Saturday, September 24, 2016

Richard Vague — How to Suffocate Your Economy: Drown it in Massive Private Debt.

One of the key and largely overlooked reasons for this disappointing growth is hiding in plain sight: the increasing global burden of private debt—the combination of business debt and household debt. Even though government debt grabs all the headlines, private debt is larger than government debt and has more impact on economic outcomes. In the United States, total nonfinancial private debt is $27 trillion and public debt is $19 trillion. More telling, since 1950, U.S. private debt has almost tripled from 55 percent of GDP to 150 percent of GDP, and most other major economies have shown a similar trend. [See Chart 2.] Since GDP is largely the sum of all the spending, and thus income, of households and businesses in an economy, if aggregate private debt to GDP has tripled, that means that average businesses and households have three times more debt in relation to their income. Both private debt and government debt matter, and both will be discussed here, but of these two, it is private debt that has the larger and more direct impact on economic outcomes, and addressing the issues associated with private debt is the more productive path to economic revival.…
How to Suffocate Your Economy: Drown it in Massive Private Debt.
Richard Vague, currently managing partner of Gabriel Investments and the chairman of The Governor’s Woods Foundation, a non-profit philanthropic organization. Previously, he was co-founder, Chairman and CEO of Energy Plus, and also co-founder and CEO of two consumer banks, First USA and Juniper Financial.


Andrew Anderson said...

Some economists maintain that this buildup in private debt is not a concern, because for every borrower there is a lender and therefore it all balances out.

Not so since "bank loans create deposits" but, due to expensive privileges like exclusive access to accounts at the central bank and government provided deposit insurance, only largely sham liabilities wrt to the population.

If those liabilities wrt to the population were NOT largely a sham, then banks would be much less able to create deposits safely.

Andrew Anderson said...

Make that "extensive privileges" though those privileges are expensive too - wrt to social justice and world peace.

Unknown said...

Debt deflation, great for finance, not so much for the real economy.
The Fed, the way Wall Street controls the country.
Politicians are unlikely to address the private debt issue because the financial sector pays for campaigns.
Why does he not consider increases in wages in order to help decrease the amount of private debt?