Financial luminaries such as Ray Dalio [18], Kenneth Rogoff [19], Bill Gross [20], Kyle Bass [21], BCA Research [22], John Mauldin [23] and Martin Armstrong [24] think that we’re at the end of a debt supercycle.
Former director of the Office of Management and Budget said we’re facing a “debt supernova [25]“.
Former Fed chief Alan Greenspan said [26] recently
Debt, deficits and entitlement programs are all coming to a head in a few months, all over the world.
The European chief executive of Goldman Sachs Asset Management warns [27]:
There is too much debt and this represents a risk to economies.
***
The demographics in most major economies – including the US, in Europe and Japan – are a major issue – and present us with the question of how we are going to pay down the huge debt burden. With life expectancy increasing rapidly, we no longer have the young, working populations required to sustain a debt-driven economic model in the same way as we’ve managed to do in the past.
The world’s most prestigious financial institution, the Bank of International Settlements (BIS) – known as the “Central Banks’ Central Bank” – writes [28]:
We are not seeing isolated tremors, but the release of pressure that has gradually accumulated over the years along major fault lines …
The sum of non-financial private and government debt has not fallen
since the crisis …. Total debt in advanced
economies has continued to expand (by 36 percentage points of GDP since 2007),
with some exceptions mainly reflecting the recent decline in private sector debt in a
limited number of countries. Meanwhile, total debt in emerging market economies
has risen even more (by 50 percentage points).
***
Aggregate private debt has barely stabilised, let alone started to correct downwards, even in the corporate sector. And government debt continues to rise steadily, in a manner reminiscent of Japan’s trend deterioration in the 1990s.
BIS notes that this is a recipe for disaster:
Early warning indicators of banking stress pointed to risks arising from strong credit
growth …. Credit-to-GDP gaps – the deviation of private sector credit from
its long-term trend – were well above 10% in Brazil and China. This ratio was also
above 10% for a number of [other] countries … including Indonesia, Singapore and Thailand …. In the past, two thirds of all readings above this threshold were followed by serious banking strains in the subsequent three years.
It’s not just conservatives who think [29] that debt is too high. Liberals think so as well [30].
And see this [31].