Debt Addiction: Polluting the Economy for 40 Years & Counting

Harry_headshotWhen you don’t talk about a problem, it can rear up and can kill you.

That’s why former congressman Patrick Kennedy came out about his addiction after crashing into a traffic barrier on Capitol Hill back in 2006. And why he’s just written a book about mental illness and addiction, centered on his own family’s relationship with these issues.

Few families are more secretive than the Kennedys. The Kennedys started out bootlegging in the ‘20s. And there’s any number of conspiracies surrounding their dynasty, fame, and fortune.

He discusses the “pathology of silence” that happens when a family ignores a problem for so long, pretending like everything’s normal. Meanwhile, you’ve got an addict in the house destroying the lives of himself and his family. That isn’t normal. It’s a disease, but nobody talks about it. Silence is the status quo.

Our economy suffers from its own addiction, as do we.

We’ve been addicted to debt and Keynesian economic policies since the 1970s. By a substantial margin, debt has grown faster than the economy for four decades.

And now, we’re facing the greatest debt crisis since the 1930s…

Surprise… surprise… surprise.

This is the very nature of addiction, and denial of said addiction.

EVERY addict goes through denial. And ALL debt bubbles in history have ended in periods of austerity, when we’re finally forced to admit our problems… get the addiction out of our system… re-balance, get straight, and grow again.

That is the picture of our economy over the past several years. We’ve been trying to cheat the system. And now it’s coming back on us.

It’s human nature to strive to be better, and have a better life. But we also have a natural inclination to cheat to accelerate the trend.

Instead of getting ahead through hard work, innovation, and better technologies and systems, we use questionable strategies like borrowing more than we can afford.

Then when such debt goes beyond its natural means and sustainability, we lie. We keep cheating. We do anything to keep up the high.

We’re like frogs in slowly boiling water. We don’t realize we’re in trouble until it’s too late to jump.

It’s natural (and fiscally responsible) to finance your house over 30 years while you live in it and raise your family.

It’s natural to finance a car over five to six years through its natural use.

But it is NOT natural to borrow against rising home values to speculate in real estate, or in technology stocks that are totally unproven, or new businesses and markets that are the same.

The baby boomers drove our economy and the great boom we enjoyed from 1983 to 2007 as they ascended predictably in their productivity, income and spending cycle.

Then from the mid-1990s forward, it was characterized increasingly by speculation, rather than productive investment in the future.

Everyone wanted to make money from stock or real estate speculation and to retire early or stop working forever. We became addicted to the idea and the means of achieving it.

The truth is that we should be retiring at age 75, not 65, especially given our much higher life expectancies today. And governments should be actively working to restructure our massive debts in the most civilized manner, like a “Chapter 11” debt restructuring, rather than flooding the economy with artificial money.

Now, we pay the price.

Retiring early and on speculation is not the “American Dream.” We’ve been seduced by Keynesian economics for too long, and it simply can’t continue.

We’ve grown out of touch with reality after nearly three decades of the highest growth, productivity gains and investment gains in history. But such booms and debt bubbles are always, and I mean always, followed by periods of austerity and deflation so the economy can re-balance and deleverage.

To get us back to reality, it will require a major financial crisis already in the making… not more of the crack we’re addicted to.

So, plan on that!

As I said in an update to Boom & Bust subscribers this morning, I believe we’ve only seen the beginning of a larger crash in stocks, with the economy and real estate to follow.

From here on until the next bull market, you should be out of passive stocks and risky investments, and only invest using active strategies like the ones we house here at Dent Research, or take a tip from the smart money and sell short to some degree.

Our newest analyst, John Del Vecchio, has developed a system to do just that, and with stocks at the breaking point, it’s a system ideally suited for today’s markets. Read the details here.


Harry

Follow me on Twitter @harrydentjr

 

Categories: Deflation

About Author

Harry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.