For the better part of the last decade, you’ve probably heard the politicians and the media tell you the same thing, over and over again. “We’re on the road to recovery” or “the Great Recession is over.” You gotta love how they call it the “Great Recession,” as if it was as bad as the Great Depression, but they can’t quite bring themselves to call it that.
In a sense though they are correct. Things are marginally better now than they were in 2008. But I say ‘marginally’ with reservations. It’s a little easier to find a job, but they don’t pay as well as they used to. Gas is cheap, but only because the economy is slowing down, and pretty much everything else we need to survive including food, medicine, and shelter, is more expensive. The stock market has recovered over the years, but that has done little to alleviate the financial woes of working class Americans. etc etc.
Unfortunately, this lukewarm recovery has come at a cost. Normally, a recovery doesn’t cost a single dime to society, because a real recovery involves letting the chips fall where they may. Companies go bankrupt, the crooks go to jail, and cuts are made to balance the budget. Once the chaff is cut from the economy, new investments can get the ball rolling again, and everyone has more opportunities. The net balance of society as a whole, is in the black.
We didn’t get that after the last recession. Instead, all of the gains our economy has made over the past 8 years have been paid for with debt, both public and private. Our government’s debt has grown from $9 trillion to $18 trillion since 2007. When private debts are included from both individuals and companies, America is $60 trillion in the hole. Globally, debts grew from $142 trillion to $199 trillion between 2007 and 2015.
Jeez, fake recoveries are expensive.
So what happens to all these debts when our country inevitably runs into another recession? Either the debt bubble will pop, or we will accumulate more debt to sustain another paltry recovery. Now that the markets are looking shaky, and it’s become apparent that we’re about to enter another recession, we will be faced with both of those possibilities. Though in all likelihood, our debts are so massive that they have no more room to grow. We can’t inject anything else into the system without it bursting at the seams. At least, that’s what one economist and central banking insider recently admitted to the Telegraph.
“The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up,” said William White, the Swiss-based chairman of the OECD’s review committee and former chief economist of the Bank for International Settlements (BIS).
“Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief,” he said.
“It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something,” he told The Telegraph on the eve of the World Economic Forum in Davos.
That will be the real breaking point. Somehow, there is this mass illusion that the debts we have will eventually be paid off. Or perhaps, the world knows they won’t be paid off, but we all just keep pretending that they will so the show will go on. At some point however, these debts will become impossible to ignore and unavoidable. At that point, people, governments, and private companies will stop paying them, either by choice or because they can’t afford them.
When that happens, the whole house of cards is going to come crashing down. Considering the fact that all the money and assets in the world amounts to about $241 trillion, and the world’s debt is at around $200 trillion, it’s safe to say that the results will be catastrophic. A significant chunk of the world’s wealth is just going to evaporate. So buckle up, this next recession is going to be a doozy.