The suffocation of unsustainable global debt – Total global debt is now over $190 trillion and more than three times global GDP. Contagion with European Union.
The biggest market in the world is the European Union and debt problems are still rippling through the global markets. It is apparent with the financial crisis that the global markets are tied together by large banks and interconnected trade. A problem in the largest market should be unsettling and the unemployment rate in the European Union is now at a 15 year high. The global debt problem was never really solved but papered over with extensions and banking trickery. The US has dealt with much of the debt issues by suspending major accounting rules and stuffing bad loans into the Federal Reserve like a Christmas stocking. The European Union is facing some challenges ahead and all eyes will be watching given the impact of contagion impacts. Greece was only a tiny sliver of the debt issues compared to the major debt restructuring that will be necessary for a large economy like Spain.
The phony economic deception machine – JP Morgan Chase CEO earns $23 million in 2011 while 2.7 million foreclosures are filed in the US. GDP at record levels but employment figures down by 5.3 million from their peak.
The US economic and political system is doing an excellent job sealing off opportunities for millions that aspire to be part of the middle class. Many are starting to realize that the system is rigged in favor of large financial institutions and those with political connections. The idea of raw success based on talent can be thrown out the window with the corporate welfare generosity leveled at the too big to fail financial institutions. Many Americans are being told that forced austerity is a necessary part of rebalancing yet the CEO of JP Morgan Chase just received $23 million in 2011 while tens of thousands of foreclosures riddled Chase’s balance sheet. Earned success? If we examine real GDP the facts show the US economy is as large as it has ever been but we are running it with over 5,300,000+ fewer workers. The system is designed to extract economic rents from the public and drive them into a few select sectors. The working and middle class are feeling this change deeply as noted by the over 5 million fewer workers that we have.
The creeping cost of consumer inflation brought to you by a lower US dollar – Americans squeezed as inflation filters into the cost of daily life. The uncertain employment market of low wage work.
There are unintended consequences when policy aims at depreciating a currency in favor of bolstering an ailing banking system. The Federal Reserve has been on a multi-decade mission to lower the value of the US dollar. The primary purpose of this mission is to inflate banks into solvency as they try to work their way out of the massive financial crisis. The amount of troubled real estate loans is still impressive when we look at the temporary sanctuary being provided by the Federal Reserve on their overloaded balance sheet. This luxury is not afforded to your common household and consequently many Americans are now facing higher and higher costs in items like energy even though demand is slightly lower. This occurs for a variety of reasons but a main driver is the declining purchasing power of the US dollar. This permeates over into the employment market that is largely being driven by lower wage positions. Inflation is creeping back into the economy.
Expanding the debt bubble to a tipping point – US government debt growing 4 times faster than GDP. Retail investors largely out of stock market.
The global market is being held together with the veneer of massive debt duct tape. The solution for much of the European debt crisis was to simply add more debt to the current situation. Solve a debt problem with more debt in other words. All this does is delay the inevitable. The hope is that somehow GDP in these countries will grow fast enough to pay off existing debts but the amount of debt is so enormous that it is mathematically impossible without inflating currencies away. Even the US is mired in enormous levels of debt and the pace of debt expanding is by far outpacing GDP growth. This is a major concern especially given the slower pace of GDP growth. Massively increasing debt beyond a serviceable level is always an issue especially when the core problem is solvency. Just look at what happened with US households and the recent debt bubble. Just because you have access to debt does not mean you should expand at an unrelenting pace. I wanted to pull some data showing the constraints of massive debt growth.