Dr Fabers long term chart is misleading since it does not include inflations impact. I would like to see said chart delineated in constant dollars. Corrected for inflation. I know the government inflation figures are lies but they are the only game in town and will show a completely different chart than the one shown. Remember "Do not trust any financial news". It is all written with purpose not necessarily for your benefit.
All good points.... One can think about it this way..... All the money in the world is in a box.... It contains $100 Trillion.... The $100 Trillion is represented by cash, stocks, bonds, derivatives, real estate, private businesses.... The loan value amount is $60 Trillion.... Thus $60 Trillion is available to price goods and services.... The upper 2% of the population controls 80% of the assets.... ................................................................................................ The next year....the loan value drops by $30 Trillion..... Thus there is $30 Trillion less to value goods and services.... However the same amount of goods and services are available....in fact more ....because the majority of the population has their economics changed dramatically with respect to common goods sold..... Collectively.....The downward pressure on prices is rather dramatic....
No doubt that the 60 trillion loss has an impact. However, the impact will not destroy the world. We may go into a Depression (in one now, but it is not going to show signs like 1929.) The people who are taking the core hit are those who were leveraged. Individuals, companies, etc that are leveraged are taking a beating. Public companies with solid balance sheets are taking a beating because of "Share" prices slashed in half, devaluation of their "companies" worth. So far, the Private Sector is strong. Sure, there is a slowdown and 5% may go under because they are not diversifyed. But all in all, 95% of Private Industry is far better off than 95% of the Public companies. As I stated before, Private Industry so far, is holding up.
This is one of the biggest misconceptions out there. A loss on paper can still be considered a loss in value, specially if that paper is used as collateral for other purposes. Just like a loss in value of your home -on paper- has a direct effect on your wealth. If the house decreases in value beyond its mortgage, you are now in the red with the bank which may enforce new collateral, a cash infusion or liquidation. If there is a 60 trillion loss in value out there, there is mass insolvency. And that is not on paper, but on accounting books.
The problem is everyone is overlevered. How many people do you know that have no debt and several million in cash? Not equities. Its not the wealthy because they are levered up beyond belief chasing returns
how would you define over leveraged? The concept of leverage is one of the great economic achievements of the past 150 years.
Classic example is 'Ambani Brothers' owned Reliance Power company which received $200 Billion IPO subscription where the IPO was for $2 Billion only. Fortunately later on the stock market crashed, if not then investors (hedge funds & mutual funds) would have invested $200 billion in a "worthless company" which was original valued at $2 billion through the stock market . That is 100 times over-valued or unrealized gains. Majority of $200 billion investors are from USA and Europe. Ambani's are the owner's of most over-valued, over-hyped, over-invested & basically worthless "Reliance Industries". No Company or Investment Firm in the world will ever pay the current market capitalization for acquisition of Reliance because the profits are not worth it. There is no future. Basically there is "blind investments or unrealized gains" into Indian companies from local and international investors (hedge funds & mutual funds). There is no sales future. That's the reason I always write "China & India will crash to rock bottom now.