Ted Bauman Blog | Debt: The Invisible Threat to Your Wealth | Talkmarkets - Page 3
Editor, The Bauman Letter
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Ted Bauman joined Banyan Hill Publishing in 2013 and serves as the editor of The Bauman Letter, Plan B Club and Smart Money Alert, specializing in asset protection, privacy, international migration issues and low-risk investment strategies. He lives ... more

Debt: The Invisible Threat to Your Wealth

Date: Tuesday, October 31, 2017 10:34 AM EST

All the extra money needs to be used, so … back into lending markets it goes.

More credit creates more debt, and vice versa, ad infinitum. More lending and borrowing raises prices, which leads to more borrowing and lending. Consider housing and education:

We can see the result of this merry dance of debt in the following charts. The first shows the rise of household debt as a percentage of U.S. gross domestic product (GDP). It has tailed off a bit since 2008, but it’s still gargantuan:

Here’s the composition of that debt, and of the amount of disposable income the average U.S. household is “paying upward” to the folks who lend them the money to buy things like houses, cars and degrees. As you can see, household debt growth began to exceed real disposable personal income growth once again in 2016:

Mortgages dominate U.S. consumer debt, but the proportions of student and auto loans have increased noticeably since 2008:

Of course, rising post-2008 debt levels have a lot to do with low interest rates, but it’s not the whole story.

Rates will become a very big deal indeed when they start to rise again, however, our interest payments go up, and our disposable incomes shrink. It’s a ticking time-bomb ready to derail any future recovery.

Forget Taxes: Let’s Tackle Debt

The president and congressional Republicans tell us that slashing taxes will put money into our pockets. We’ll spend that money, and the resulting increase in demand will lead to investment and jobs — so much so, in fact, that even with lower taxes, we’ll balance the budget.

As I’ve argued, that’s poppycock; deficits will skyrocket. But if I’m right, how can we get more money into American pockets, so we can grow again?

It’s simple: Interrupt the vicious circle of lending, debt and the quasi-feudal extraction of interest from middle America by Wall Street and the investor class.

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