Robert Colby Asset Mgt. New York, Commentary and Opinion

The global debt load surges higher and higher, adding to risks to the global financial system. In the next recession, overextended borrowers (whose numbers are large and growing) may be unable to pay on their loans, and debt defaults could mushroom, leading to general systemic financial distress. The total of all forms of U.S. debt, including government debt, business debt, mortgage debt, and consumer debt, is now more than $59 trillion. The great majority of this debt has accumulated in recent decades–and at an accelerating pace–with the exception of the financial crisis of 2008, when lenders were afraid to lend. This unsustainable growth in debt has blown the greatest debt bubble of all time and has put the economy and financial system at risk.

And it is not just the U.S.: the total amount of debt in the world has risen to a record high of $223 trillion. When people and governments spend more than they earn, debt grows faster than the economy, and the mountain of debt keeps rising higher and higher. When the next recession arrives (and there is always another recession), incomes may decline and some borrowers may not be able to pay on their debts. Some lenders then may be shown to be insolvent, interconnected financial intuitions may fail in a chain reaction, and the global financial system may freeze up again, like it did in 2008. It could be like deja vu all over again, or worse, because the debt load is much larger now. Stay safe.

Thanks to decades of fiscal and monetary malpractice leading to excessive spending, speculation, and misallocation of economic resources, the global financial system has been loaded up with excessive debt, leverage, bad “assets”, and hidden insolvency. 

U.S. cities (Detroit, Stockton) and sovereign nations (Greece, Cyprus, Argentina) have had to admit they are bankrupt and can’t pay their debts–and there appear to be other major entities who are trying to cover up their financial weakness. Although central banks print trillions of units of fiat currency (which they pass off as “money”) out of thin air and backed by nothing at all in an effort to keep the global financial system from collapsing, their inflation of the currencies not only has not fixed the underlying problems, but actually exacerbated the imbalances in the real global economy and, thereby, escalated risks.                                

Debasing the currency is only the first step, which then can be followed by suspending pension payments, imposing capital controls, raising taxes, and bailing in banks by seizing part or all of customers’ bank deposits.

Robert W. Colby Asset Management,  40 Wall Street, New York, NY 10005

*Editor’s note….Robert Colby is very positive for gold and gold stocks.