The origin of credit dates all the way back to ancient civilizations.
The Sumerians and later the Babylonians both used consumer loans in their societies, primarily for agricultural purposes. The latter civilization even had rules about maximum lending rates engraved in the famous Code of Hammurabi.
But since then, consumer credit — and how we calculate creditworthiness — has gotten increasingly sophisticated. This is so much the case that technology now used in modern credit scoring would seem completely alien to people living just a few decades ago.
Video: Consumer Credit Through the Ages
Today’s motion graphic video is powered by Equifax, and it shows the evolution of consumer credit over the last 5,000 years.
The video highlights how consumer credit has worked both in the past and in the present. It also dives into the technologies that will be shaping the future of credit, including artificial intelligence and the blockchain.
A Brief History of Credit
We previously visualized the 5,000-year history of consumer credit, and how it dramatically changed over many centuries and societies.
What may have started as agricultural loans in Sumer and Babylon eventually became more ingrained in Ancient Roman society. In the year 50 B.C., for example, Cicero documented a transaction that occurred, and wrote “nomina facit, negotium conficit” — or, “he uses credit to complete the purchase”.
Modern consumer credit itself was born in England in 1803, when a group of English tailors came together to swap information on customers that failed to settle their debts. Eventually, extensive credit lists of customers started being compiled, with lending really booming in the 20th century as consumers started buying big ticket items like cars and appliances.
Later, the innovation of credit cards came about, and in the 1980s, modern credit scoring was introduced.
The Present and Future of Credit
The modern numeric credit score came about in 1989, and it uses logistic regression to assess five categories related to a consumer’s creditworthiness: payment history, debt burden, length of credit history, types of credit used, and new credit requests.
However, in the current era of big data and emerging technologies, companies are now finding new ways to advance credit models — and how these change will affect how consumers get credit in the future.
Consumer credit is already changing thanks to new methods such as trended data and alternative data. These both look at the bigger picture beyond traditional scoring, pulling in new data sources and using predictive methods to more accurately encapsulate creditworthiness.
In general, the future of credit will be shaped by five forces:
- Growing amounts of data
- A changing regulatory landscape
- Game-changing technologies
- Focus on identity
- The fintech boom
Through these forces, new credit models will integrate artificial intelligence, neural networks, big data, and more complex statistical methods. In short, credit patterns can be more accurately predicted using mountains of data and new technologies.
Finally, the credit landscape is set to shift in other ways, as well.
Regulatory forces are pushing data to be standardized and controlled directly by consumers, enabling a range of new fintech applications to benefit consumers. Meanwhile, the industry itself will be focusing in on identity to build trust and limit fraud, using technologies such as biometrics and blockchain to prove a borrower’s identity.
The History of Interest Rates Over 670 Years
Interest rates sit near generational lows — is this the new normal, or has it been the trend all along? We show a history of interest rates in this graphic.
The History of Interest Rates Over 670 Years
Today, we live in a low-interest-rate environment, where the cost of borrowing for governments and institutions is lower than the historical average. It is easy to see that interest rates are at generational lows, but did you know that they are also at 670-year lows?
This week’s chart outlines the interest rates attached to loans dating back to the 1350s. Take a look at the diminishing history of the cost of debt—money has never been cheaper for governments to borrow than it is today.
The Birth of an Investing Class
Trade brought many good ideas to Europe, while helping spur the Renaissance and the development of the money economy.
Key European ports and trading nations, such as the Republic of Genoa or the Netherlands during the Renaissance period, help provide a good indication of the cost of borrowing in the early history of interest rates.
The Republic of Genoa: 4-5 year Lending Rate
Genoa became a junior associate of the Spanish Empire, with Genovese bankers financing many of the Spanish crown’s foreign endeavors.
Genovese bankers provided the Spanish royal family with credit and regular income. The Spanish crown also converted unreliable shipments of New World silver into capital for further ventures through bankers in Genoa.
Dutch Perpetual Bonds
A perpetual bond is a bond with no maturity date. Investors can treat this type of bond as an equity, not as debt. Issuers pay a coupon on perpetual bonds forever, and do not have to redeem the principal—much like the dividend from a blue-chip company.
By 1640, there was so much confidence in Holland’s public debt, that it made the refinancing of outstanding debt with a much lower interest rate of 5% possible.
Dutch provincial and municipal borrowers issued three types of debt:
- Promissory notes (Obligatiën): Short-term debt, in the form of bearer bonds, that was readily negotiable
- Redeemable bonds (Losrenten): Paid an annual interest to the holder, whose name appeared in a public-debt ledger until the loan was paid off
- Life annuities (Lijfrenten): Paid interest during the life of the buyer, where death cancels the principal
Unlike other countries where private bankers issued public debt, Holland dealt directly with prospective bondholders. They issued many bonds of small coupons that attracted small savers, like craftsmen and often women.
Rule Britannia: British Consols
In 1752, the British government converted all its outstanding debt into one bond, the Consolidated 3.5% Annuities, in order to reduce the interest rate it paid. Five years later, the annual interest rate on the stock dropped to 3%, adjusting the stock as Consolidated 3% Annuities.
The coupon rate remained at 3% until 1888, when the finance minister converted the Consolidated 3% Annuities, along with Reduced 3% Annuities (1752) and New 3% Annuities (1855), into a new bond─the 2.75% Consolidated Stock. The interest rate was further reduced to 2.5% in 1903.
Interest rates briefly went back up in 1927 when Winston Churchill issued a new government stock, the 4% Consols, as a partial refinancing of WWI war bonds.
American Ascendancy: The U.S. Treasury Notes
The United States Congress passed an act in 1870 authorizing three separate consol issues with redemption privileges after 10, 15, and 30 years. This was the beginning of what became known as Treasury Bills, the modern benchmark for interest rates.
The Great Inflation of the 1970s
In the 1970s, the global stock market was a mess. Over an 18-month period, the market lost 40% of its value. For close to a decade, few people wanted to invest in public markets. Economic growth was weak, resulting in double-digit unemployment rates.
The low interest policies of the Federal Reserve in the early ‘70s encouraged full employment, but also caused high inflation. Under new leadership, the central bank would later reverse its policies, raising interest rates to 20% in an effort to reset capitalism and encourage investment.
Looking Forward: Cheap Money
Since then, interest rates set by government debt have been rapidly declining, while the global economy has rapidly expanded. Further, financial crises have driven interest rates to just above zero in order to spur spending and investment.
It is clear that the arc of lending bends towards ever-decreasing interest rates, but how low can they go?
$69 Trillion of World Debt in One Infographic
What share of government world debt does each country owe? See it all broken down in this stunning visualization.
$69 Trillion of World Debt in One Infographic
Two decades ago, total government debt was estimated to sit at $20 trillion.
Since then, according to the latest figures by the IMF, the number has ballooned to $69.3 trillion with a debt to GDP ratio of 82% — the highest totals in human history.
Which countries owe the most money, and how do these figures compare?
The Regional Breakdown
Let’s start by looking at the continental level, to get an idea of how world debt is divided from a geographical perspective:
|Region||Debt to GDP||Gross Debt (Millions of USD)||% of Total World Debt|
|Asia and Pacific||79.8%||$24,120||34.8%|
In absolute terms, over 90% of global debt is concentrated in North America, Asia Pacific, and Europe — meanwhile, regions like Africa, South America, and other account for less than 10%.
This is not surprising, since advanced economies hold most of the world’s debt (about 75.4%), while emerging or developing economies hold the rest.
World Debt by Country
Now let’s look at individual countries, according to data released by the IMF in October 2019.
It’s worth mentioning that the following numbers are representative of 2018 data, and that for a tiny subset of countries (i.e. Syria) we used the latest available numbers as an estimate.
|Rank||Country||Debt to GDP||Gross Debt ($B)||% of World Total|
|#1||🇺🇸 United States||104.3%||$21,465||31.0%|
|#3||🇨🇳 China, People's Republic of||50.6%||$6,764||9.8%|
|#6||🇬🇧 United Kingdom||86.8%||$2,455||3.5%|
|#13||🇰🇷 Korea, Republic of||37.9%||$652||0.9%|
|#34||Taiwan Province of China||35.1%||$207||0.3%|
|#54||United Arab Emirates||19.1%||$79.1||0.11%|
|#107||Congo, Republic of||87.8%||$10.2||0.01%|
|#108||Trinidad and Tobago||45.1%||$10.2||0.01%|
|#115||Papua New Guinea||35.5%||$8.2||0.01%|
|#119||Congo, Dem. Rep. of the||15.3%||$7.2||0.01%|
|#121||Bosnia and Herzegovina||34.3%||$6.9||0.01%|
|#157||South Sudan, Republic of||42.2%||$1.9||0.00%|
|#160||Antigua and Barbuda||89.5%||$1.4||0.00%|
|#169||Central African Republic||49.9%||$1.1||0.00%|
|#173||Saint Vincent and the Grenadines||74.5%||$0.6||0.00%|
|#174||Saint Kitts and Nevis||60.5%||$0.6||0.00%|
|#178||Hong Kong SAR||0.1%||$0.4||0.00%|
|#180||São Tomé and Príncipe||74.5%||$0.3||0.00%|
|#184||Micronesia, Fed. States of||20.3%||$0.1||0.00%|
In absolute terms, the most indebted nation is the United States, which has a gross debt of $21.5 trillion according to the IMF as of 2018.
If you’re looking for a more precise figure for 2019, the U.S. government’s “Debt to the Penny” dataset puts the amount owing to exactly $23,015,089,744,090.63 as of November 12, 2019.
Of course, the U.S. is also the world’s largest economy in nominal terms, putting the debt to GDP ratio at 104.3%
Other stand outs from the list above include Japan, which has the highest debt to GDP ratio (237.1%), and China , which has increased government debt by almost $2 trillion in just the last two years. Meanwhile, the European economies of Italy and Belgium check the box as other large debtors with ratios topping 100% debt to GDP.
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