“All ants need grasshoppers.” A truth often ignored and which puts into perspective the traditional negative view of debt that takes centre stage when attention should be focused on reforming financing channels.

At a time when public and private debt is exploding and causing concern, when the current budgetary rules inherited from the Maastricht Treaty are beginning to be questioned and when analysts--including journalists--are focusing on the weight and sustainability of debt, Florence Pisani and Anton Brender--economists at the asset management company Candriam--want to set the record straight by highlighting the hidden face of debt: “This rise in debt is the counterpart of the accumulation of financial wealth that is taking place in the various regions of the world. The rise in the weight of debt is the necessary counterpart of the rise in the weight of financial wealth,” they said.

And for the two economists, the fact that we have more money in front of us “should be reassuring”.

The question of guarantees

But beware: Pisani and Brender are not saying that debt is in itself a good. Nor are savings, for that matter. It all depends on how the two are used. The real question to ask is whether debt allows us to make good use of the savings that are generated. And for the two economists, the current use of savings is not optimal and it is necessary to work on the financing channels to remedy this.

Financing channels that transfer the risk--in whole or in part--to states or to certain international financial institutions such as the European Investment Bank make it possible to mop up the current surplus of unproductive savings and to finance essential investments in human and physical infrastructures.

“Debt is a source of risk. And so the mechanisms by which the risks associated with that debt are carried play a key role in the allocation of savings. Why is it easy for households to lend for housing? Because there is a mortgage that reduces the risks borne by the lender.” The problem, as Pisani and Brender point out, is that these savings could be channelled into projects that would have a better return for society, but they are not, because the risk involved is too great.

The solution would be for a state or states collectively to provide guarantees. “Europe has just done something quite extraordinary with Next Generation EU, a collective loan that directs savings towards infrastructure investments and for which all the European states guarantee the successful completion of these operations,” stresses Brender, for whom this type of mechanism could be used in the fight against global warming. “Giving guarantees, or even borrowing ourselves to lend or give to emerging countries so that they can meet their climate commitments would make sense. Especially if we look at the risk we take by not doing so.” Or in development to reduce migratory pressure.

Better allocation of savings

This better allocation of savings would also make it possible to avoid overloading existing financing channels, which are currently concentrated on real estate.

That concentration is facilitated by the existing real guarantees and by the fact that companies do not currently need to borrow to invest. “In the end, the transmission mechanism of monetary policy is currently mainly through household debt. So every time rates fall, central banks cause household debt to rise.”

Pisani and Brender reckon that governments must ease monetary policy by using public debt to prevent savings from always being concentrated in the same place and encouraging a property bubble.

This would make it possible to support the energy transition of states, but also of companies. “The rules of the climate game are far from clear for companies. And so, maybe we need states to take on some of the risk that companies won’t.”

“We don’t want to fall into statism,” the two economists argue. “We are only saying that the state’s mission is to prepare for the future and that today, there are savings available to do so.”

It is up to them to ensure that savers can recover their investment tomorrow.