Transition Into Economic Night

The economic world is always changing, but the 2018-2019 period will mark an important transition. Consider credit market debt, interest rates, stock indices, individual stocks, and several ratios.

TOTAL CREDIT MARKET DEBT per the St. Louis Fed.

That measure of U.S. debt increased exponentially from 1951 to 2007 at a rate of 8.8% per year. However, the rate from 2008 to 2017 has been only 2.6% per year. A sixty-year trend changed during the 2007-08 financial crisis. As suggested by others the U.S. reached debt saturation. The economy has not recovered since the crisis. The graph of credit market debt supports that thesis.

Yes, the stock market is near all-time highs, official unemployment (after “adjustments”) registered a multi-decade low, and official inflation (after “adjustments”) is low but rising. Those measures do not portray the economy for most people.

The U.S. economy runs on credit, corporate debt for stock buybacks, student loans, mortgage debt, auto debt and credit card debt. Slowing a 60 year trend is an important transition. Credit growth slows and the non-financial economy weakens, poverty increases, homelessness rises, drug addiction soars and political polarization goes ballistic. Now is a time for transition. Note: The national debt growth rate did not materially change after the 2008 crisis. Politicians will spend.

IS GOLD INEXPENSIVE COMPARED TO TOTAL CREDIT MARKET DEBT?

Gold prices are low when compared to total credit market debt. Examine a forty-year trend. Expect gold prices to rise as increasing debt devalues the dollar.

INTEREST RATES:

Mortgage rates hit a seven-year high and the 10 Year T-Note yields over 3%. So what?

Total U.S. credit market debt is about $70 trillion. The 10 year rate doubled in the past two years. Suppose that 1.7% increase applied to $70 trillion of debt. The cost to corporations, state and local governments, credit card holders, students etc. would be $1.2 trillion of reduced spending on other necessities.

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Gary Anderson 9 months ago Contributor's comment

Money is being directed to the wrong people. Labor is left out. The tax breaks may have allowed more discounts at the stores but that cannot be the long term solution.