“…Earlier this year, I wrote a series of articles (synopsis and links here) predicting a debt “train wreck” and eventual liquidation. I dubbed it “The Great Reset”. I estimated we have another year or two before the crisis becomes evident. Now I’m having second thoughts. Recent events tell me the reckoning could be closer than I thought just a few months ago.”
By Lorimer Wilson, editor of munKNEE.com – Your KEY To Making Money!
[This article of edited excerpts* (357 words) from the original article (2499 words) by John Mauldin provides you with a 86% FASTER – and EASIER – read.] Please note: This complete paragraph, and a link back to the original article, must be included in any article re-posting to avoid copyright infringement.]
“…We are told not to worry about absolute debt levels so long as the economy is growing in line with them…[which] makes sense. A country with a larger GDP can carry more debt but that is increasingly not what is happening. Let me give you two data points.
- …debt is losing its ability to stimulate growth. In 2017, one dollar of non-financial debt generated only 40 cents of GDP in the U.S.. It’s even less elsewhere. This is down from more than four dollars of growth for each dollar of debt 50 years ago.
- China’s debt productivity dropped 42.9% between 2007 and 2017. That was the worst among major economies, but others lost ground, too.
Now, if you are used to using debt to stimulate growth, and debt loses its capacity to do so, what happens next? You guessed it: The brilliant powers-that-be add even more debt. This is classic addiction behavior. You have to keep raising the dose to get the same high, but centuries of history show that every prior debt run-up eventually took its toll on the economy. There is always a Day of Reckoning…
In the last year, the world’s largest economies were generating debt 10X faster than economic growth. Adding debt at that pace, if it continues, will boost the debt-to-GDP ratio at an alarming rate…I am trying to imagine a scenario where this ends in something less than chaos and crisis but the best I can conceive is a decade-long (and possibly more) stagnation while the debt gets liquidated but, realistically, that won’t happen because debtors won’t let it – and they outnumber lenders.
For this reason, something like “the Great Reset” will happen first. The rational course would be to delay the inevitable as long as possible yet, in the U.S., we’re rushing it.”
(*The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.)
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