In 2000, the total private credit market debt was 27138.3 billion dollars. By 2008, it had nearly doubled to 52589.0 billion dollars. Total private credit market debt has since stagnated and decreased for the first time in history. http://www.federalreserve.gov/releases/z1/current/accessible/l1.htm Please, what is your opinion of this? Debt levels have nearly DOUBLED at the same time there has been ZERO real economic growth.
1) It's better to say "nearly 53-trillion" instead. 2) Stagnating and declining debt is indicative of pending deflation. :eek: 3) At a minimum, the next few years will be "bad".
All good points. One wonders what happens when interest rates rise and the debt again has to be rolled over. Right now corporations are borrowing large amounts of cash into bond market strength in anticipation of higher borrowing costs. As long as people are willing to spend (code word for borrow) the debt money creation process goes smoothly. At minimum, interest rates must stay low for as long as economic growth is low as not to unduly burden the debtor's loan servicing process. There is no reset button for the monetary system and by all appearances things have gotten very convoluted with vast fictitious "assets" in the hands of non productive parties (banks). There are too many risk factors and I am just scratching the surface here.
The answer is money velocity - the number of times the same dollar circulates through the economic food chain as one purchase "pulls" the demand of sequential upstream inputs. The key to a robust, strong economy is high money velocity, or, IOW, a highly vertically-integrated economy where raw material producers/extractors > refiners > designers/engineers > manufacturers > wholesalers > retailers > after-sales are all domiciled in the same Country. This set-up maximizes employment/GDP for every dollar spent. In the mid-90's, the West carved out a massive chunk of it's productive sector and gave it to Chindia, in the form of offshoring/outsourcing. That decision to export most raw material extraction, manufacturing, design/engineering services and after-sales customer support decimated Americas money velocity. Now, every dollar spent employs only ~half as many as it did before. The explosion in consumer credit after-the-fact was intended as more of an economic white-wash to cover-up the ongoing devastation globalization wrought on G7 economies. That's the first reason = outsourcing = diminished money velocity = less jobs for every dollar of debt/credit spent. The second causative factor for the disconnect between debt and stagnant GDP was mal-investment spurred by Greenspans credit orgy. Investors, fooled by the mirage of legitimate growth, borrowed massive sums of money and invested in the stock market or business start-ups. When the economy imploded, their stock "investments" (that contributed little to growth in the first place) imploded along with it. Precarious start-ups and business expansions financed by private debt got bankrupted and flushed into the '08 credit collapse. All that equates to huge increases in private credit having zero long-term effect on economic growth or GDP.