Government Pensions Are Dividing Americans and Damaging the Economy

Now that financial markets around the world are experiencing a long-overdue correction, the best we can hope for is that we hit bottom before a deflationary cascade causes a worldwide depression. Those economists who believe in the long-term debt cycle may claim that this time the end has arrived, and they may be right. COVID-19, oil price wars, traders and investors hating Trump—these are just pinpricks. This bubble has been inflating for decades.

There have been plenty of warnings. Interest rates at near zero in the United States and actually negative in European nations. Record borrowing by the federal government, and, possibly worse, record levels of consumer debt. Corporate borrowing to buy back stock instead of invest in R&D and plant modernization.

In January 2000, at the peak of the internet bubble, total credit market debt in the U.S. was $27.8 trillion. By October 2007, at the peak of the housing bubble, total debt had climbed to $51.4 trillion. As of October 31, 2019, the most recent period for which data is available, total debt had climbed to $73.4 trillion.

Debt accumulation is not a sustainable way to stimulate growth. At some point, there is not a mere “correction,” such as what was seen in 2000 and 2008, but a fundamental restructuring of the financial economy of nations, such as happened in the 1930s. Has that reckoning arrived?

Either way, as of close on March 12, the Dow Jones had given up nearly three years of […] Read More