People keep asking me, “When is the crisis you’re predicting going to happen?”
I think the answer is December 19, 2029. (Please note, sarcastic humor and not a forecast.)
The CBO now projects federal debt will reach $50.7 trillion in 2034 which will, if their other economic assumptions are correct, equal 122% of GDP.
I expect our political heroes to keep kicking the can down the road until the road gets too steep, as it will at some point. The limits are real. Private investors can’t and won’t buy government debt whose repayment is doubtful in real inflation-adjusted terms—or will demand such high rates the debt will explode even higher.
This came to mind as I was thinking about the magisterial 2009 book This Time Is Different by Carmen Reinhart and Ken Rogoff.
- Highly indebted governments, banks, or corporations can seem to be merrily rolling along for an extended period, when bang!, confidence collapses, lenders disappear, and a crisis hits.
- There is no way to know when it will happen. There is no magic debt level, no magic drop in currencies, no percentage level of fiscal deficits, no single point where we can say ‘This is it.’
Reading that now, I see I was describing what I’ve elsewhere called a collapsing sandpile, or a “Minsky Moment.”
Debt is sustainable until it suddenly isn’t. Some event, some last grain of sand, triggers the hidden fingers of instability and it all collapses. And anything can be that trigger.
This is why debt crises are so destructive. By their nature, no one is prepared because no one sees them coming. A few expect them, yes, but they never know the timing.
History shows over and over that in a debt crisis, everything is fine and then it’s not.
John Mauldin 21 June 2024
The Coming Supercyclical Crisis
John Mauldin 14 June 2024
“Minsky moment”
– Begränsningen bör vara inflationen, inte om statsbudgeten går med plus eller minus, säger Stephanie Kelton.
Ekonomerna oense om hur farligt eller hur bra det är med budgetunderskott. Min egen uppfattning är denna
One of Jamie Dimon’s daughters called him up from school with a question more than a decade ago: “Dad, what’s a financial crisis?”
The billionaire who runs JPMorgan Chase & Co. tried to put her at ease.
“It’s the type of thing that happens every five to seven years,” he told her, he later testified to the Financial Crisis Inquiry Commission.
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