Friday, January 5, 2018

Debt rears its ugly head, yet again


I've written many, many times about the danger of debt to the US economy as a whole, to businesses, and to consumers.  Now an article in NorthmanTrader highlights the pattern of debt over the past couple of years.  It's a nightmare.

Let’s take a look at the leveraging game over the past 2 years since this is when the most recent rally began. And note in many cases we don’t have full 2017 data yet so I’m using the running 2 year data where I can pull it. The trend is the same: Up, up and away.

Federal debt has increased by $2.1 trillion. Different management, same result and tax cuts will leave a revenue source gap in the long term budget and will add further to the debt.

Corporate debt has increased by over $568B during the same timeframe.

Household debt has increased by $364B.

Revolving debt, you know the one subject to higher rates, is now exceeding $1 trillion, up over $100B in less than 2 years.

Student loans continue to expand unabated, up by another $166B.

And consumer loans on credit cards at commercial banks are up by another $100B since the February 2016 lows alone.

. . .

So you see a solid portion of the GDP growth you are seeing is debt spending related. It’s not as organic as it may seem. US government deficit spending filters its way into GDP as much as consumer debt spending.

How will consumers deal with all these increases in debt? It’s a good question as real disposable income is up only $382 per capita over the same time period.

And personal interest payment obligations keep rising while the personal savings rate keeps dropping.

. . .

... how will consumers sustain their debt driven spending habits as the burdens of ever higher interest payments are not a theoretical construct but a reality already knocking on the door?

The waters are calm, but they mask the real danger of the debt beneath and that is: The math doesn’t work.

There's more at the link, including charts that abundantly illustrate those figures.  Highly recommended reading - the visual impact of graphics, rather than the plain raw numbers, is stunning.

All the good news we're hearing right now about the economy is built upon this house of cards.  If we should be unable to service our debt . . . then everything falls apart.  Debt is like an iceberg.  You can only see about one-eighth of it above the surface, so you assume it's not really all that large.  However, if you take the seven-eighths of it that you can't see into account - the part below the surface - it's a whole new ball game.  That's our economy, right now.  The seven-eighths below the surface is the debt on which everything else is founded.  If that debt goes out of control, everything above the surface goes to hell in a handbasket.

Larry Lambert points out:

... we have a $20 trillion deficit, half of which was accrued under Obama's watch (not all his fault, but a lot of it was). If you've followed this blog long enough, I've said for a long time that the only way that I could see the US dredging itself out of the financial hole it sank into was through oil. The US/Canada have the world's largest proven oil reserves - larger than the Saudis. Some of that oil and gas was difficult to access in the past but technology has provided the solution and we're able to profitably extract it now.

. . .

The sly, corrupt, lying, elite media don't focus on the economic improvements that America saw over the last year, but they are considerable and the booming stock market affirms it to the shame of the RINOs and Democrats, whose interest is in personal profit, corruption and power - not in providing beneficial leadership for America.

Still remains the question of whether or not America will grow its way out of the $20 trillion debt? At this point the answer is unknowable. However, robbing those who work and applying principles of income redistribution to those who do not will not solve any part of the problem (except to help the corrupt remain in power).

Again, more at the link.  If you aren't already reading Larry's blog, he often provides some fascinating inside information about what's happening in trouble zones around the world.  He knows whereof he speaks.

The tax cuts are a good start;  but spending has to be cut, too.  We can't keep on spending at a level not covered by government tax revenues, because if we do, the only way to finance it is to go ever further into debt.  That's what caused our national debt to double under eight years of President Obama.  He's left us with a crippling financial burden.  We dare not make that mistake again.

Peter

7 comments:

deborah harvey said...

how about cutting out foreign aid, which never seems to go where it was meant to go, unless hidden bank accounts for politicians and their cronies was the original intent.
wasn't it 5 Billion to afghanistan last year? where re the hospitals, clinics, infrastructure and schools that should have brought into being?

what about our own people and the unaffordable health care?

McChuck said...

By 2032, each of the following items will individually consume over half of all federal spending (assuming no major policy changes): social security, medicare/medicaid, Obummercare, welfare payments, and interest payments on existing federal debt. That's five halves. That which can not continue, must eventually stop.

The only way we can survive the debt bubble popping is massive inflation or a debt jubilee. Those two 'solutions' both come with their own set of problems, of course.

Anonymous said...

So....hm.....my inner ID is becrying the fact that I didn't get in on that massive increase in the stock market....seeesh what an idiot.....missed out making money again!!!!
But then the Dave Ramsey educated ID quietly says, "go the contrarian way". Yep, that's where I am folks; talking to myself. HEH
Actually, I'm old enough now that I've seen booms and busts enough to realize that what goes up; can go down and most likely will.
So, my strategy is to continue with paying off debt, sequestering savings in easily moveable financial vehicles and investing in food, lead and water.

Steve

Andrew said...

We've known, as a nation, that being an oil exporter or at least self-sustaining on fossil fuels was the way out of more debt, if not the way out of much debt itself. This was known back in the 70s, but due to environmental forces, we did not become 'energy independent' at the time, and it became more apparent the farther we went.

The quadruple whammy of lower taxes, much reduced regulation, new exploration combined with new production on old lands, and new plants (coal, gas, nuclear) will help lower the debt. Now all we have to do is keep the pols from spending the 'savings.'

Anonymous said...

Steve, Dave Ramsey tells people to invest in mutual funds...

SiGraybeard said...

OK, this is going to be insufferably pedantic, but "Debt rears its ugly head, yet again" is saying it wasn't there before.

Debt has always been there for most of the last century, always growing, its "ugly head" always "reared". It's kind of like economic cancer.

Anonymous said...

Cutting out all foreign aid would remove between 1 and 2 percent of the federal budget. And would probably end up creating problems that would cost us more money to solve. I should also note that a lot of that money ends up going to Americans, as it is used to buy food and goods made in America and sent elsewhere.