Several very worthwhile articles about debt and the economy have been published recently. Here's a roundup.
1. John Mauldin's latest 'Thoughts From The Frontline' newsletter continues his analysis of debt and what it's doing to the world economy (hint: nothing good). A brief excerpt:
I believe the fundamental imbalances we are seeing in the world ... are the result of the massive increases in global debt and misunderstandings about the use and consequences of debt. Too much of the wrong kind of debt is going to be the central cause of the next investment crisis.
. . .
... high levels of debt are the reason for slowed growth in the developed world, a point we have highlighted for years in our research. There is a point at which too much debt simply sucks the life out of an economy.
There's much more at the link. Indispensable reading to understand our biggest single financial problem today, as a nation, as businesses and as individuals.
2. I've written often about the threat of automation to many (if not most) of the jobs people do today. That threat is even more dangerous in third world countries and economies, which don't have the social 'safety nets' that most first world societies have put in place over the past three-quarters of a century. Walter Russell Mead examines this problem.
Some call it “The Second Machine Age,” some call it “post-Fordism,” and some herald the emerging “information economy.” But no matter what you call the coming change, the march of technology will require a fundamental reorganization of how human capital is deployed in the economy, and nobody quite knows how to prepare for it. Latin America is especially vulnerable, and while the region’s economic leaders are officially optimistic, there’s also an unmistakable note of fear.
. . .
Latin America never really managed to develop a successful and inclusive social and economic system in the age of the blue model—the “First Machine Age” when industrialization supported armies of well-paid manufacturing workers and clerical employees ... Now, a new industrial revolution is challenging the blue model Fordist utopias of the First World—and Latin America faces changes for which it is poorly prepared.
Again, more at the link. Sobering reading. (The same problem is now hitting Wall Street investment firms, which gives me a certain amount of schadenfreude.)
3. CNN reports that the US economy is showing cracks.
The U.S. job market had its best year of gains last year since 1999, and economic activity hit a whopping 5% in the third quarter -- the best quarter since 2003.
Three months later, the U.S. economy is looking a little tired. It's losing momentum in puzzling ways. Hiring is still strong, but experts are starting to scale back their growth forecasts.
Federal Reserve chair Janet Yellen summed it up well in a speech Friday: "If underlying conditions had truly returned to normal, the economy should be booming."
Economists say there are two main problems: Workers' wages aren't growing much, if at all. As a result, Americans aren't going out and spending much. On top of that, many foreign economies are slowing down, which puts pressure on the U.S.
The question going forward is whether we're just in a blip or a bigger shift is taking place.
More at the link.
I think the answer is simple. First, the employment figures are bogus (we've discussed this problem before at length). Second, the US consumer is tapped out, still paying off a heavy debt burden (again, much discussed here) and earning much less thanks to Obamacare, which has penalized businesses for employing full-time staff. It's noteworthy that most of the jobs created over the past two to three years have been part-time positions (meaning 30 hours or less per week - usually less). That means workers have less money, and with the vast number of unemployed seeking jobs, it's harder than ever to find two jobs to make up the slack. It's not hard to understand.
4. The Guardian points out the danger - and increasing likelihood - of a debt-fueled crash in the world economy.
Ann Pettifor of Prime Economics, who foreshadowed the credit crunch in her 2003 book The Coming First World Debt Crisis, says: “We’re going to have another financial crisis. Brazil’s already in great trouble with the strength of the dollar; I dread to think what’s happening in South Africa; then there’s Malaysia. We’re back to where we were, and that for me is really frightening.”
Since the aftershocks of the global financial crisis of 2008 died away, the world’s policymakers have spent countless hours rewriting the banking rulebook and rethinking monetary policy. But next to nothing has been done about the question of what to do about countries that can’t repay their debts, or how to stop them getting into trouble in the first place.
More at the link.
Folks, the economic fundamentals have not changed. All we've done for years is papered over the cracks with endless billions upon billions of dollars of newly-minted money, which has not been backed up by added value in the economy or any assets to underpin it. Sooner or later those pigeons are going to come home to roost. When you get sources across the economic spectrum begin to point that out . . . it's time to listen.