Thursday, August 23, 2018

How "Wealthy" Would We Be If We Stopped Borrowing Trillions Every Year?

These charts reflect a linear system that is wobbling into the first stages of non-linear destabilization.
The widespread presumption is the U.S. is wealthy beyond words, and will remain so as far as the eye can see: wealthy enough to fund trillion-dollar weapons systems, trillion-dollar endless wars, multi-trillion dollar Medicare for all, multi-trillion dollar Universal Basic Income, and so on, in an endless profusion of endless trillions.
Just as a thought experiment, let's ask: how "wealthy" would we be if we stopped borrowing trillions of dollars every year? Or put another way, how "wealthy" would we be if the rest of the world stops buying our trillions in newly issued bonds, mortgages, auto loans, etc.?
The verboten reality is our "wealth" is nothing but a sand castle of debt. Take away more borrowing and the castle melts away. I've gathered a selection of charts that show just how dependent we are on massive debt expansion that continues essentially forever, as any pause in debt expansion will collapse the entire system.
Corporate buybacks have powered rising corporate earnings--and the buybacks are funded by debt. Corporate debt has exploded higher in the past decade, enabling stock buybacks on an unprecedented scale.
Government debt--federal, state and local-- is rising an exponential rates.We're not paying for more government programs with earnings--we're simply borrowing trillions and hoping we can borrow the interest payments that will also rise along with the debt.
Household debt, student loans, auto loans--all are soaring. The corporate sector, government and the household sector--all are living on borrowed money, and relying on magical thinking to mask the inevitable consequences.
Here's debt to GDP. Yes, the economy expanded, but debt expanded much faster. Every additional dollar of GDP now requires multiple dollars of new debt.
The tiny pause in borrowing circa 2008-09 almost collapsed the global financial system. If this is your idea of a stable, sustainable trajectory, what are you high on?
This chart of federal debt is outdated-- federal debt has far exceeded $20 trillion. A trillion here and a trillion there, pretty soon you're talking debt levels that insure a devaluation of the currency or a collapse of the entire-debt-dependent system.
Before we get all giddy about the soaring stock market, let's remember what's been driving it higher--central banks creating trillions out of thin air and using the "free money" to buy stocks and bonds.
Corporations have been gorging on low-cost debt to fund stock buybacks, which push share prices higher, rewarding insiders and the already-wealthy who own the majority of financial assets.
Speaking of insanely destabilizing and unsustainable trajectories--take a look at wealth inequality: the top 1% (actually, the top .5%) have skimmed the vast majority of the past decade's gains, the top 5% have gathered most of the remaining crumbs, the next 15% (between 80% and 95%) have illusory gains solely based on bubble valuations, and the bottom 80% have lost ground.
Anyone who thinks exponentially rising debt and staggering wealth/income inequality are stable and sustainable is taking way too much Ibogaine. Magical thinking doesn't actually change reality or make the unsustainable sustainable.
These charts reflect a linear system that is wobbling into the first stages of non-linear destabilization. What is unsustainable and unstable will destabilize, slowly at first, and then rapidly as all the buffers creating the illusion of stability give way.
Our "wealth" is as illusory as the fantasy that ever-expanding trillions of dollars can be borrowed annually for decades to come, with no consequence.
The system collapses if we trim borrowing, and it collapses if we keep borrowing more every year. There is no middle ground, no Goldilocks state where we can borrow just enough to squeak by. That appears possible in a linear system, but once it shifts into non-linear dynamics, that fantasy will quickly be destroyed.

My new book Money and Work Unchained is now $6.95 for the Kindle ebook and $15 for the print edition.
Read the first section for free in PDF format.

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Eugene R.J. ($5/month), for your monumentally generous pledge to this site -- I am greatly honored by your steadfast support and readership.
Thank you, Howard J. ($5/month), for your splendidly generous pledge to this site -- I am greatly honored by your support and readership.

Terms of Service

All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.

Our Privacy Policy:

Correspondents' email is strictly confidential. This site does not collect digital data from visitors or distribute cookies. Advertisements served by third-party advertising networks such as Adsense and Investing Channel may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative)
If you have other privacy concerns relating to advertisements, please contact advertisers directly. Websites and blog links on the site's blog roll are posted at my discretion.

Our Commission Policy:

Though I earn a small commission on books and gift certificates purchased via links on my site, I receive no fees or compensation for any other non-advertising links or content posted on my site.

  © Blogger templates Newspaper III by 2008

Back to TOP