going to get smaller any time soon. (Visit the links listed below and see for yourself the scary real time rate at which the national debt for the US and the UK continues to rise *). Many are skeptical about the ability of politicians to bring these massive debt burdens under control in the foreseeable future. I, reluctantly, share that skepticism: most politicians are in the business of getting re-elected and, therefore, conflicted.
There's another set of people that has had problems managing big numbers: they work in the banking sector. The ability of banks to lend money to businesses depends on the amount of their capital. The more capital banks have the more capacity they have to lend to you and me. Since 2007, however, the losses incurred by financial institutions worldwide are about $ 2 trillion; another big number.
But was not the banking system saved in Europe and the US with tax Pounds, tax Euros and tax Dollars? This is true; the problem is that the banking system was only saved. Banks only survived collapse as a result of government intervention. Taxpayers' money only preverted banks from going bankrupt. The taxpayers' money handed over to banks was never going to be an immediate pass through to businesses that needed the cash just as badly as the banks.
The bottom line is that many banks have been unable to grow their lending activities back to previous levels due to a lack of capital. Total worldwide loans by banks to non-banks stand at $ 6.4 trillion at the end of 2007. At the end of March 2012 that number stands at $ 6.7 trillion.
The numbers, however, paint a different picture when looked at by country.
The UK accounted for $ 2.0 trillion of that $ 6.4 trillion total in 2007. By the end of 2009 that $ 2.0 trillion lending by the UK had dropped to $ 1.5 trillion. The most recent data published disclosures that UK lending to the non-bank sector (ie to businesses) is $ 1.8 trillion of the $ 6.7 trillion total for March 2012. We can conclude that despite UK lending has since recovered the low level of 2009, the absolute level of lending is still lower than that during 2007.
Unlike the UK, there was no dramatic fall in the level of lending by the US banks to businesses: the US was $ 0.6 trillion of the total $ 6.4 trillion in 2007. By end 2009, that number had risen to $ 0.7 billion and to $ 0.9 trillion by the end of 2011. By the end of the first quarter for 2012, a slight declination in US lending is noted. (Source: Bank for International Settlements Quarterly Review, Sept 2012).
What does this all mean to businesses hungry for finance to support their growth plans? The unhappy truth is that they will continue to fight hard to get finance and, for those that succeed, pay more for it. This, unfortunately, looks likely to be the case for some years to come.