Government Stimulus and Low Interest Rates = Massive Debt

Harry S. Dent | Thursday, January 10, 2013 >>


We have been warning for over 20 years that the 2008 downturn was inevitable.

The simple fact was, back then, the largest generation in history was due to peak in their spending on a 46-year lag on the birth index.

Typically, at such a time in a generation’s spending wave, businesses and consumers are more confident. They borrow more, speculate more and over-expand just when the boom comes to a natural end.

That creates excess debt and capacity that needs to be re-balanced during a period of austerity.

But in this latest boom, unprecedented government stimulus and low interest rates enabled such debt building and speculation to explode through the roof!

And now governments won’t let nature take its course. They refuse to let the bubble deleverage and they’re attempting to hold the inevitable at bay through unprecedented, accelerating and endless stimulus.

They’re behaving like drug addicts who take more of their drug of choice to keep from coming down off the high. Eventually they collapse or die.

Do you want to bet on such unbelievably reckless government strategies, or do you want to protect yourself from the next great crash and depression?

That’s what I thought, so listen up…

There is no magic wand that can get us through this coming period of austerity without any pain. Every major debt bubble in modern history proves it. Every one, without exception, has been followed by periods of depression and austerity. That’s how the system resets.

It’s the winter that clears the way for spring to take place.

Once a debt bubble goes to extremes (which is human nature), and a technology or generational cycle peaks and recedes, there will be a period of austerity and sideways to downward trends in the economy and markets. These typically last between five and 13 years, depending on how severe the debt bubble and how long the demographic downslide.

Our debt bubble, from 1983 to 2008, is the largest in modern history by any measure.

The Baby Boom generation is the largest in modern history and, as such, amplified the massive debt bubble.

Now demographic trends point down into 2022 and debt deleveraging will increasingly weigh on the U.S. and most developed countries for years to come.

This crisis will be on the longer side.

Plan on an on-again-off-again financial crisis over the next decade. The worst of this crisis is likely to come between mid-2013 and early 2015. That’s when government’s delusions of power will finally dissolve. They’ll finally realize that endless stimulus programs are increasingly met with a decline in spending.

Your strategy should be to build cash flow. And then build some more.

Sell your investment assets now and reinvest when they inevitably crash. Develop cash flows from assets you can’t sell, and from your own work, business and entrepreneurial instincts.

When Humpty Dumpty finally breaks and falls, you’ll see the greatest sale in your lifetime on almost all financial assets.


Harry

 

 

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Categories: Purchasing Power

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.