The bears have been saying for some time that the only reason equity markets are soaring are “quantitative easing” and debt inflation, and thus are in a bubble that will eventually pop. But can we quantify that, put some numbers on it to see if it’s true? That turns our to be quite easy, actually… let’s just look at total global debt growth and compare it to GDP growth. And it turns out that global debt has been growing quite a bit faster than GDP ever since the “great recession” a decade ago… in other words, there has been no real growth! The recession never ended, humanity as a whole is just running up the credit cards to pay the bills. Now debt-spending is considered a legitimate strategy for dealing with economic downturns under the assumption that eventually real growth will outpace debt inflation and things will start to balance out again. But after more than 10 years debt is continuing to grow faster than ever. Some evidence, from extremely mainstream sources:
You can easily find more in this vein in a few minutes of googling.
So what would need to happen for us (global human civilization) to start seeing some real growth, i.e. more growth in GDP than in debt? Good question… perhaps really cheap energy? Less unemployment? Less regulation of industry? Uhm, we’ve already got all of these at historic levels… fossil fuels, although they are now up a bit, have been at historically low prices over most of these 10 years, the world’s largest economies are at essentially full employment, and industry is pretty much writing the laws as they like them around the world. So why can’t our globalized liberal capitalism produce any real growth? Because the game is over, the pyramid is collapsing, the tip of it is just floating in the air on sheer inertia like old Wiley Coyote.
When does gravity catch up with Wiley? When he looks down, usually… and so it will be for us, when credit starts to tighten and it becomes clear that there is no way all that debt can ever be repaid. That would be right about now.