Debt is Endemic In Our System... And the Deleveraging Will be Brutal For Businesses and Investors Alike

Phoenix Capital Research's picture

Debt is absolutely endemic in our financial system. The average non-financial corporation in the US is sitting on a debt to equity ratio of 105%. Bank leverage while relatively low compared to Europe (13 vs. 25) is still high enough that an 8% drop in asset prices wipes out ALL capital.


The situation is even worse for the US consumer. During the housing boom, consumer leverage rose at nearly twice the rate of corporate and banking leverage. Indeed, even after all the foreclosures and bankruptcies, US household debt is equal to nearly 100% of US total GDP.


To put US household debt levels into a historical perspective, in order for US households to return to their long-term average for leverage ratios and their historic relationship to GDP growth we’d need to write off between $4-4.5 TRILLION in household debt (an amount equal to about 30% of total household debt outstanding).


Going into this recession, total US credit market debt was at its highest level of all time: over 350% of GDP. In comparison, during Roosevelt’s New Deal during the Great Depression we hit only 300% of total GDP.


This is why what’s happening in the US today is not a cyclical recession, but a h. And it’s why 99% of commentators and pundits are unable to grasp the significance of this: it doesn’t fit in their economic models which only go back to the post_WWII era.


Here’s duration of unemployment. Official recessions are marked with gray columns. While the chart only goes back to 1967 I want to note that we are in fact at an all-time high with your average unemployed person needing more than 20 weeks to find work (or simply falling off the statistics).



Here’s the labor participation rate with recessions again market by gray columns:



Another way to look at this chart is to say that since the Tech Crash, a smaller and smaller percentage of the US population has been working. Today, the same percentage of the US population are working as in 1980.


Here’s industrial production. I want to point out that during EVERY recovery since 1919 industrial production has quickly topped its former peak. Not this time. Despite spending TRILLIONS in stimulus industrial production is well below the pre-Crisis highs.



Again, what’s happening in the US is NOT a garden-variety cyclical recession. It is a STRUCTURAL SECULAR DEPRESSION. And the reason is that we are currently witnessing the collapse of the greatest debt bubble of all time.


Indeed, 2008 was the first round of this. We’re now heading into the second round in which entire countries will go bust. Remember, stocks were the last to “get it” in 2008. They’re the last to “get it” today too. And when they finally DO “get it,” we’re going to see some REAL fireworks.


If you’re looking for specific ideas to profit from this mess, my Surviving a Crisis Four Times Worse Than 2008 report can show you how to turn the unfolding disaster into a time of gains and profits for any investor.


Within its nine pages I explain precisely how the Second Round of the Crisis will unfold, where it will hit hardest, and the best means of profiting from it (the very investments my clients used to make triple digit returns in 2008).


Best of all, this report is 100% FREE. To pick up your copy today simply go to: and click on the OUR FREE REPORTS tab.


Good Investing!


Graham Summers


PS. We also feature four other reports ALL devoted to helping you protect yourself, your portfolio, and your loved ones from the Second Round of the Great Crisis. Whether it’s my proprietary Crash Indicator which has caught every crash in the last 25 years, or how to stockpile food (where to get it, what to buy, and how to store it) our reports cover this information in great detail.


And ALL of this is available for FREE under the OUR FREE REPORTS tab at:










Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
ericstuart1006's picture

First of all i would like to thank you for the great and informative entry. I have to admit that I have never heard about this information I have noticed many new facts for me. Thanks a lot for sharing this useful and attractive information and I will be waiting for other interesting posts from you in the nearest future. Keep it up.


Businesses for sale

malek's picture

Why should there be deleveraging? Because the Fed's printers run hot and burn up?

cranky-old-geezer's picture



Bank leverage while relatively low compared to Europe (13 vs. 25) is still high enough that an 8% drop in asset prices wipes out ALL capital.

Yes, and it's why Bernanke had to pump boatloads of FRNs into stock and bond markets trying to keep stock and bond prices up. 

If he hadn't done that, every Wall Street bank would have collapsed.

But they have a far bigger problem now.  Way too big for Bernanke's printing press to solve.  It's that $1,500 trillion of CDS's out there.

Bernanke's printing press is like a firecracker compared to that CDS hydrogen bomb.  If it goes off, the worldwide financial system would be wiped out.

Which is why they won't let it go off.   It's why nothing is a "credit event" anymore, not even a 50% defalult on Greek debt.

q99x2's picture

I don't like the work they're offering anyhow. Got lawyers over here standing in line to apply for a single job to clean out the elephant cages. Thinly looking lawyers.  Made the mistake of mentioning that I had moved to a guy that I didn't know was an architect. In just a minute he had the reason I moved, if I had been paid re-location fees and why the landlord was taking the property off the market. "Was it to re-build," he asked. That all took place before I got his name. Smart architect. He looked rather...."thinly." OWS Gen 2 on the way.

grant's picture

"But don't use ZH as a launching pad for BS marketing schemes."

The owners of this website want to make money too.  Otherwise, what's their incentive to keep producing articles?   For the good of humanity?  *chortle*

If you "don't really care" then it should be no problem at all that ZH gets a cut from punters signing up from these info-mercials.

Hannibal's picture

People ignorant of the Ancient Evil Agenda for World Government witnessed huge convulsions in the world economy,several times nearly crashing to the ground, and still were unknowing of the true nature and reason for this. They do not know that the Financial Meltdown of the West and the wholesale deindustrialisation of the Western World are long-planned prerequisites for World Government. The Feudal Fascist World State under the direct and absolute control of the Invisible Money Power, the Power Elite,

john39's picture

watching them fail will be epic.

cranky-old-geezer's picture



America will fail first.

You'll endure a long period of anarchy in America with disrupted food chain, disrupted power grid, disrupted everything, and massive civil unrest, waiting for the NWO crowd to fail.

Be careful what you ask for.

stocktivity's picture

One of the scariest articles you'll read. The majority of people at a cocktail party wouldn't comprehend even 1% of this article. I'd guess ZH readers will understand most of it. Amazing %$&*!!!  It really explains why Tim Geithner is flying to Europe every other week in panic mode.

rsnoble's picture

So let's say we all get out of debt. Then what? Do it all over again?  I think all the talk about  "we have to act etc etc etc" is worthless to discuss. The damage is done, we're finished.

Hannibal's picture

Just like my veggie garden: physical gold an silver is PRICELESS!

PulauHantu29's picture
Hidden costs of homeownership You need to make room in your budget for your mortgage payment, but if you think that's all your house will cost you, you're making a major miscalculation. By Amy Fontinelle, Investopedia I wish my son had read this before buying that black hole of money of a house he bought.
Zero Govt's picture

Bank leverage while relatively low compared to Europe (13 vs. 25) is still high enough that an 8% drop in asset prices wipes out ALL capital.

Nothing a 'good' Auditor or global Accountancy firm can't hide on/off the Bankers books

So if you can't see the problem because the Auditor (crone industry) can hide you're bankrupt does the problem really exist?

Kayman's picture

Unbalanced Sheets.  Income Fantasy.  The New Accounting.

As long as the Fed saves the criminal bankers butts with doses of liquidity, then what you read in Financial Statements will continue to stretch the imagination of Walt Disney.

On paper MF Global was a sound business, with no co-mingling. Come to think of it... all the banks appear to be sound with no co-mingling.  Fancy that...

Mr. Lucky's picture

Not worth a continental.

Debt-Is-Not-Money's picture

According to Del Mar (circa 1885) the continental was initially a very successful money. So successful that the British sent over three shiploads of counterfeit continentals to devalue it. One Ship sank off the coast of South Carolina but the other two made it. Those two were sufficient to devalue and destroy the continental.

I guess this was a manifestation of our "special relationship" with the British!

catch edge ghost's picture

Debt is money. More debt is more money.

If that seems paradoxical or flawed, just repeat it until you receive the Nobel Prize or appear on the cover of Time, then it will all make sense.

daily bread's picture

But real money doesn't have a tag along little brother called "interest payment".

cranky-old-geezer's picture



Real money has intrinsic value. 

Real money doesn't have to be linked to something else to have value.

Real money doesn't require confidence in some government or banking institution to have value.

Real money doesn't require a law forcing it to be accepted as legal tender (like FRNs).  It's legal tender by nature.

Military pilot survival gear doesn't include FRNs, Euros, etc.  It includes British gold coins (sovereigns I believe).

When people lost confidence in the Continental (currency), they still accepted gold and silver no problem.

The same thing is going to happen to FRNs (and Euros) sooner or later.

bill1102inf's picture

Deleveraging = Deflation = Lower prices (of Gold)

cranky-old-geezer's picture



Deleveraging = Deflation = Lower prices (of Gold)

Deleveraging = Lower prices (of Gold)

There, fixed it.

Falling asset prices have nothing to do with deflation, which is purely a monetary thing.

And why single out gold?   Deleveraging causes all financial asset prices to fall due to shrinking demand.  Stocks, bonds, you name it.

Do you have something against gold?

Are you jealous of gold?

Are you one of those Wall Street shills / trolls?

jeaton's picture

Absolutely.  Why is this so hard for most people to get?

mayhem_korner's picture



When paper money fails, there is no price for gold or anything else.  Then the question becomes 'what would you exchange for that there gold?'...and it dawns on the fleeced that gold is real money AND that pricing (or 'valuing') things in gold now will lead to better decisions.

Banjo's picture

Deleveraging = Deflation = Lower prices (of Gold)


Exactly the trick is if you own gold to unload at the right ratio. For example in EXTREME deflation if gold goes to 500 and the DOW is 500 trade some gold for stock. In real terms your gold has held up well and done it's job of wealth preservation.


Similarly if DOW goes to 20,000 and gold is 20,000 then swap your assets around. It's not the dollar value people should be concerned about.





GFKjunior's picture

Good, I'm always happy to buy some gold on sale.

toadold's picture

Water is wet and ploiticians will steal money any way they can. Why didn't anybody tell me?

Georgesblog's picture

The currency itself is borrowed debt. Endemic, systemic or spastic, it doesn't matter. The economy starts out behind the debt curve. When a monetary system doesn't have enough real money to stay out of the fraudulent paper, the debt spiral takes it to it's inevitable crash.

Debt-Is-Not-Money's picture

Quite right!

All of our "dollars" are borrowed into existence at interest and are therefore debt. The only money we have is our coin which are issued directly into circulation without interest owed.

We cannot extinguish our debts because WE HAVE NO MONEY!

cranky-old-geezer's picture



All of our "dollars" are borrowed into existence at interest and are therefore debt.


When the Fed bought MBS and other (worthless) securities from TBTF banks dollars were created to buy them.  There's no interest because it's not a loan.

In one sense our currency is a huge securitization scheme.  Fed buys debt paper and / or (worthless) securities and issues Federal Reserve bank notes.  

It's pretty much like mortgage bankers did.  Package mortgages into securitized trusts who turn around and issue their own "bank notes" (MBS).

If Treasury debt owned by the Fed ever started being paid off on a net basis (more paid off than bought), it would start shrinking the money supply causing the USD to rise in relative value on world markets (true meaning of deflation).

But Fed wants ongoing mild inflation, so more Treasury debt has to be bought up and more (worthless) securities have to be bought from TBTF banks so the Fed can keep printing money and keep inflation going.

Bottom line, the Fed is monetizing everybody's (worthless) debt and assets.

Well... not everybody's actually... just the government and Wall Street banks ...and now Euro banks too.

Why?  Because people have confidence in those FRNs.  It's about the only truly liquid market left.  FRNs are readily accepted all over the world.

But there's nothing backing them ...except Treasury debt which will never be paid back and other securities that are near worthless or completely worthless.

But the Fed doesn't have to worry about that since they never have to mark their stuff to market.

Howvever some day the world is going to mark those FRNs to market and discover they're worthless.


FEDbuster's picture

There is the strange relationship between the FED and the Treasury and this debt based money creation.  The FED is now the number one holder of the debt (money creation), but they kick back most of the interest that is paid on it by the Treasury to the Treasury (less the 5% dividend paid to the true owners of the FED).  An in depth accounting of this relationship would shine a light on the true owners of the FED and how this twisted relationship works.  Either way, the FED's ability to produce FRNs is unlimited (think Zimbabwe), our reserve currency status allows us to rip off the rest of the world for the time being and prop up our deficit addicted government. 


The crash of this house of cards will be epic.  My "investment" strategy remains the basics (water, food, shelter, etc...).  Excess wealth should be in real items (including gold and silver).  As Ann Barnhardt said, "You should invest in things you can stand in front of and defend with an AR 15."  I think time will prove her correct.

jack stephan's picture

non sequitur part deus ex machina

I always wanted to bone lynda carter, even when I was young.  She had golden tit wings and panties covered with stars.

Forgive me, this is my first global economic implosion, I'm doing the best I can to cope.

Carry on.

optimator's picture

She could have had you, but instead she married a guy, who like Jon Corzine, doesn't have a good memory:  Anyone remember Robert Altman?


Jumbotron's picture

2 junks for Lynda Carter....???!!!!

Either you two are gay or you guys are into anorexic human clothes hangers like Megan Fox or Angelina Jolie.

TheMerryPrankster's picture

Women come in all sizes and flavors and should be savored as much for what they stimulate inside your mind as what they might impart on your nether regions.

All sex, as indeed all life, actually occurs between your ears, not between your legs despite your expectations.

Attraction is not the same for everyone. As my grandpa explained it, "Everybody likes something different -which is a good thing, otherwise everbody would be chasing after Grandma."





Jumbotron's picture

This stimulates my mind to run out and get her a dozen Happy Meals.

ebworthen's picture


To duplicate the feats of the banks, the corporations, and politicians; every Amerikan needs to max out that credit card to $40,000+.

If the banks and the corporations and the governemnts do it, why not the individual?

Debt is the new green.

Happy Holidays.

FEDbuster's picture

And when you can't pay it back, ask the FED to bail you out or threaten your bank with economic Armageddon.

tempo's picture

The super debt cycle will continue as long as the $ remains the world's reserve currency for payment of oil. In the past few years the dictators who wanted payment in another currency were eliminated/killed (Iraq/Liba/Venz). The message is clear. The USA will back the $ with all its military assets. The EU and USA can run deficits for many years w/o cost. Treasury rates have gone down and the $ has increased in value since the ratings downgrade. All debt will be downgraded and the debt bubble will continue expanding until there is a world war.

ltsgt1's picture

Your conspiracy theory makes no sense since Iran does not trade her oil for US dollar.

ltsgt1's picture

Your conspiracy theory makes no sense since Iran does not trade her oil for US dollar.

cranky-old-geezer's picture



And there's the REAL reason this criminal governent wants to invade Iran.

It has nothing to do with Iran's (alledged) nuke development.  It's about keeping oil priced in US dollars.

ChasVoice's picture

The Federal Reserve is Buying Euro Debt and We are All Going to Pay

Here's a supplement to our Fed buying up the foreign debt of other bankrupt governments and their central banks. Here is that post: The Latest Rumor: Fed To Fund IMF, Bypassing Congressional Refusal Of European Bailout - this explains what Timmy Geithner was doing on his visit to Europe last week. The US Congress be damned.

DosZap's picture


this is exacly what all the CZAR's were for in this regime.

End game Congress.Make them basically eunuchs.

O has repeatedly end gamed them, and makes new decrees by fiat, and Congress is basically just a pimple on his ass.

He gets what he wants by fancy lawyering, and flat out doing other branches jobs.

They have been buying Euro debt since TARP one, and with all the subsequent QE's.

We are the world, ain't a Coke commercial anymore.

Read an item yesterday all men 19-34yrs old are still living w/Momma and Daddy,48.5% of ALL Americans are on some sort of Govt asssistance.

77% of American business concerns are not going to hire ANYONE this next year.

The list was surreal. there were 50 items on it.


Wonder why Congress passed the new Terrorist law?, to round up folks whenver and wherever they feel like it.