Harry S. Dent | Thursday, January 14, 2013 >>
First the fiscal cliff.
Now the debt ceiling.
The people running the show are idiots.
I’ll admit there are times when it makes total sense for governments to step in and provide short-term liquidity or stimulus to an economy. For example, it would make sense when we have a short-term crisis, like an isolated breakdown in a major bank or hedge fund, or a natural disaster, like the tsunami in Japan.
At times like that, the economy shouldn’t be allowed to decelerate unnecessarily.
But to use endless and ongoing stimulus – to constantly knock up against the debt ceiling – to prevent an economy from dealing with a structural crisis reaches new levels of stupidity.
Let me make this crystal clear. There is NO way the government can stop the debt bubble we sent soaring to excessive levels from deflating. They can’t stop the natural slowdown in generational spending cycles either.
Racking up trillions and trillions of dollars in debt and deficits, increasing the debt ceiling over and over again, only prevents the economy’s very natural and efficient processes of re-balancing itself so that it can grow again.
Think about it this way: how fast can you run with a 300-pound weight on your back?
The U.S. has private and public debt ratios higher than 400% of its GDP (incidentally, Japan’s debt ratios are more than 550%).
That is more than double the ratio of 190% the U.S. had in 1929, before the Great Depression hit.
If we do not allow economies to slow and deleverage such unprecedented debt levels, we will not grow again. Need proof? Just look at Japan. It hasn’t grown worth a damn over the last 23 years since its debt bubble peaked.
And guess what! The unavoidable austerity that follows each major debt bubble is painful. Every major debt bubble in modern history proves it. Look at 1820 – 1835… 1857 – 1873… 1912 – 1929… and now 1983 – 2007. Every single one was followed by a period of austerity or depression that lasted five to 13 years.
You can’t get drunk without a hangover!
After the binge, economies must move sideways, at best, and we see massive debt restructuring that takes much of that 300-pound load off the backs of consumers and businesses.
This time around (2008 – 2022), with demographic trends that see slowing in spending and economic growth, debt restructuring is the only way the economy can free up cash flow for growth again.
It’s like staying in bed, resting and drinking plenty of fluids after catching a cold. Our bodies have the natural wisdom to re-balance… to flush the toxins out.
Excessive debt becomes like a toxin that needs to be flushed out of our economy.
Our number one goal in the next decade should be to erase the $22 trillion in private debt created in the extreme bubble from 2000 – 2008. That would greatly relieve the cash flow of consumers and businesses. In fact, that alone would free up as much as $1.5 trillion a year in principal and interest for decades to come.
Now that is a stimulus plan!
We also need clear, long-term policies to erase our now chronic government deficits and rising debt. And that we’ll discuss tomorrow.
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