Saturday , 20 April 2024

Piling On Debt Has Destroyed the “American Dream” – Here’s Why

The American Dream–characterized by plentiful jobs offering living 25-Questions-To-Ask-Anyone-Who-Is-Delusional-Enough-To-Believe-That-This-Economic-Recovery-Is-Real-300x300wages, security and opportunities to get ahead–is over…. Piling on debt is not a solution; it’s simply a politically expedient method to forestall the crisis, while guaranteeing the eventual repricing will be even more severe because the debt load is then so much larger. [If you think otherwise,] I strongly recommend that you reduce your dosage of Delusionol.

World Debt Escalating
Adding more debt to a weakening base of real productivity and income yields diminishing returns. Seven years of strong, widely distributed global growth before the 2008 global financial meltdown required $15 trillion in additional non-financial global debt. Seven years of tepid, fragile expansion since 2008 required $40 trillion in additional debt. That is the definition of diminishing returns:
Piling more debt on a base that isn’t expanding fast enough to support skyrocketing debt leads to a collapse of the feebly supported debt: borrowers default, asset prices crash as buyers vanish and lenders go bankrupt as the assets held as collateral are repriced….but enabling more debt does not reverse supply-demand imbalances or create income out of thin air.
GDP Has Expanded Only Modestly
In the U.S., debt has completely outpaced the expansion of goods, services and income for years: look how debt has soared while GDP has expanded only modestly:
Total Credit Has Skyrocketed
GDP (not adjusted for inflation) is up 282% since 1990, while total credit skyrocketed 444%. The tiny decline in credit in the 2008 global financial meltdown almost destroyed the entire credit-bubble dependent economy:
Wages & Salaries as %GDP Declining
Meanwhile, earned income as a percentage of GDP has been falling for decades. How can an economy support additional debt if earned income is declining as a percentage of economic activity? It can’t.
Here’s another look at wage stagnation:
Conclusion
Does the trendline of federal debt look remotely sustainable to you? [I]f so, I strongly recommend that you reduce your dosage of Delusionol.

The original article was written by Charles Hugh Smith (oftwominds.com) and is presented here by the editorial team of munKNEE.com (Your Key to Making Money!) and the FREE Market Intelligence Report newsletter (see sample hereregister here) in a slightly edited ([ ]) and abridged (…) format to provide a fast and easy read.]

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