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One development
that convinced me by late-2005 that a major financial crisis was on the way
(contrary to popular wisdom), and which inspired me to put together a book
proposal on that very subject (at the risk of looking like a fool, I might
add), was the fact that the total amount of public and private sector debt
outstanding relative to the size of our economy had reached levels that were
last seen at the onset of the Great Depression.
So, what has
changed in this regard since Financial Armageddon was
first published in March 2007?
Not a lot,
really.
In fact, as Forbes
contributor Rob Clarfeld notes in "What
Deleveraging? Financial Relativism and the U.S. Economy,"
citing data (and a chart) from Bianco Research, our
aggregate credit market debt has actually grown
since the ostensible end of The Great Recession. According to Clarfeld,
total
credit market debt has increased to nearly $54 trillion. While the private
sector debt burden, currently, has declined from $33 trillion in 2008 to $30
trillion, during this interval, public sector debt levels have risen to a
record $24 trillion. Relative to GDP and the ability to service this debt, we
have deleveraged from a high of 385% total debt to GDP in late 2008 down to
353% today – not very much considering the depth of the last recession.
Even if only
modest, this sounds like we’ve at least made some progress, right? Once
again, this is only true in a relative sense. We have lowered our debt
relative to GDP from their worst levels ever, to the levels that existed way
back in…2007 — yes, 2007 — when the financial markets
figured out that we had borrowed way more than could be paid back, to be
followed by a major credit crisis and the worst recession in 80 years. We
have barely moved the needle.
Almost time for
financial Armageddon 2.0 (the event, not another book)?
Michael J. Panzner
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