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Friday, March 3, 2017

A Very Scary Chart!

 This is a very scary chart on lots of levels. First, look at the current debt to GDP. Servicing the debt at 2 1/4 percent interest is manageable......serving it at 6+ percent would be catastrophic! Now, if you had greatly enhanced GDP growth and a serious attempt at debt servicing, you could avoid a calamity.  Doubt that will happen though. Looking at 3, 5, and 10 year earnings growth shows that we have climbed precipitously high in the market based almost exclusively on cheap money from the fed. If you look at personal/corporate debt, corporations have a lot more options to handle it including buy backs, dividend cuts, and secondary offerings....families, not so much! Cutting taxes may give GDP a boost, but certainly won't help federal debt, and I doubt would be a moment where families can afford to service their own debt. Add 40 billion potentially for a useless wall and God knows what for the military and a big infrastructure program, and this could all get ugly in a new york minute. It just seems that we are in for a decade of really subpar growth, a market that is substantially overpriced, and ripe for one of those black swans swimming bye......

3 comments:

TerribleTerry said...

I had a foreign friend at school who knew he wasn't going to get sponsored for job here and would have to go back. He got a dozen credit cards an ran them up buying things that friends needed. They gave him the cash they would have given the store. He then ran back to Russia with the cash (and a ruined US credit score). He's never returned and owns a nice downtown apartment in Saratov paid for by that money. I think this is our trajectory. The entire world is so far into debt that nobody certainly at this point can pay. So both parties will try frantically to take care of them and theirs, spend money on the things they care about.....knowing that we'll have to default at some point. So the plan needs to be, what to have and hold when it falls apart. My buddy decided an apartment in his hometown. Trump has decided a wall and military equipment.

Terrible Dad said...

Very good son! As interest rates rise, more and more countries will struggle to service their debt. And I guarantee those tough choices will not serve anyone but the oligarchy.....Pop

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