The Daily Reckoning, June 30, 2017
“In this world nothing can be said to be certain, except death and taxes.” And debt.
A recent Experian study of its 220 million consumer files showed that 73% of consumers who died last year had debts which averaged nearly $62,000. In addition to the kind of debt that apparently always stays with you — credit cards and car loans — it also happened that 37% of the newly deceased had unpaid mortgages and 6% still had student loans with an average unpaid balance of $25,391!
The essence of debt in the present era is that it is perpetually increased and rolled-over. It’s never reduced and paid-off.
Washington politicians and Wall Street gamblers would have it no other way because their entire modus operandi is based not just on ever more debt, but more importantly, on ever higher leverage.
Over the last four decades rising leverage has been insinuated into every nook and cranny of the U.S. Economy. Nominal GDP grew by 6X from $3 trillion to $18 trillion, whereas total credit outstanding soared by 13X from $5 trillion to $64 trillion.
Consequently, the national leverage ratio rose from 1.5X in 1980 to 3.5X today.
There’s no doubt that the modus operandi of the American economy has been transformed. The 1.5X ratio of total debt-to-income (GDP) had been a constant for 100 years — except for a couple of unusual years during the Great Depression.
By contrast, today’s 3.5X debt-to-income ratio has two clear implications.
- First, the nation effectively performed a leveraged buyout (LBO) on itself during the last forty years. And that did temporarily add to the appearance of prosperity.
- But it also means that the U.S. economy is now lugging two turns of extra debt compared to the historic norm.
The U.S. economy is lugging $35 trillion of extra debt. In the absence of the 40-year leverage aberration since the late 1970s, there would be about $29 trillion of credit market debt (public and private) outstanding, not the actual $64 trillion.
Make no mistake, $35 trillion of extra debt make a very practical and very large difference.
America’s 40-year LBO didn’t create permanent incremental growth. It just stole it from the future.
Today’s added leverage and the incremental spending it currently finances eventually become tomorrow’s higher debt service cost and reduced spending. The trend level of real GDP growth has been heading south since the early 1970s. And during the last 10 years it’s averaged only 1.2% annually, or just one-third of the 3.8% average recorded during the American heyday (1953-1971).
This stunning deterioration occurred precisely as the national LBO hit full stride, rising from the historic 1.5X to the current 3.5X.
Ultimately, all this debt and financial suppression is the enemy of investment and productivity. It encourages massive financial engineering in the form of stock buybacks and merger and acquisition (M&A) deals. This diverts economic resources from productive investment on main street to leveraged speculation in existing financial assets on Wall Street.
The retail sector, for example, was the site of massive borrowings to fund share buybacks and LBOs. The retail sector will see upwards of 30,000 store closures over 2016-2018 alone.
We’ve also seen massive debt envelop the auto sector, which is nearly $3 trillion. This is a sector that is ready to implode any day now.
The sum of business sector debt stood at $8.7 trillion on the eve of the great financial crisis. It now stands at $13.2 trillion. And that $4.5 trillion gain was not pumped into productive investments on main street.
The overwhelming share of households have no savings or remaining debt capacity.
There is not a snowballs chance in the hot place the system will be reformed any time soon because 73% of the population go into their “final expenses” with $62,000 of debt.
Здешние политиканы, «эксперты», подконтрольные ЦРУ СМ»И» нахваливают псевдодемократическую, якобы процветающую Америку.
Те, кто любит «наших американских (государственных) партнеров», «забывают» о грязных, злых уродах США. О таких монстрах, как коварный и крайне опасный мошенник, расист, лжец, неофашист и убийца Дональд Трамп. И о таких, как порочный Конгресс, кровавые милитаристы США, нацистские ФБР — ЦРУ, лживые американские СМ”И”…
Арнольд Локшин, политэмигрант из США