been discussing the debt situation in our country for years. We wrote a “special report” discussing the
various forms of debt and explained how the debt is incorporated in “The Cycle
of Deflation” (see attachment) as the debt was hindering many speculators and
investors just before the dot.com bubble was about ready to collapse. We warned that the debt was the main reason
that the valuations were the highest in history and would eventually break the
market. This was exactly what took place
starting in March of 2000 when the stock market crashed and a severe recession
warned our viewers about the problems of excessive debt during the housing
bubble of 2005 to 2008 when Alan Greenspan, the Chairman of the Federal Reserve
at the time, decided to lower interest rates to 1% in June of 2003. This caused the largest housing mania of all
time. Banks were virtually pushing money
to anyone that wanted a loan to buy a house (whether they could afford it or
not.) Back then--they called these loans
“no doc loans”. These were loans that
were made without any documentation whatsoever.
part of this era was that Greenspan warned stock investors about the
“irrational exuberance” that was taking place in the late 1990s as the stock
market rose almost every day. The “irrational exuberance” speech drove the
market down, but that only scared off investors for just a few days and the
stock investors regained the losses almost immediately. After observing the voracity of the market
that could not be held down, Greenspan changed his mind and confessed to being
wrong about his warnings just before the real break took place in early
2000. He also witnessed the housing
bubble, and not only did he support the banks making the loans, but actually
encouraged the banks to continue making these insane loans.
us to the old time phrase, “fool us one time, shame on you, fool us twice shame
on us.” When the current debt bubble
breaks and the stock market collapses we could say, “Fool us 3 times and we
should be banned from trading and investing in the financial markets.” Unless we can understand why the debt caused
the collapse in 1929 (after the roaring 1920’s), in 2000, and 2008, we should
be forced to compare the debt to GDP in all of these times to the present.
If you were
forced to do this you would look at the debt and be shocked at how much the
debt grew over the past two decades. If
you are a Democrat you might compare how much the debt grew under President George
W. Bush and use examples of how much it grew during the eight years of his
administration. You could make comparisons like the debt grew more under George
W. than all past presidents (going back to George Washington). If you are a Republican, you could make the
same comparisons of how much the debt grew under Barack Obama and make the same
comparisons (going back again to George Washington). If you did make these comparisons you would
come close to going out of your mind, because it would have to scare you.
thing is the fact that you would be making the comparisons erroneously since
you would look at the debt doubling under George W. and then doubled again
under Barack Obama, and think we are in real trouble. However, the debt you would be using is
strictly the government debt, and get scared as hell when you see the debt is
now just about equal to the GDP of the greatest country in the world at about
$20 trillion apiece.
If, on the
other hand, you were looking deeper into the debt and could see that the debt
has grown much more than the GDP of our country. In fact, the real debt relative to GDP is
actually about 370% of GDP if you include the government debt, the state and
local debt, student debt, credit market debt, and the loans made to foreign
banks overseas. The 370% of debt
relative to GDP also should include all of the entitlements and other off
balance sheet debt that we include now.
These are obligations that have been guaranteed to most of the people in
this country such as the entitlement promises of Social Security, Medicare,
Medicaid, and government employee pensions.
If you take all of them into consideration the debt to GDP would not be
just 370% but closer to another $40 trillion of debt which would take the total
debt to over 500% of our GDP. If that
doesn’t scare you nothing will!!
President Donald Trump will probably have as much trouble with his other agenda
items as he did with his repeal and replace of healthcare, the market could
have real problems. And when this
enormous debt comes to light, we would expect the market to decline sharply. The only way that the Trump Administration can survive without moving his agenda quickly this year would be to grow the economy close to the rate of 3 to 4 % as he predicted. But it is very hard to grow nearly that fast with these demographics, retiring baby boomers, fewer immigrants--it is impossible to get corporations to make capital expenditures and productivity to increase without being able to increase the labor force. This is why they are in such a bind!