I consider it that because of unsustainable levels of debt that keeps growing relentlessly, driven largely by government borrowing.
Debt has grown by about $60 trillion since 2007, which is a compound annual growth rate of over 5%, way above Gross Domestic Product growth in major economies (China may claim a faster GDP raise, but they also admit that their official economic indicators are “for reference only”.)
The underlying cause of this debt glut are trillions of free or cheap money created by central banks since 2009, combined with near zero interest rates. And then money multiplication happens on the commercial banking level, which is really the creator of liquidity in the economy.
John Maynard Keynes once wrote that money is a “link to the future” – meaning that what we do with money is a signal of what we think is going to happen in the future. What we’ve done with credit since the global crisis of 2008 is expand it faster than the economy – which can only be done rationally if we think the future is going to be much richer than the present.
It appears that the only way in which the expanding credit mountain can be an accurate signal about the future is if we are about to go through a spectacular productivity boom. The technology is there to do that, but the social arrangements are not. And they’re not easy or fast to develop.
So if the borrowing is not sustainable, then one needs to ask himself the question how is this going to end? Consider that the governments across the developed world, almost without exception, run fiscal deficits year after year, never repay anything, just roll over the maturing obligations and borrow more to cover the current shortfall.
France, for example, had a balanced budget last in 1969 – that’s half a century of fiscal mismanagement.
The US is heading for trillion-dollar annual budget deficits from 2020 as Republican-led tax cuts and higher public spending strain the nation’s finances
Against this background, we’re entering a period of rising interest rates, a trend already visible in the US. The European yields are still suppressed because of the ECB buying spree, but they are the market – once the European Central Bank stops buying, or even slows the pace, there will be no other bid.
Who else would buy Italian 5 year bond at 1.2% given the house of horrors that is the Italian economy? No wonder they made it illegal to short government bonds.
The truth is that the ECB (same like the central bank in Japan) have destroyed bond markets in their respective areas and have nothing to show for it in terms of growth.
A change is coming and will be an opportunity for a prepared mind. Impossible to know when and which form it will take, but it will happen. A new monetary order will be established, like it happens with some frequency in our history.
It could well be an opportunity of a lifetime to make it big.