Phi Beta Iota: 10 more years of pain.
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While the political elite obsesses over the rise in public debt, the US is on the cusp of an era of deleveraging — or more bluntly, a massive liquidation of private debt — the ramifications of which, in the best of times would be colossal, but could well be disastrous the irrational obsessions of our political elites work their magic.
The real policy question that will determine the future well-being of the vast majority of Americans is how liquidation of their private debts unfold — rapidly via rising waves of bankruptcies, foreclosures, and repudiations, as happened in the 1930s, or more gradually, which will require some kind of active intervention by government, and for which there is no real precedent, and clearly no acumen among the elites in Versailles on the Potomac.
Either evolutionary pathway will be painful, because the liquidation of private debt will require cutbacks that reduce aggregate demand and investment, thereby slowing growth and pushing the economy into a period of sluggish growth over the long term or into a depression (some economist argue we are already in a depression).
Continue reading “The Age of De-Leveraging is Just Beginning”
