Thrive During The Global Debt Crisis
Navigating the ever-increasing global debt crisis and improving the profitability of trading can be a challenge if you do not understand the current predicament that we are in. Although these global problems may seem complex, they are not hard to understand (as you will soon see). It’s surprising though that many of our world leaders don’t seem to understand a fundamental truth . . .
…or they are ignoring it for a very specific purpose (more on that later).
Here is the basis of the predicament we are facing. “Nothing can grow forever.” Sounds simple, right? Of course, it’s just common sense. But the Fed is trying to circumvent this simple principle, because they are diligently trying to get credit (and debt) consistently growing, so they can get our economy back to what they consider is normal.
Let me ask you a simple question, is it possible for you to grow your debt faster than your income forever? Sure, we may find ourselves taking on more debt than we would like over short periods of time, but can that continue forever? No, of course not. And just as it doesn’t work in personal finance, it doesn’t work in international finance either. Let’s expand this discussion by reviewing this chart. This is a comparison of the U.S. Debt vs. GDP going back well over 100 years.
You’ll notice that from 1980 onwards, we’ve seen a tremendous expansion of debt. In fact, at one point, it got as high as 370% of our GDP! Based on history, I’m sure you can see that this was not normal. As we all know, common sense tells us that none of us, whether we are individuals, corporations, or even countries can continuously grow our debts faster than our income forever. However, that is exactly what the United States has been doing over the course of the last 30 years. And that’s exactly what our politicians and Federal Reserve officials want to continue indefinitely. Why? Because if this credit expansion stops, there will be SERIOUS consequences for them and the entire world financial system.
The fact of the matter is our world financial system is dependent on debt continuously growing exponentially, or it faces total collapse. Now, in case some of you are wondering: “Why can’t this debt just keep growing?” Let me explain . . .
First, let’s consider what is called the “Total Credit Market Debt (TCMD). This is a measure of all the various forms of debt in the U.S. This includes almost everything you can think of including corporate, state, federal, and personal borrowing. As you can see in this chart, the TCMD has been growing exponentially since 1970.
And since 1980, it has been growing at 8% per year compounded! That means if it continues at the current pace, it will be on track for doubling every 9 years according to “the rule of 72.” So what does this mean if it continues growing at the same rate? That means the current $57 trillion in TCMD grows to $573 trillion in just the next 30 years. But that’s a crazy number, because the GDP of the entire world is currently about $85 trillion. What in the world would governments, corporations, and people need to borrow over $500 trillion for in the next 30 years?
The point is that I am confident that the rate of growth over the course of the last 30 years will not be repeated in the next 30 years. But the problem is, our entire financial system is based on ever-increasing debt to prevent it from imploding. The only way the Fed can achieve anything close to this rate of credit growth, is to allow the dollar to lose a lot of value. And I believe that is what they intend to do, even though it will hurt all of us.
So, where is this leading us, and what actions can we take to protect ourselves?
Find out in part two http://www.forextradersdaily.com/largest-wealth-transfers/
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Interesting read
This is a well put-together piece on the impact of QE on the economy, both here in the US, as well as in Europe, UK, and Japan.
Unfortunately we won’t see a fix or stop to it, at least not here in the US.
There are several reasons but the main one is that the fed isn’t seeing any job growth and they believe they are the ones to solve that issue.
Another is that the fed/gov also thinks that there are enough funds in the market place (think 401K, private pensions – not gov pensions) that they can raid with impunity when the time comes. And they will. Cyprus showed them how easy it is done.
Lastly we in the US have been indoctrinated beyond repair that the gov is the be-all-fix-all when there is a problem so now we have these dependents who will vote any government mandate down their throats because they don’t want to know any better. (This is reminiscent of NAZY Germany’s 1936/7 where unemployed workers voted hitler into their government and ushered in the worst tyranny of modern times).
We ignored the recent Zimbabwe’s devaluing of the currency, and ignore history which has shown time-and-again that the government will not ever resolve its economic problems by devaluing the currency. But that’s what we are doing now and what Yellen will continue doing.
May God have mercy on us fools!
Sooner or later the bill will have to be paid.
What happens when there will be No Buyers of US Bond due to falling value of US Dollar ? When Dollar will not be World Currency?
when i finished reading the article , i exploded in an hysterical laugh: why? well , because these are
numbers that are beyond the limit of human perception. at this point i would argue that it’s time
to ask for a total moratorium and ” restart” the economy on a total new basis.
I am proud to be an American and went I entered the service the pay was 75.00 a month and no shortage of people needing a home and willing to serve.
We have become the worlds policemen, but we need to take care of what is left of us first.
This country succeeded when the government opened up lands they stole from the native Americans then gave it to homesteaders. This needs to be done again.
The people need hope, not trading partners, but unity and belief in a small government that takes care of itself.
We have stuck our nose into every one’s business and are now afraid that the people that we have started off to help are turning against us. Not that it has anything to do with us exploiting them.
Most people have no sense of history repeating itself but that is what it is doing. The British saw it coming, got rid of their colonies, got rid of their government running other governments and now are feeling the sting of global resentment.
Shut down free trade, close the borders and bring our troops home and let the world take care of itself. We then will have time to regroup and if a threat is posed to us we will once again be that sleeping Giant that countries do not want to awaken.
A drunk had to admit they have a deadly disease before they do anything about it. We have to admit we caused our own problems and go on the tax and spend wagon.
Put the constitution back into our Government, God back into our schools and communities, and people are generally good. They will help each other without the added expense of the government machine thinking they know what is best for everyone.
We are following the exact route Wilson laid out in 29 and on our way to self destruct.
This country cannot be forced to stay together they must want to be a part of the whole and that does not mean paying for everyone else’s problems.
My Lord, can’t anyone one see that small communities are prosperous and healthy. Open up the government land and give it to people who want to improve it and their lives. If they cut a tree they need to plant two to take its place.
If they need water then they collectively should find a way to irrigate so all benefit without paying for what GOD put on this earth for free.
Their is a difference between knowing when you have beaten yourself or blaming our problems on the rest of the world who also have the same rights we have should they decide to exercise them.
We don’t need to help them, if they want it bad enough they will find a way.
I remember 5 cent coffee and telephone calls, families eating at the same table together sharing their problems and successes .
Let us downsize not outsource, Lets keep America in America and let the rest of the world take care of itself.
We do not want to be socialists, but free from all but the least necessary government intervention..
I wish I had an answer I don’t, I just remember living for 19 years in a town of 4,000 where everyone helped everyone else without an estimate before giving the assistance.
We started like that and we made a country that everyone wanted to live in. Not everyone needs a degree just the ability to read write and do math and understand the history of how this great nation came to be.
Maybe we will wind up like the former Soviet Union where the army was laid off because they could not pay them and they ceased being a threat to the rest of the world.
There are nations that have no respect for human life, or that of the customs and principals of other people and nations. The leadership dictates to them and eventually war follows. We can not intervene in every one’s way of living.
Take care of our own first then help others if we can.
I hope GOD hears this little prayer.
well written but please put some easy to understand examples. i realy want to know fully about fundamentals.thanks in advance.
The world has been forced in to the current situation by the US Federal Reserve Bank. They have to print excess currency or lose the value of their currency against the US dollar.
The FED is printing money that is international reserve currency, thereby diluting the value of everyones money, whilst using the freshly printed dollars to pay US debt.
The Federal Reserve Bank is not an elected body, and therefore are levying a monsterous tax without representation of the people.
They are also violating existing protocols of the world order of trade and commerce.
These bully tactics will work until one or more of the world powers band together to resist in some major way. When the time comes for this major resistance, everyone will be required to feel the pain of adjustment. There will be no where for anyone to hide (ie there will be no safe haven)
Many thanks for your economic analysis hope to read or talk to you soon
all the best
Philip
Why the US has gotten into so much debt? Australia is now following the USA’s example. It seems to me they know what they are doing; they seem to be hell bent on destroying the West & bringing our lives into poverty!
You are 100% correct. “Nothing can grow forever” In fact, the formula used by the banking system is fundamentally wrong because exponential function related to natural growth of trees, bacteria have a limit.Instead, the banks have used the exponential function to make it look as if money is a natural thing that grows forever and ever.
This process is suffocating our free market. The federal reserves activities over the last 100 years is surely preparing the way for a world dictatorship. What other option is there? There are very few well educated individuals in the current generation of the US for any of us to expect something different. A real blatant tea party is what we need to save the U.S. if there is any hope left at all.
When the FED prints money it devalues our currency causing other major countries to print money so that the value of their currency stays the same relative to our currency
what currency will replace the $$?
“GNP” is a flawed means of measuring the annual gross national product (see article in today’s Financial
Times website) but if one were to study the details of the production of the yearly GNP one should come to a measure of understanding of why debt has been used to increase aggregate demand in the U.S.A. and elsewhere.
What ever is produced each year must be bought each year or in the following year the inventory build up must be worked off possibly leading to reduced employment.
Since the early 1970’s in the U.S. (and elsewhere) workers have not had an increase in real wages. During that time productivity has increased exponentially. Workers didn’t get any of it!
How much would paying three quarters of that productivity increase to workers each year have reduced the need for them to go into debt to support their family?
I’m just sayin’, ya know?