Excessive debt isn’t quite an extinction event but it’s still a giant problem

 I’ve long been predicting a global debt crisis that will lead to a giant, worldwide restructuring. I call this the Great Reset. This crisis isn’t just inevitable; it is necessary. It’s what will allow us to do the unthinkable.

Here’s a chart I shared a few months ago in Deficits Forever. Using CBO data and some realistic (or even conservative) assumptions, we estimated federal debt will easily surpass $50 trillion in the early 2030s. The latest deal does nothing to help. 

And if interest rates don't come back down that total debt number will be higher. It won't be long before we will be paying $1 trillion just in interest every year. Ugh.

This is just the government debt. According to US Debt Clock, Americans have another $25 trillion in personal debt (mortgages, car loans, credit cards, etc). Not to mention untold trillions in debt issued by large and small businesses. We are living on borrowed money.

You can do the same exercise for almost every developed country and for many developing countries. The Great Reset will be a global phenomenon.

 I had a fascinating conversation with William White, former chief economist at the Bank for International Settlements and veteran central banker. Bill speaks far more openly than most of his peers, and also isn’t reluctant to criticize. That makes him my favorite central banker. We talked about the debt situation and how it will play out.

Yet the lesson central banks have learned in such a situation is to provide liquidity to markets, and they will keep doing that with each crisis until it no longer works. That leads to a sovereign debt crisis and higher inflation.

Bill said once we get past the initial stages, people will start questioning the institutional structures that let it all happen. That crisis of confidence in institutions and government, coupled with the economic chaos that it creates, will make the public want to “fix things.” 

That led nicely to our final panel where Bill reappeared alongside Neil Howe and Felix Zulauf.

John Mauldin 2 June 2023

https://www.mauldineconomics.com/frontlinethoughts/a-much-needed-crisis


Deficits Forever

https://www.mauldineconomics.com/frontlinethoughts/deficits-forever


The Great Reset








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