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Debt is Endemic In Our System... And the Deleveraging Will be Brutal For Businesses and Investors Alike
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: http://www.gainspainscapital.com 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: http://www.gainspainscapital.com
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where would we be without graham summers to tell us that debt is endemic in our financial system?
Yep, its the same as saying money is endemic to our financial system. Its a tautology and trivial to boot.
Debt IS our system.
We would be left to our capacities of cognition. How has Graham's telling changed anything in the short, medium or long term?
Graham's articles provide a primer for new arrivals to ZeroHedge. If you don't need a primer, don't read his articles...
"Graham's articles provide a primer for new arrivals to ZeroHedge. If you don't need a primer, don't read his articles..."
OK, groovy and all that shit. But what I really don't like is the unabashed, commercialization of his comments.
Gimmie money, gimmie money, gimmie money...subscribe, subscribe, subscribe. Hook up to this link, hook up to that link....money, money, money, money, money........Ad infinitum. 20 pages of how he and his troop of space monkeys are going to make you rich -- if you just subscribe now, now, now. It makes me want to puke.
Read, analyze, and use your own fucking mind. Most of the articles on ZH are informative and don't end with, "Buy my product!!!!!!!!!"
But!!! --- If you don't believe me, well just send me a one-time payment of $29.95 (cash only) and I'll send you all the secrets of how coffee colonics will cure all your ills, how papaya seeds will rid you of intestinal parasites -- and -- potentially create a life-time income stream of $50K a month by leveraging a little known loophole in the 1987 Senate bill S.1937, but only if you subscribe NOW and eat massive amounts of papaya seeds!!!
Come on Tyler....WTF! ZH is insightful, but this sort of stuff needs to be flushed down the crapper. If a commentary like Graham’s has something significant to say, share it. But don't use ZH as a launching pad for BS marketing schemes.
But do I really care. No. I just don't bother clicking on the links. But hey. It's your time if you wish to waste it.
check.