American Consequences - December 2017


Financial follies and disaster in the making

great. That’s because when credit growth far exceeds savings, it allows an economy to consume far more than it’s producing. This “pulls forward” consumption, magnifies economic growth, and increases spending and usually wages, too. It’s a boom! But by 1998, so much consumption had been pulled forward that not enough global aggregate demand was left. Eventually, these problems caused the tech and telecom bubbles to burst, and the U.S. saw a severe bear market. Tech stocks fell about 80% from their peak. We’re heading full steam into the biggest credit-default cycle in our nation’s history. We’re about to see a similar burst. Since 2009, U.S. government debt has again more than doubled on a rolling 10-year basis. By the end of this year, total federal debt per person in America will reach $62,000... That’s nearly $250,000 for a family of four.

Waiting for the bubble to burst...

Many obvious signs point to a gigantic financial bubble today. The prices of cryptocurrencies are soaring... Stocks are trading at record levels... Corporate bonds are paying record-low yields... And consumer debt is at a new all-time high, less than 10 years after the biggest consumer- lending collapse in 50 years. So what’s powering this bubble? Major governments around the world have gone mad with debt. For a period of almost 20 years – between 1979 and 1998 – the 10-year average growth rate in U.S. federal debt was more than 100%. That first big “spurt” of U.S. debt growth peaked in 1991, with a 10-year debt increase of 228%. Total federal debt per person in the U.S. grew from $3,700 to $20,000 by 1998. The period between the early 1980s and the 1990s was generally fantastic for the stock market and for investors. At the beginning of a massive credit boom, everything seems

14 | December 2017

Made with FlippingBook - Online catalogs