Reggie Middleton is an entrepreneurial investor who guides a small team of independent analysts, engineers & developers to usher in the era of peer-to-peer capital markets.
1-212-300-5600
reggie@veritaseum.com
These are thoughts from a few of the BoomBustBlog readers who felt compelled to share their viewpoints:
The Bottom Line
Our world is suffering from a crisis. Our crisis is too much debt. Debt acts like a stimulating drug when times are good. Reasonable amounts of debt are not just good, they are great. Globally though, we have taken too much of this drug. This drug was dispensed at a low cost by banks all over the world. People used this debt to buy things, and to make levered bets on home prices - in record amounts. When the illusion of eternal home price increases dissipated, we were left with a hangover and a financial crisis. However this crisis had at its root one thing - too much debt.
Our politicians are not trying to cure our disease. They are trying to cure our symptoms. They are not dealing with the fundamental issue of too much debt, globally. They are NOT trying to lower debt, allow debt to leave the system, and encourage people to save. Instead, they are trying to keep the debt there, lower the interest payment on the debt temporarily, encourage us to borrow *more* not less, and spend vast amounts of money keeping dead (insolvent) companies on life support. They are encouraging the disease to curb the symptoms short term, and then wondering in amazement why the disease is not going away. If we paper this over and keep this up, we will end up with over $350T in debt by 2027. We will be leaving our kids with so much debt, they cannot possibly do anything but buckle.
I would highly encourage you to give this a read. I believe we are moving in the wrong direction, and think we need to get back to our roots of working hard, being entrepreneurial and innovative, living within our means, with a great system of law and business as our backbone. That is what made us strong - not financial engineering, flipping homes with borrowed money, and speculating. Please do send this around if you are so inclined. I hope to shine some light on the disease that is being hidden from our view by our politicians, and encourage people to move in a direction that will bring our country back to prosperity again.
Below I present a quote, some key points, and a bunch of charts containing data which I believe make a compelling case in support of my view. Please do let me know what you think.
The Key Points
This quote rings true:
"Financial deregulation was based on a misguided belief that the financial system operated like an ordinary market for goods, where the market itself would work out a sensible volume of and price for credit. A proper analysis of how money is created shows instead that a deregulated financial system will pump out as much credit as borrowers can be enticed to take on. In a world in which leveraged speculation on asset prices is possible, that will lead to the economy taking on so much debt that it will ultimately fall into a debt-induced crisis–which is where we are now. Once in this situation, deregulated finance then amplifies the problem by going from supplying too much credit to cutting off the credit tap in a manner that reduces overall economic activity." (source)
These are what I believe to be the key points regarding global debt, which stem from the graphs below:
The Graphs
Debt bubbles in US and Australia (source)
Global
debt bubble - Debt bubbles in Ireland, UK, Switzerland, Netherlands, Belgium,
Portugal, Austria, Denmark, US, Japan, Luxembourg, Italy, Spain, Switzerland (source)
Global
debt bubbles were built on leveraged betting on global housing bubbles (source, source, source, source, source)
Exponential trend in Australian and US Debt,
respectively (source, source)
Where US debt will go to by 2027 if this continues - $350T+ (source)
Australian debt was leveraged speculation on home prices, but other debt forms
caught on too (source)
Debt is growing ever larger even in Australia as a % of income (same is true in
US) (source)
We borrowed ever larger amounts purely to consume via home equity loans and
credit cards (source, source)
Debt servicing burden for Australians are growing (source)
We in the US, as well as Japan, Australia, and the UK are not saving anything,
and this is unprecedented (source, source, source)
Debt growth's contribution to GDP is now too big to even have a period of no
debt growth (source, source)
Debt is clearly growing faster than anything else (source, source)
Reggie Middleton is an entrepreneurial investor who guides a small team of independent analysts, engineers & developers to usher in the era of peer-to-peer capital markets.
1-212-300-5600
reggie@veritaseum.com