Debt Is the Third Benjamin Franklin ‘Certainty’, by David Stockman

Like SLL, David Stockman thinks the long-term slowing trend in the US economy has something to do with the long-term increase in US debt. From David Stockman at dailyreckoning.com:

Benjamin Franklin supposedly said, “In this world nothing can be said to be certain, except death and taxes.”

If old Ben were still around he would surely add “debt” to his famous saying. Indeed, a recent Experian study of its 220 million consumer files actually proves the case.

It turns out that 73% of consumers who died last year had debts which averaged nearly $62,000. In addition to the kind of debt that apparently always stays with you — credit cards and car loans — it also happened that 37% of the newly deceased had unpaid mortgages and 6% still had student loans with an average unpaid balance of $25,391!

Once upon a time people used to have mortgage burning ceremonies when later in their working years the balance on the one-time loan they took out in their 30s to buy their castle was finally reduced to zero.

And there was no such thing as student loans, and not only because students are inherently not credit worthy. College was paid for with family savings, summer jobs, work study and an austere life of four to a dorm room.

No more. The essence of debt in the present era is that it is perpetually increased and rolled-over. It’s never reduced and paid-off.

To be sure, much of mainstream opinion considers that reality unremarkable — even evidence of economic progress and enlightenment. Keynesians, Washington politicians and Wall Street gamblers would have it no other way because their entire modus operandi is based not just on ever more debt, but more importantly, on ever higher leverage.

The chart below not only proves the latter point, but documents that over the last four decades rising leverage has been insinuated into every nook and cranny of the U.S. economy.

Nominal GDP (dark blue) grew by 6X from $3 trillion to $18 trillion, whereas total credit outstanding (light blue) soared by 13X from $5 trillion to $64 trillion.

Consequently, the national leverage ratio rose from 1.5X in 1980 to 3.5X today.

My point today is not to moralize, but to discuss the practical implications of the nation’s debt-topia for Ben Franklin’s other two certainties — death and (especially) taxes.

To continue reading: Debt Is the Third Benjamin Franklin ‘Certainty’

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