We Are In The Biggest Debt Bubble In The History Of The World
We Americans have enjoyed an incredibly wonderful standard of living over the past three decades with most of us believing that it was because we are the world’s wealthiest, most prosperous nation with economic and financial systems that are second to none – but that is not even close to accurate. [The truth of the matter is that] we are [actually] in the biggest debt bubble the world has ever seen! It has been the greatest party in the history of the world, but it is time to turn out the lights because the party is over. [Let me explain.] Words: 1518
So says theeconomiccollapseblog.com in an article* which Lorimer Wilson, editor of www.munKNEE.com, has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. (Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.) The article goes on to say:
The reason why we have had an almost unbelievably high standard of living over the past three decades is because we have piled up the biggest mountains of debt in the history of the world. Once upon a time the United States was the wealthiest country on the planet, but all of that prosperity was not good enough for us… we started borrowing and borrowing and borrowing and we have now been living beyond our means for so long that we consider it to be completely normal. [Nothing could be further from the truth!]
We have been robbing future generations blind for so long that it doesn’t even seem to bother most people anymore. We have become accustomed to living in debt. We go into massive amounts of debt to get an education, we go into massive amounts of debt to buy a home, we go into massive amounts of debt to buy our cars, and we even pile up debt to buy holiday gifts and to purchase groceries.
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The chart below shows the total credit market debt owed in the United States, i.e. what everyone owes (government, businesses and consumers). 30 years ago, total credit market debt owed was less than 5 trillion dollars. Today, it is over 50 trillion dollars. Total credit market debt is now at a level equivalent to about 360 percent of GDP. This is what has been fueling the great era of ”economic prosperity” that we have been experiencing….
How Can We Correct the Debt Problem?
The truth is that there is not an easy answer under our current system. The only way that the U.S. economy continues to “grow” is if the debt bubble continues to “expand”. If our leaders allowed the debt bubble to “pop” and the U.S. economy went into a deleveraging cycle, it would mean that we would start living far below our means for an extended period of time and it would spawn a deflationary depression that would make the Great Depression look like a Sunday picnic. Most Americans are in no mood to take that kind of hard medicine.
Do you really think that the American people are going to vote in politicians who tell them that it is time to live below our means and that we are going to have to experience a standard of living far below what our parents experienced in order to pay for all the debt that they racked up? No, that is clearly a dog that isn’t going to hunt. The American people want to hear that better times are ahead.
Should We Crank the Debt Spiral Back Up?
One way to give the American people “better times”, for the short-term at least, is to crank the debt spiral back up. By introducing another huge flood of paper money into the economy, the Federal Reserve and the U.S. government are hoping that banks will start lending again and that U.S. consumers will start going into more debt again. Already, as you can see from the chart below, U.S. household debt has started to sink just a little bit. Considering the fact that approximately 70 percent of our GDP is generated by U.S. consumer spending, however, that is not good news for “economic growth” statistics.
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Why Are Americans in Debt?
Three decades of “economic expansion” have been fueled by consumer debt that has spiralled completely out of control. Over the past 30 years, total U.S. household debt has gone from less than 2 trillion dollars to almost 14 trillion dollars….
1. Housing: Americans have gone into insane amounts of debt that they could not afford to “own” a house. The truth is that only the top 5 percent of all U.S. households have earned enough additional income to match the rise in housing costs since 1975.
2. Education: Americans are going into staggering amounts of debt in order to pay for their educations. Total student loan debt in the United States is… at an all-time record of more than $849 billion on student loans, which is actually more than the total amount that Americans owe on their credit cards.
The truth is that American families are stretched thinner financially than they ever have been in the post-World War 2 era. According to a poll taken last year, 61 percent of Americans ”always or usually” live paycheck to paycheck. That was up significantly from 49 percent in 2008 and 43 percent in 2007. Many Americans have come to the absolute breaking point. 1.41 million Americans filed for personal bankruptcy in 2009 – a 32 percent increase over 2008. [For more on the plight of the average American please read this article: http://www.munknee.com/2011/02/americans-are-hurting-and-its-going-to-get-worse-much-worse-heres-why/]
Can We Expect More of the Same?
With approximately 70 percent of our GDP generated by U.S. consumer spending there won’t be more economic growth without more consumer spending. [As such,] Obama and the Federal Reserve are not encouraging Americans to get out of debt and to save money but, instead, they are trying to get the American people to spend even more money and to go into even more debt because they desperately need positive “economic growth” figures [Read an excellent article on this here.].
The worst offender of all when it comes to debt, of course, is the U.S. federal government. Over the last 30 years, the U.S. national debt has gone from about 1 trillion dollars to almost 14 trillion dollars – the largest single debt in the history of the world - and will climb to an estimated $19.6 trillion by 2015.
The U.S. is Bankrupt![In a recent article (and here),] Boston University economics professor Laurence J. Kotlikoff has analyzed the financial condition of the U.S. government, and has summarized the horror we are facing by making the following statement: “Let’s get real. The U.S. is bankrupt” concluding that the U.S. government is now facing a “fiscal gap” of $202 trillion dollars.
We have made promises to future generations that we cannot possibly even come close to keeping. Social Security and Medicare are fiscal nightmares that are far more immense than anything that U.S. government has ever faced before. According to an official U.S. government report, rapidly growing interest costs on the U.S. national debt together with spending on major entitlement programs such as Social Security and Medicare will absorb approximately 92 cents of every dollar of federal revenue by the year 2019 – before a single penny is spent on anything else – and that is just 9 years away!
When people speak of the financial situation of the U.S. government being “unsustainable”, they aren’t kidding around. The truth is that the U.S. government has been running gigantic Ponzi schemes which are about to collapse. Take the Social Security shell game for example. Back in 1950, each retiree’s Social Security benefit was paid for by approximately 16 workers. Today, each retiree’s Social Security benefit is paid for by approximately 3.3 workers. By 2025, it is projected that there will be approximately two workers for each retiree…
Sadly, Professor Kotlikoff is not exaggerating in the least when he proclaims that the U.S. government is bankrupt. At our current pace, the Congressional Budget Office is projecting that U.S. government public debt will hit 716 percent of GDP by the year 2080. Public debt at a level of 100 percent of GDP is supposed to be an absolute nightmare scenario. [Read this article for John Mauldin's review of Reinhart and Rogoff's analysis of the affect of such high debt levels.] Needless to say, the whole thing is going to come crashing down long, long before we ever get to 2080.
We have been living far, far beyond our means for decades – it has been the greatest party in the history of the world - but it is time to turn out the lights because the party is over.
For more articles detailing the country’s hangover please read the following articles:
- 1) http://www.munknee.com/2010/02/setting-the-stage-for-spiralling-inflation/
- 2) http://www.munknee.com/2010/09/is-the-united-states-bankrupt/
- 3) http://www.munknee.com/2010/11/remedies-to-fiscal-gap-guarantee-hyperinflation/
- 4. http://www.munknee.com/2011/04/a-financial-crisis-in-2012-is-inevitable-here%e2%80%99s-why/
- 5. http://www.munknee.com/2011/03/weiss-a-financial-apocalypse-awaits-america/
- 6. http://www.munknee.com/2010/08/conseqences-of-countrys-debt-complacency-could-be-catastrophic/
- 7. http://www.munknee.com/2011/01/washington-faces-possible-armageddon-unlike-any-since-civil-war/
- 8. http://www.munknee.com/2010/09/u-s-between-a-rock-and-a-hard-place-and-its-options-are-at-best-dire/
- 9. http://www.munknee.com/2011/04/hyperinflation-to-occur-in-u-s-as-early-as-2013-here%e2%80%99s-why/
- 10. http://www.munknee.com/2011/01/will-this-be-the-usa-in-2012/
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.
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