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Investing the Family Money on Planet Debt
Today, I want to talk about something I believe will be critical to our mission of building long-term family wealth: the saturation of debt in the global economy. We no longer live on Planet Earth. We now live on Planet Debt.
A recent report from the ‘central bank of central banks,’ the Swiss-based Bank for International Settlements (BIS) throws this into sharp relief. It told us that world debt levels have soared since 2007.
Contrary to the popular belief that the global economy started to deleverage following the 2008 debt crisis, the BIS reports that between 2007 and 2013 the world took on about $30 trillion more in debt – a 40% increase.
To put it another way, it took Planet Earth about 4,540,000,000 years to reach $70 trillion in debt. The next $30 trillion came in a flash – just six years. At the present rate, in about 2028 the world will have twice as much debt as annual economic output (GDP) – the level more or less of debt-soaked Japan.
But if the rate of increase continues on its asymptotic launch path, we could reach this level sooner: like the day after tomorrow. The incontestable fact on the table: This debt bubble will implode. Families who understand this will be able to protect their legacies. Those that don’t will see their savings flushed away in the following debt deleveraging.
Just seven years ago, the developed world entered into a major debt crisis. At the time, world debt was only $70 trillion. According to Neil Barofsky, inspector general of the Troubled Assets Relief Program, the most aggressive EZ money program the world has ever seen followed.
The Fed alone put at risk about $23 trillion of guarantees and assurances to keep the debt bubble expanding. Other estimators put the total cost of US recovery efforts at over $10 trillion. This does not include the collateral damage caused by the US Federal Reserve’s zero-interest-rate policy: the compressor that has done the most to inflate this bubble further.
Read the rest of this article at The Daily Reckoning
