We’ve Reached the “Zero Point” of Debt Creation

Hurtling toward a massive financial crisis.

By Harry Dent, Senior Editor, Economy & Markets:

Forty-five years and counting: We’ve been on a debt spree since the early 1970s when we went off the gold standard, covering every possible angle. Trade deficits, government deficits, unfunded entitlements, private debt – you name it! Our total debt has grown 2.5-times GDP since 1971.

How could economists not see this as a problem? How is this the least bit sustainable?

It isn’t. We’re hurtling toward a massive financial crisis, and all we have to show for it are financial asset bubbles destined to burst. And when they do, they’ll wipe out the artificial wealth they’ve created for many decades… in just a few years, as they did from late 1929 into late 1932!

The chart below shows the common-sense truth.

As with any drug – and debt is a financially enhancing drug – it takes more and more to create less and less of an effect. Eventually, you reach the “zero point” where there is no effect and the drug kills you from its very strain and toxicity.

We’re rapidly approaching that zero point, after every dollar of debt has produced less and less GDP steadily since 1966:


Note that the anomaly in the chart after 2008 was due to the impact of unprecedented QE. Ever since that disruption, the trends have pointed back down – making a beeline toward that zero point again.

Back in 2002, Swiss investor and market prognosticator Marc Faber published a similar chart. His findings showed the zero point for debt creation would occur around 2015. With updated data, we now see that the zero point will hit around the beginning of 2017.

In other words – right about NOW!

This is why central banks around the world have failed to spurn inflation despite endless money-printing. The more money they print, the less effect it has.

Just ask Japan. They’ve been doing this since 1997 with zero GDP growth and zero inflation, on average. Lately it seems like any time they get out of a recession they’re thrown right back into one!

But there is another ramification to all this money-printing…

When central banks create money out of thin air – through the fractional reserve banking system and through QE – it has to go somewhere.

When the economy is so indebted that consumers and companies can’t take on any new debts, the money can’t go there. So, it winds up going into financial speculation, especially as investment firms can lever up at little cost due to zero or negative interest rates. Stock prices bubble instead of inflation as the economy keeps sucking wind!

Sure enough, this next chart shows that debt and equity prices go hand-in-hand:


In the 20 years between 1995 and 2015, debt grew at a rate of 4.2-times GDP, and stock prices followed at 4.3-times. Total U.S. sector debt now stands at 348% of GDP, with stocks at 214%.

All told, these two combined are 588% of GDP, far more than any time in history.

Is this a bubble burst waiting to happen? Count on 2017 marking the beginning of the greatest crash we’ve seen since 1929-1932. And I have a new book coming out to commemorate this occasion, The Sale of a Lifetime, which will hit shelves on September 15. It  examines financial bubbles, and I couldn’t have picked a better time to release it, at the height of the greatest bubble in modern history.

We’re simply running out of time. With debt into the hundreds of trillions, rapidly growing debt-to-GDP ratios, and plummeting stocks for major banks all around the globe, it’s only a matter of time before the sky comes falling and investors get flattened! It’s no longer a question of “If,” but “When.”

In the latest infographic from Dent Research, The Global Banking Crisis 2.0, we break down the real numbers to show you what’s really going on, so you don’t end up a blind investor. Get it here.

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  91 comments for “We’ve Reached the “Zero Point” of Debt Creation

  1. David says:

    This is all very well, but what are you supposed to do about it? I’ve elected to be out of stocks and therefore am in cash, but the cash is sitting in banks….

    • Wolf Richter says:

      There are some very smart people who say that you’re doing the right thing. If things turn sour and you have liquidity, when no one else has liquidity, you can make a ton of money. And all those who are fully invested and have no liquidity will miss out on it and will just have to watch their investments go down.

      • ML says:

        But if I have liquidity but no one else does then whereas I can buy stocks at rock bottom prices who is going to be able to afford to buy them off me?

        If most people have lost their shirt, where is the demand growth going to come from to push prices upwards again?

        • TeeJay says:

          The smart investors who sold before the crash will now swoop in and use that cash to buy your stocks at rock bottom prices. This is what forms the bottom and starts to push the market back up again.

      • Troy Ounce says:

        I respectfully disagree. Cash is an IOU from an institution you want to protect yourself from after the collapse. Circulus in probando

      • David says:

        Thanks for the response. That’s my thinking. Trouble is if the banks go down and they have my cash, there won’t be any left to buy cheap stocks with. Here in the EU, depositors are liable for bailing out failed banks, and most of them seem vulnerable.

        • Nicko says:

          Cash is good. I like RE, appreciation, plus income —no matter what, people gotta live somewhere. ;) Diversify.

        • George says:

          Hi David, similar laws were passed a year later in U.S. & Canada. I would suggest pulling a few thousand euros a month to keep in a large (hidden) safe at home, and transfer the bulk of your balance into physical precious metals, and have them delivered as well. In this manner, during a market collapse, you will have wealth in hand to make your purchases, and receipts kept in your safe of your precious metals purchases to legitimize them from government accusations that they are derived from criminal activity. (accusations which will be used to confiscate your wealth!)
          During the “firesale” companies and land will sell cheap for “cash” these companies will need cash as well to pay employees. (think great vaccuum of money!) In this heavy deflation, the gold/silver/cash you have in the amounts you have will be far greater than what people are earning/paying for goods. Kind of like a rewind in cost/wages 100 years.

    • d says:

      Then you are not “in Cash”.

      You are an unsecured creditor of a Bank, which is not a smart think to be in this age.

      He who is TRULY in cash is “IN CASH” PHYSICALLY.

      At the current manipulated price Physical gold is not the thing to buy.

      Silver and Copper are still not to bad.

      Then you just have to store them. Not in a “Bank controlled” Vault.

      • David says:

        Well that’s fine then. I’ll just build a secret vault underneath the house I rent here in Greece, drive a lorry over to the uk and germany to collect my hard metal booty, and drive it back here to stash it in my underground vault. I’m sure no one will notice. Not sure what happens when the landlord wants his house back though.

        • EVENT HORIZON says:

          Take some of your cash and BUY a house of your own.

          And yes, get in your car and drive to wherever and bring back your cash. I would have it ONLY in Dollars and enough Euro’s to pay 1 year in bills.

          You job is to protect what you have. Forget making money. IF all this collapses, you can buy some really nice properties latter. Survive first.

        • d says:

          Land/Property is also heavily overpriced and to easily confiscated by the state hence, it was not advocated.

          You have the common problem of the age where to put it, where it will not be stolen by the State, A Bank, A Manipulated Asset Dealer, or a Burglar/Thief. In reality, all 4 of them, are simply thieves.

      • Nicko says:

        Cash in an offshore account of a reputable bank is as good as the real thing.

        • David says:

          I’m not sure there’s such a thing as a reputable bank is there? They all seem to be vulnerable. As the Italian banking crisis grows and asset bubbles around the world threaten to pop, and as the number of loan defaults grows, is there not a chnace of another 2008? I am in a British offshore bank, and a German onshore one. Neither have good credit ratings, and EU law now stipulates that in the event of a bank failing, depositors are on the hook for a bail out rather than taxpayers. So I’m nervous in both shares and cash.

    • jo says:

      Cash is only good if you can use it – & you wont be able!!
      Your cash isnt yours, it your liability & the banks asset to be “bailed-in”.
      A combination of cash & PMs “IN HAND” is all there shall be.
      Youre either a part of a failed system or “banker to thy self”.
      Think it through!

    • Pedro says:

      Til they stop that as in 2008

    • minap says:

      buy gold, silver and mining stocks.
      It can be oil or anything else. If you have the raw material when the time comes up you can make your money back!

  2. OutLookingIn says:

    The diminishing marginal productivity of debt.

    “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved”.

    -Ludwig von Mises

    The first rule of economics is that; ‘All debt will be paid’.
    Either with pennies worth dollars, or with dollars worth pennies.

    • ERG says:

      ..and the first rule of politics is to ignore the first rule of economics.

      – Thomas Sowell.

    • Michael J Ness says:

      “Debts that can’t be paid, won’t be.”

      Michael Hudson

    • Dusty says:

      Yes, at this point I’m more worried about what the government will do in response to the crash, than the crash itself.

  3. Anthony Hall says:

    in the UK the Bank Rate (the interest charged by the Bank of England to Big Banks) is 0.5% . If you want a Loan from any Main St Bank they charge 18% . That`s 17.5% Profit less overheads. That`s Daylight Robbery. On our Mainstream TV Channels Loan Sharks proudly offer Loans at 1273%. Wonga used to do Short-Term Loans for 4,000% . People in dire straits take out Loans to pay instalments on previous Loans.
    All our Banks charge 1,000+% on “unauthorised Overdrafts”. All our Lenders are now Loan Sharks; with the encouragement of our Government.

    • robt says:

      And Six for Five a week compounded for a year is 307,000 per cent interest if the borrower lets it ride. Most people do end up paying you in a week though, so it’s only 16.67 % straight interest on your capital, a reasonable return considering the risk.
      Fun with numbers …

  4. Islander says:

    I think the author is overly pessimistic. Remember the story from the great depression: A man works in a boot factory, which goes bankrupt, so he has no money to buy new shoes, nor a new jacket. It was a self reinforcing spiral, but also needless. He needed shoes and there was even a shoe factory, but the monetary transmission mechanism was having a heart attack.

    Germany’s or the US’s incredible rise from those ashes to hyper economy status in a few years shows how transient and fundamentally idiotic such depressions can be. For the past decade governments around the world have supported the shoe factory so the worker can keep buying shoes and jackets too.

    So I wouldn’t be so sure we’ll make the same mistake twice. Malaise, wealth concentration, damaging trade wars etc are all occurring. This generational shrinking of the middle class, debt slavery etc may even turn out to be more damaging in the long run. But an outright 1929 style collapse? Unlikely.

    • Anthony Hall says:

      hey islander, in the UK , the Great Depression lasted from 1929 to 1937, when the Government woke up to Hitler and started to catch up to re-armament and full employment. if Adolf hadn`t got PMS , the UK would have carried on penniless.

      • nicko says:

        Correction….the USA bailed out a bankrupt and starving UK with cash and food shipments from across the Atlantic.

        • nick kelly says:

          All American aid, including lend lease came to an abrupt end shortly after the surrender.
          A bled- white Britain, which had contributed far more to the defeat of Germany than the US, had to plead for a lousy 300 million dollar loan after the German surrender. It also had to help feed a starving Germany when the USSR defaulted on its share

          (US Forces in the West did not reach parity with Commonwealth forces until mid- 1944. The RAF (with Canadians serving as RCAF) dropped 50% more tons on Germany than the USAAF. With considerably more effect. The RAF didn’t bother with the US staple, the 500 lb- the 1000 lb being its smallest bomb ( other than incendiaries)

          The bit about near starving is however roughly true- at Queen Elizabeth’s wedding many of the gifts were of food. Bread was rationed even though it hadn’t been during the war. Rationing didn’t end until 1954.
          But the UK got more food aid from Canada than the US.

    • Brett says:

      Yes, when the next collapse occurs, the question the elites will ask is how much money do we need to print to make this problem go away for a decade or so, what could go wrong?

    • Meme Imfurst says:

      With all due respect, you are relating events that were much more local and contained geographically. You did not have CBs collusion, wild speculation with algos, deliberate far reaching manipulation by governments and corporations, and more.

      The world now relies on every form of ‘trade’ in a way that it did not then (including the petrodollar), and therefore when it blows it will blow around the world. You underestimate the fact that very powerful people plant seeds of chaos in order to reap ‘rewards’, just look around.

      As for “us making the same mistake twice” I would not hold my breath on that one. Convincing the convinced is almost impossible.

      • Islander says:

        So far we haven’t made the same mistake twice; 2009 could’ve been another 1929 Imo. Btw I agree with you that our present economy is much more ‘globalized’, which was seen as the wave of the future after the WWs. But that trend seems to be ending, and not because some .00001%er wants chaos. That’s just paranoid and wrong to boot.

        As for everything crashing down together, that’s also not true. Brazil, SA, Venezuela, south Italy etc are all in terrible shape and the system hasn’t crashed.

        Btw Here’s an interesting article about the relationship between nominal interest rates, government debt and inflation (pdf): https://www.skagenfunds.lu/globalassets/pdfs/miscellaneous/com/prices-and-policies-29.08.2016.pdf.

        All I’m saying is keep an open mind. When your news circle is 100% convinced of anything, it’s likely wrong. ‘ Things can’t fail’ is as wrong as ‘ Things can never work’.

  5. concerncitizen says:

    Hi guys
    I’ve been a long time reader of this site. This site keeps repeating the mantra of economic gloom doom and all. While I do not deny that people are broke and major economies are in a mess, but things seem to be going along like nothing has happenned. I guess my question is when will all these prophecies that you advocate going to pass?

    • Quade says:

      Yeah, I’ve stopped posting links from this site to my friends because of all the doom and gloom. They’ve been predicting doom for a couple years now. 2016 was supposed to be the year of the big crash wasn’t it? Now it’s 2017?

      It’s more realistic to assume nobody knows what’s going to happen. I think Japan is a good example. They’ve been muddling along since 1989 and they’ve managed to keep their quality of life and apparently few people are starving. I see no reason we can’t “muddle along” bumping on the bottom for another 20 years too.

      • Colin says:

        They’re finding less oil these days. This could have serious consequences within 10 years. Peak Phosphorus is another possible problem within 15 years. Resource depletion will be a big issue for civilization along with income inequality that is going on now. You have to have recoveries between recessions. This obviously did not happen.

        • Quade says:

          “They’re finding less oil these days.”

          This is another one of this “been predicting problems for 40 years now”. Every time they think they’re running out of oil, they find more. We have more coal than we know what to do with, could turn that into oil like the Germans in WW2 did. They’ve been experimenting with condensing fuel out of atmospheric CO2 as well. Kill two birds with one stone with that one.

          It’s easy to be a pessimist.

          Japan predicted the future for us all. Just making do. Printing money and trying to keep society running.

        • Nicko says:

          Invest in Canada, we’ve got several centuries of oil, phosphorous, and share 20% of the Earth’s fresh water reserves with the US (among pretty much every other essential resource).

    • Mary says:

      Wolfstreet’s posts are repetitive, but that’s the nature of a good blog. The blog’s “product” is the author’s viewpoint. It’s the filter through which he interprets the world.

      Wolf’s take on financial markets, etc. may be negative, but it’s grounded in demonstrable reality. And his blog is a good read. No conspiracy theories, hatemongering or ad hominem attacks on public figures.

    • Petunia says:

      You are looking for an economic response to an economic problem. Instead what is happening is that we are getting a political response to the problems of the economy. If you think nothing is happening, you are not paying attention. The collapse of the market may come from political upheaval, not from a market trigger.

      My favorite mathematician is Godel who figured out that sometimes the solution to a problem lies outside of the system in which the problem exists. You cannot fix the markets until you fix employment. You cannot fix politics until you fix campaign financing. Are you getting the picture?

    • Dusty says:

      Concerncitizen, I suggest you look not just at the “prophecies” but at the underlying imbalances pointed out. They are not better. Everything in macroeconomics points to a bubble pushing its limits. Trying to get the timing on the biggest (global) Ponzi scheme ever is pretty good if you just get it down to the 20 year mark. In fact, the longer this is postponed the more concerned I am. A depression we need, and can bounce back from. What I’m concerned about is what stupid things the government will do as it realizes what is happening, and will try to find a scapegoat.

      This macro problem is missed by the mainstream because they put no emphasis on the increasing aggregate debt, and they look at short-term monetary history. If you read monetary history, you can see our dollar is on a path to failure that is typical in its pattern, unheard of in its scope.

  6. r cohn says:

    BOJ is considering buying US treasuries despite the law.It already owns over %50 of Japanese ETF’s. The Swiss Central bank is buying equities around the world.The ECB is buying corporate bonds.The FED is studying negative interest rates

    10 year Spanish bonds=1.019%;10 year Italian bonds=1.15%
    Both countries are insolvent .Spain has a strong Catalonian separatist movement

    30 German bunds=.476
    30 year Japanese bonds =.453
    As long as buyers can make money after hedging the currency risk .there will be a bid for 30 year US treasuries

    What are the limits on central bank purchases of assets.There does NOT seem to be any.As I have stated many times ,as long as the market has confidence in the central banks ,the fantasy of buying financial assets with money created with a keystroke will continue.
    And articles like this which are logical and make sense will again be proven incorrect.

    • DV says:

      You are right, to certain extent. In the past, like after WWII, the issue of high debt level was resolved primarily through high economic growth and inflation. The problem these days is that due to over capacity everywhere inflation simply does not materialize even with relentless money printing. Moreover, debt is measured against GPD, much of which is non-productive, such as healthcare or education (what you do is simply reclassify expenses into investment and your GPD increases!). What is more, a significant part is created by this same financial speculation and engineering. In the US healthcare is approaching 20% of GPD with “financial services” making up as much as 35%. And the prices in these too sectors are inflated too. I would say that a military conflict or a major natural disaster can send this whole thing unravelling and no money printing would be able to forestall the crash.

      • RD Blakeslee says:

        Re “overcapacity”: How does one calculate the nature of the entity offered or the amount of it needed as people are replaced by robots: What will robots buy and how much?

    • Ptb says:

      Yes, monetary policy is now infinite.

  7. td says:

    But won’t the governments just do more rounds of QE, changing the trajectory in the first chart? Why wouldn’t they, since they look out for the interests of the investor class?

    • Tinky says:

      Their efforts are becoming increasingly ineffectual, which is one of the author’s main points. Think of a patient on Morphine, building up a tolerance to the drug, so that it requires ever increasing dosages to have the same effect.

      The Central Bankers are caught in a liquidity trap.

    • Dusty says:

      They cannot forever get a response from QE. That’s what this article is about: the limits of debt. Contrary to what the Keynesians want you convince you, macro really is like micro just a whoooole lot bigger making it tougher to see the outcomes.

      You can borrow money to increase your expenditures, spread it around etc and make minimum payments. Eventually your minimum payments become so high you can’t even borrow enough to make those. Try to push it past THAT on a macro level and you will have hyperinflation.

      We’ve been so close to the limit of debt expansion that interest rates have had to be “near zero” for everyone (government and businesses) to “make their minimums. That tells you how bad things are.

      I for one thought ZIRP was the limit. Some countries are proving that wrong, but I think that’s where we’ll see a lot of resistance, black market trading, loss of confidence.

  8. Bobcat says:

    This matrix of rackets that some refer to as our economy will eventually collapse. There’s no telling when the collapse will occur but it is lurching inexorably toward collapse.

    Cash is king.

  9. Chris from Dallas says:


    to answer Quade,

    1) how long have you been publishing your blog? (your archive goes back to 2011)

    2) were there ever times you were highlighting positives?

    3) under what conditions would you “howl” about opportunities?

    • Wolf Richter says:

      If you’re looking for hype, you will easily find it in many other places. There is no reason for me to repeat it here. I try to bring a sense of reality to some of the hype out there.

      I started calling out “Housing Bubble 2” in early 2014. A bubble means prices go up sharply. So that’s an “opportunity.”

      In late 2015 and early 2016, I started seeing signs that in some metros the trends began to shift. So now, in those metros, I’m reporting on those reversing trends.

      I called stocks a “bubble” starting in 2013?? (I can’t remember). Again, a bubble is when things go up. I didn’t say that they’d crash, though later I pointed out parallels to times just before they crashed the last two times. I personally have no opinion on where they’ll go now. They’re ludicrously inflated, but as I have said many times, if something is already irrational, there is no theoretical limit to just how much more irrational it can get.

      I don’t make buy recommendations ever – unless it’s tongue in cheek. I don’t want to be accused of talking my book.

      If you read in between the lines, you will see that, for example, I’m bullish on natural gas – not the drillers and their stocks, for crying out loud, but futures, though I would never ever recommend that anyone buy these things. That’s a decision you need to make on your own.

      • memento.mori says:

        I come here for a dose of negative news as it allows me to balance all the hype feel good propaganda coming from the mainstream media.
        In good old USSR the negative news was banned, you could not say there was shortage of anything as you were named enemy of the people and ended up some place in Siberia.
        Not all is doom and gloom out there, but Wolf’s blog is the antidote of the pollyanna world the mainstream media is trying to force feed on us. I guess the truth is some where in the middle bit each one must draw their own conclusions.
        I say, keep up the good job Wolf!

      • Chicken says:

        Yes, for instance TWTR is valuable from the POV it’s a great tool for censoring thought.

      • GGslv58 says:

        wolfstreet is a Good blog
        re Harry Dent writing a debt spree since the early 1970s when we went off the gold standard
        is IT possible hes starting to acknowledge Gold as ipmortant ?

  10. RD Blakeslee says:

    I believe it is possible to hedge against the failure of money itself – perhaps because balances in demand deposits in banks cannot be accessed or are destroyed.

    Without going so far as the so-called survivalists go, consider the situation on a farm: It is unlikely that food will be lacking in that household. If there is a woodlot on the farm, firewood will be available for heating and cooking. Etc.

    Life will harken back toward the days of subsistence agriculture, but it will be tenable and intrinsically satisfying, IMO.

    • Nicko says:

      We’re talking about a possible recession or stock market correction, not the END OF DAYS. ;)

      • Dusty says:

        Recession? We needed a recession in 2000 but we beat it back with monetary policy. We needed a depression in 2008 but we beat it back with monetary policy. Now the beast is darn big, overdue for something bigger than the Great Depression, and we are still putting off the battle.

        I thought we would have a deflationary price collapse but all indications are the FED and government are going full stupid. Not only does history suggest this, but they are coming right out and talking about negative rates and helicopter money. If so the global fiat currency will collapse. I don’t know what that looks like but neither do you. Never happened on this scale. I’m not saying End of Days, but I’m saying food and shelter starts to matter to people who have nothing. And in the Depression most of the population still farmed.
        I’m concerned about more than the number at my net worth total.

    • Murphy says:

      You and 300+ million of your closest friends hunting and gathering… sounds like a disaster. We can’t go back at 300 million/7billion.

  11. TheDona says:

    South Korea shipping giant Hanjin filed for bankruptcy. They are the majority owner of Long Beaches’ largest terminal. Implosion has started for this glorious global economy:


    • Chicken says:

      It’s called corporate welfare, prudent savers get the hose and the insider criminal enterprises are the winners.

      Mom and pop are forced out of low yield with no or negative return into risk that gets defaulted on by the criminal enterprise. Criminal enterprise buys the assets for pennies on the dollar and gets paid to borrow the money to do so.

  12. 60's liberal says:

    The fact remains: the fiscal multiplier has been turned off due to Obama’s stupidity, and Republican intransigence forcing the Fed. to intercede. Oh, yes, the history…….. Somehow there was always money for the war in Iraq and Afghanistan (Military /DOD expenditures have a low multipler than civilian expenditures) but the fool O joined the Republican chorus saying “Oh the Deficit.” It is Bush’s deficit, both moral and fiscal that is overhanging on this economy, but that can still be resolved by higher taxation on high income earners and invariant S/S taxes across all incomes.

    Since Reagan, this country has gone to dogs with Supine Democrats and the Supreme Court destroying all hope of change. Just today the S/C Republicans wrote that North Carolin’s voting laws are ok. If Scalia was still alive we would still be in the 18th Century today’s ruling demonstrates. May Scalia rest in peace!

  13. Paulo says:

    I don’t find Wolf, or this blog, doom and gloom at all. I think it is realistic. How on earth can anyone put a positive spin on + million dollar shacks, 7 year auto finance schemes, central banks malfeasance, ignorant consumers, disconnected or non-existent stock fundamentals, indebted citizens……. (you get the point).

    The values he purports of those of my parents: live within your means, have realistic expectations, be a discerning consumer/investor, and political answers are not realistic solutions.

    Thanks for the effort, Wolf, and for some of the fine comments by readers. I have learned a lot from this site. I always enjoy reading Petunia’s posts and crazy cooter, vegas Bob, Mike G, and a few others. Plus, the wonderful thing about this site is the civility. Imagine that, people who disagree being civil and not calling each other names. !!!

  14. littlebit says:

    I don’t know if there is a safe place if the SHTF. Cash will probably be hit with hyper-inflation. Real Estate, no one has the cash to rent from you. Metals could go either way. If the US econemy tanks they will more than likely take the world with them (or a lot of it). I keep about a years worth of cash stashed and plenty of metals. That years worth of cash under hyper-inflation would be short lived. It is anyone’s guess about the metals. Lock and load and take your best guess.

  15. littlebit says:

    Post script: make sure your home and car are paid for. As far as your creditors go. You can’t get blood out of a turnip.

    • Chicken says:

      Despite your home is paid for, you can still be evicted. Many property owners have lost vast amounts of land to developers due to they couldn’t increase their income fast enough to compensate their property tax increases, no?

      Now, public lands are at risk due to local governments are being forced to raise cash. Chicagoans are being saddled with higher taxes to pay for local government debt.

  16. Chicken says:

    Yes, perhaps we can examine Japan as a possible example. To authoritatively speak of any country don’t you have to at least know the unemployment rate there?

  17. r cohn says:

    Lord Keynes statements are applicable in this and many of our other discussions.
    “The market can remain irrational longer than you can remain solvent”
    ” There is no subtler surer means of overturning the existing basis of society than to debauch the currency.
    “In the long run we are all dead”

  18. nick kelly says:

    Harry Dent compares the coming liquidation of debt to 1929- 1932.
    Surely he can’t imagine that the debt was anything like now.
    Sure, margin debt to buy stocks was steep- but that was about it, apart from the WWI debts still theoretically owed to the US.
    Consumer debt was virtually non-existent. Corporate balance sheets were as pure as snow compared to the rags of today.
    The government and the FED in particular had, by comparison with today, no debt.
    The huge contraction of 29-34 was the caused by the opposite of government policy these days- it relentlessly cut spending to balance its budget as tax receipts fell- creating a vicious feed back cycle.

    This was the origin of Keynesian theory- Keynes being a man with the unusual misfortune to be pilloried by left and right- for mistaken reasons.
    The left wants to just print money until everyone is happy, and invoke Keynes. The right thinks this is crazy, and blame Keynes.

    They are both wrong. Keynes supported balanced budgets, but balanced over the economic cycle. The government would spend in recessions, spending the SURPLUS it accumulated during the boom.
    Anyone so inclined can find a biblical version of this, in the seven years of fat, the king stored wheat to be distributed during seven years of lean.

    It is often said that no two economists agree but you will have a very
    difficult time finding even one who thinks the government was correct in 29-34 to try to balance its budget.

    Unfortunately. politicians, and the public, liked the first part more than the second.
    As Dent points out the rot began with the US leaving the gold standard. Nixon did so because the US could not continue to pay for the war in Vietnam without raising taxes. (An early Brit PM- spelled something like Castlereigh, said that it was good that war was expensive because it tended to discourage them)
    But it was under Reagan that the debt first sailed off into the blue.
    The accumulated debt of the US when he took office, including all the wars since Independence was one trillion. Four years later it was two trillion.
    But as D.Stockman says in the title of his book about the period ‘The Triumph of Politics’ this was the work of politicians- not John Maynard Keynes.

    • WTFrogg says:

      Nice to see the Keynesian Theory quoted correctly with BOTH parts instead of the usual reference to just the ” print money” part as it is usually misquoted in the lamestream media outlets and political circles.

      It’s an old adage I was taught from Day 1: Put something away for a rainy day when times are good.

  19. RVC says:

    Okay Conspiracy.

    It is unimaginable for me that central bankers do not have goals and strategies and instead are ansorbed by finanacial and monetary problems the way ‘we’ face all up & downs without a clue.

    It feels like the proverbial look at the back of embroidery.

    I really wonder what central bankers are doing.

    • nick kelly says:

      First: they are not part of the 1%- although of course the salary for a Fed chief is far above average, it is peanuts compared to the CEO of a Citibank, etc.
      I have no direct knowledge of the wealth of Bernanke, or Yellen, but by US standards it will be nothing special. One caveat: the President’s salary is also peanuts but his speaking rake after he leaves office is big bucks.
      Bernanke may be raking it in now- don’t know. But his salary and wealth while in office will much lower than the private bankers he dealt with.
      (Ya ya I know many think the Fed is a private bank- if so its pay would be considered an insult)
      After Greenspan sowed the seeds of disaster it was Bernanke who reaped the whirlwind.
      What would you have done following the collapse of Lehman, the collapse of Goldman underway and the banks so petrified with fear, they had stopped lending to each other?
      Bernanke’s whole career in academia had been the study of the Depression. Right or wrong he was determined that the Fed had to act to avoid a death spiral. One big difference between inflation and deflation- the first is slow, the second can strike very quickly.
      That’s what Bush 2 meant when he summoned politicians in preparation for Fed action and said: ‘This sucker could go down’
      BTW: the bailouts of GM, etc,etc, were signed by Bush before Obama took office,

      I agree with you that central bankers face… ups and downs the way we do. And maybe it is without a clue. But when a credit bubble has been building since the 1970’s it’s not easy.
      I just don’t think they are part of an evil cabal bent on enslaving the world.

  20. squodgy says:

    GDP is the problem, not the solution.
    It is used to create the spectre of growth.
    Growth only benefits banksters.
    It creates indebtedness to banksters for everyone else.
    Bi-pass the need for growth & return to logical trading.

  21. ru82 says:

    It seems to me that 2009 was a liquidity issue when people started to not pay back their mortgages. There was a certainly a bubble because of how easy it was to get not only 1 loan but multiple loans. The bubble moved to the surrounding real estate ecosystem and all that came crashing down.

    But all of the mortgages were not going bankrupt, same with many stores that lost 50% of their stock value on a drop of 5% to 10% revenue. Such as home depot. Once the FED could stabilize liquidity by soaking up all those bad MBS then things were off and running again.

    I read somewhere where and economist said we will not have a depression again because Central Banks can print money and provide liquidity. No more banks runs…etc.

  22. Jean says:

    Wolf is not pessimist but see the reality, this is the true, maybe someone have forget what happened 2008 when the governments save the banks and the economy collapse on the world with the money taxpayer, but now money taxpayer not enough for save the banks never stop play at the casino, the central banks now also play the casino increasing huge debts governments.

    The question is, who have the pay now ?

    Why every government push for cashless ? Because the next step to have to pay for huge debts is the saving moneys deposits with impossibility run bank.

    Cash at home is first security about next banks accidents, this because the government not like you save cash and push de police take away your money if you are so naifs take hug money only one time on the bank who alert the police stop your car.

    Thank you wolf for this blog, I really appreciated.

  23. d says:

    “The Central Bankers are trying to solve a debt problem with more debt because they are neoclassical economists and haven’t got a clue what they are doing.”


    The Central Bankers are trying to solve a debt problem, with more debt, because they realise that to pay it down, they will have to accept 40 + years of Economic stagnation. As that is roughly how much forward consumption has been borrowed with the debt. Compounded by a shrinking affluent population in the consumer nation’s.

    China in particular, is not willing to accept any level of Economic slow Down. India is demanding “ME first MAKE IN INDIA”.

    The western company’s china buys with debt. Will load with more debt until they implode, as china needs to stimulate western CONSUMPTION, to continue its own Vampiric Breakneck Economic growth.

    This can only end badly, the CB’S Know this, “Now”, they simply state otherwise.

    We Moved from a Sustainable, “Quality long life product” to Unsustainable “Consumption Short life Product” based model of Capitalism. To build and sustain the city’s, at the expense of the rural society’s.

    Globalised Vampire Corporates, and china. Do not want to return to Sustainable Capitalism. Which work’s, and does not require these huge levels of unsustainable debt. As they are teh ones that will have to take the “Economic Hit” from that movement.

    They would rather crash the whole system. At some point in the future.

    That point, is getting Closer.

    Bank’s are Testing and taking about using Fully digital currency.

    This will ensure that when the system Eventually crashes, the little people have nothing, and that the Vampire corporate’s and China own all the Hard Assets.

    Central Bankers, and Vampire Corporates, know what they are doing. As usuall LIKE ALL POLITICAL FIGURES. What they tell the Little People they are doing, and what they are doing. ARE COMPLETLY DIFFERENT THING’S.

    • Sound of the Suburbs says:

      Globalisation worked well when everyone was sharing in the spoils.

      When the going gets tough the united front disappears.

      It certainly doesn’t look as though it will end well.

      • d says:

        “Globalisation worked well when everyone was sharing in the spoils.”

        Which lasted about 10 second’s until china and its globalised vampire corporate allies, deduced how to game the system for their gross advantage.

        Globalization can not work, without consistent, global: Tax, Labour, Safety, and Environmental standards, with consistent rules against state subsidy’s.

        Long before china was stealing job’s from the US, it was stealing ours in Australasia.

        Australasia, is where china fine tuned the arts of wholesale industry theft, first being shoes and underwear before, it moved onto the US..

  24. Humpty Dumpty says:

    There are good thoughts here. Everytime Dent writes a book, I go long Prozac. I think he does look through a lens that was made in too recent history, though. What we witness now is a throwback to much earlier eras and needs a longer view than 50 years. Try 2000.

    The money will get printed and lose value; the governments will grow bigger, the debt will be one of the many excuses to impose more tyranny. Dent’s ” Crash” will be a whimper, not a bang, taking place as it is right now, a simple matter really with more and more having less and less – there will be no tipping point, as he suggests, where one day we wake up and say, oh hell collectively. Rather it will be done as it is being done today – drip, drip, drip. Jobs, opportunities, markets, ideas, new businesses dissolve one by one. It takes time for debt like this to destroy; but not longer than a generation, when deprivation will be routine, shortages common, like ignorance and fanaticism. Wars will be the outlier, a general conflict would accelerate the process and bring widespread famine, environmental poisoning, and infrastructure devastation for which the funds to rebuild, or even the will to do so, will be scant. Drip, drip, drip we slip back into a more medieval time. There is no hedge against this for most of us, no secret investing formula. Staying liquid could mean hoping your liquor store remains open. It is much like being on a very slowly sinking ship – will you die of old age before it sinks to your waterline? The spectacle of watching and being powerless to stop things has its predicate in history – and almost always it was the inevitability, or so it seemed, of war. This is such a time. The psychological unease generated by a collective sense of events running out of control, described in literature going back to Herodotus and on through up to World War I was best captured by English poet Matthew Arnold in his Dover Beach: “we are here on a darkling plain….where ignorant armies clash by night.” The clash of civilizations intent on self destruction is not new, but the circumstances are, and so, as Twain said, history rhymes.

    • David says:

      That’s powerful stuff, and it echoes how I feel and see things, although my sense of impending doom comes from perceiving a combination of various huge issues that are growing in severity at exponential rates. Like population growth, biodiversity depletion, greenhouse gas buildup, antibiotic resistance, desertification and deforestation, as well as economic problems.

      Issues from all three of the sustainability domains of Environment, Society and Economy. The progress of these various crises seems inexorable, despite it being within our power to at least ameliorate them if not defeat them. And the ignorance about them… that riles me.

      In a more immediate and pragmatic sense though, it does seem that a general and severe market correction is imminent. And one can’t help but want to manoeuvre to avoid that.

      • The Visionary says:

        I am going to a Conference at Paddington, England on Tuesday where Harry will be speaking.
        I am confounded by our Governments tactics of presevation of the status quo. There have been many good ideas posted here to understand buit no vision for the future. Let me provide one.

        Western society enjoys a diet of tv/cinema and the future of the controlled population has been portrayed as negative. my conjecture is that the web is about to be capable of service to humanity like never before.

        Qeueing at A&E? Why not have a roadside blood test and diagnosis or eye test or psychological counsel with instant solution and support from the physical hospital if required.
        Money to pay for this is not required! Free to the world! How, you say. Well why not support the needy; those who are in control of their lives are the ones who will be able to happily pay tax for funding. We are now globalized, inescapably, but take out the human prejudice and waste from the exercise of compassion except that governments and society get behind this new plan.

        welfare benefits are abolished! The web will know if you do not pay tax, if you are drug dependant, if you don’t work but there will be no need to rob or commit other heinous crimes as all your needs are provided for free of charge. Everyone if they need money will be given it but where is the fun in that?

        The idea is that the whole word is supported by the web of social service- off which the individual will get weaned by assimilation into the taxpaying, happy productive members of society.

        Culture, human relations, jobs are the preserve of the productive, spiritual, rational, educated with countries retaining their identity.

        Many institutions will become obsolete as the benign web will administer aid and no intermediaries or government will judge and make a living off the poor and sick. The red cross was started by Henry Dunant and was soon international. The web has the ability to lift everyone through support. The Red Cross will be redundant because their will be know more wars. Boundaries will disappear because culture is being enjoyed and promoted while cultural domination will become a thing of the past.

    • VK says:

      The slow drip, drip, drop of catabolic collapse. Well thought out post!

  25. brian says:

    wow, I can remember only a couple of years ago there being only enough comments here to count them on one hand and now…gee whiz; is the smell of smoke in the theatre growing thick enough to cause more than just a nervous rustling in the seats or what!

    When facing total lawlessness nothing is safe and nothing is even close to certain, any preparations one might make could prove to be just as utterly useless as if nothing was done at all, that is what chaos does; prepare to be extremely angry, extremely miserable and extremely helpless.

  26. David says:

    I thought I’d post the link below not because I want to extend the debate but to draw attention to how wide it is. A few years back I set about to write a book about the challenges facing humanity. I identified twelve key issues and created a series of tiered cause and effect matrices to try and determine what was driving what, and what was being driven by what. Granted there was a large degree of subjectivity in this process, but no matter how I played it, our economic system came out as the prime driver of all of our problems. Those mentioned in this article – population, resource depletion and climate… inequality creates poverty which is recognised as a key driver of population growth… our high consumption economic model drives resource depletion, and also greenhouse gas emissions. And these three issues themselves reinforce and drive each other.

    Be it at a high level, it’s hard not to blame our approach to economics for our many woes and challenges, and the coming collapse, in my opinion (if you’re a CC sceptic, at least consider all the other foes we face).

    It seems to me that a debt based, model that relies upon percentage based GDP growth and so exponentially increasing resource use, together with a focus on enterprises generating shareholder profit as a their top priority whilst externalising real costs and impacts, together with an aspirational and individualistic society, is a combination of forces that can only drive us towards disaster. And it would seem that what’s required to change this isn’t about economic policy or approaches, it’s about changing societies. And from that would emerge new business and economic models that actually serve our needs. So any amount of discussion about current approaches is missing the point, because they all talk in terms of the existing paradigm, when what we need is a completely new one.


  27. David says:

    In slight contrast to my last post (I’ll shut up now), this is an interesting read that’s perhaps more directly relevant to the theme of discussion. I hope Wolf doesn’t mind me posting this link (the page does link back to you as it happens)


    It’s the first of four parts apparently. I found the numbers relating to cash hoarders in the UK, at the end, surprising.

  28. interesting says:

    “And I have a new book coming out”

    so this was an advertorial……..okay, got it.

    • Wolf Richter says:

      Did you see a link to the book? Nope. An encouragement to buy it? Nope. In fact, you can’t buy it yet.

      An author talking about a project. That’s it. I wrote two books. We (authors) talk about this stuff because it’s important to us (though it may not be important to anyone else), and we want people to know about it. Guess why people write books? Because they want to share something they think is important.

  29. R Davis says:

    “when we went off the gold standard.”

    I have problems with this.
    I cannot for the life of me get my head around the notion that there was, ever, that much gold in existence, so as to cover the amount of currency in circulation.
    Surely it was just a ploy on the part of the “money men” & for what reason I’m not sure ?
    How much gold needed to exist, so as to have the currency pegged to it in the good old days, they traded chickens & sacks of potatoes for goods & services back then, so .. “not much” is a good answer.
    As for the Massive Financial Crisis everyone has been predicting since way back when.
    It will make everyone broke .. now think about this .. EVERYONE ..
    Exactly who in the upper echelons of lifestyle that costs big money, is relishing becoming broke ?
    Today, like every other day, the currency has been shot higher & higher into infinity as a survival measure.
    So I feel that unless there is a glitch in the software of the computer system that holds everything together, the world will just coast along as if nothing is happening.

    • d says:

      The Tokugawa Shogunate, was bankrupt for most of its 250 years of existence.

      The lenders allowed the Shogunate to continue, as long as it kept making the Annual “Vig” (interest payments).

      What the Shogunate and its Financiers could not control.

      Was the upheaval, caused by the intervention of outside forces.

      In that case, the Aggressive, American Expansionist, Perry, and his Fleet.

      It is a good and simple example, of what happens, when a stable control entity and its financiers, are disrupted by outside forces, they can not control.

      The CBS and the states, can continue this, QE, NIRP, CB buys everthing in the markets, game, until they run into a disruption. They can not control.

      That is a when, not if. Event..

      Next week, or next Century. Although we are coming to the end of many cycles (Economic Political, and Social/Revolutionary). In a short time frame between now and 2100.

      china in particular has gone, to far, to fast.

      It will be very interesting to see, where the West, india and china, are, by 2050.

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