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Global Debt Bubble - Question Is, When Does It Burst? |
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FORECASTS & TRENDS E-LETTER IN THIS ISSUE: 1. Global Debt Bubble Hit Another Record High in 2019 2. National Debt $23+ Trillion, $1 Trillion Deficits Every Year 3. Household Debt Hit New Record Above $14 Trillion in 2019 4. YCG Investments Webinar This Thursday, 4:00 PM EST Overview Global debt at all levels has been exploding over the last decade, and that includes governments, corporations and consumers worldwide. This is an unprecedented bubble. There is little doubt that this bubble will not continue indefinitely. The only question is, when (not if) will this bubble burst and spark another global financial crisis? I don’t have the answer, of course. No one does. But the explosion in global debt will not end pretty. In fact, I believe it will lead to the greatest economic crisis since the Great Depression, if not worse, when it finally blows up. Today, we’ll look at how global debt hit another record high last year, and why this trend is expected to continue going forward. We’ll also look at the US national debt which continues to spiral out of control, and why there’s no reason to expect this to end short of a financial disaster. And we’ll look at US household debt which also hit a new record high in 2019. There is no question that we are in a global debt bubble. The only question is when this bubble will burst. No one knows the answer, of course, but the debt trend is accelerating rapidly. This is not good and suggests the end is coming sooner rather than later. This is not a positive discussion, but it’s one we need to have and be aware of, like it or not. Global Debt Bubble Hit Another Record High in 2019 There is no doubt that global debt is out of control and clearly qualifies as a bubble!
All debts of “mature” nations such as the United States and Japan – including government, business and household borrowings – exceeded $180 trillion in September. That’s near a record 383% of all mature countries’ GDP. Similarly, debts of “emerging market” countries such as China and Brazil were $72 trillion, or a record 223% of GDP. The IIF estimates that at least $19 trillion of bonds and loans will mature in 2020. "Redemptions are high for China, India and Brazil within emerging markets and for the U.S., Japan and Germany within mature markets," the IIF report says. If any major borrower defaults, because it couldn't refinance existing loans, there could be a wider fallout – read: financial crisis! Forecasters predict that global debt will top $300 trillion in the next few years if this trend continues, and $350 trillion by the end of this decade. I don’t know how long this bubble can continue, but I fear the end is coming sooner rather than later. National Debt $23+ Trillion, $1 Trillion Deficits Every Year The US national debt now stands at almost $23.3 trillion, over 105% of Gross Domestic Product. The Congressional Budget Office (CBO) projects annual budget deficits of more than $1 trillion per year for the next decade or longer. That means our national debt will be over $33 trillion a decade from now, if not considerably larger.
I and others have been warning about the perils of the exploding national debt for over 30 years, to no avail. The US has steadily increased our national debt year after year, and there seems to be no end in sight. Unfortunately, the only way to reverse this trend may be an unprecedented financial crisis that brings it to an end. I don’t know about you, but I have resigned myself to that conclusion. I wish it were different. But it’s not just our national debt that is worrisome. American consumers have also gone into debt on an unprecedented scale. Let’s look at those troubling numbers. Household Debt Hit New Record Above $14 Trillion in 2019 Household debt surged in 2019, marking the biggest annual increase since just before the financial crisis. Total household debt balances rose by $601 billion last year, topping $14 trillion for the first time, according to a new report last week from the Federal Reserve Bank of New York. The last time the growth reached that level was in 2007 when household debt rose by just over $1 trillion, as the financial crisis ensued. The surge in household indebtedness growth was driven mainly by a large increase in mortgage debt balances, which rose $433 billion and was also the largest gain since 2007. Housing debt now accounts for $9.95 trillion of the total household debt balance of $14.15 trillion, a record high. Mortgage debt accounts for over 70% of total household debt.
The next highest category of household debt is student loans which now top $1.5 trillion. There are almost 45 million borrowers with outstanding student loans, and the average balance is $32,731 according to the Fed. This stat may surprise you: Over 600,000 have outstanding student loan debt of over $200,000, especially among those who attended graduate school. Auto loans and credit cards are the next highest levels of outstanding household debt. Auto loan debt climbed to $1.2 trillion in 2019 – enough to buy 53 million Toyota Camry’s at $23,000 a pop. The average monthly car payment for a new car was $550 last year, and $393 average for used cars. Outstanding household credit card debt rose to $1.1 trillion last year. The average household credit card debt last year was over $8,500. That’s even higher than it was in 2008 during the Great Recession. Balances for auto loans ($1.2 trillion) and credit cards ($1 trillion) both increased by $57 billion for the year, according to the Fed. The good news in all of this is the fact that most households are doing a good job of managing their debt thanks to rising incomes. You can read more about this in SPECIAL ARTICLES below. YCG Investments Webinar This Thursday, 4:00 PM EST For the last several weeks, I have been preaching that you should seriously consider moving away from passive, buy-and-hold strategies for a significant portion of your equity allocations while the stock market is still strong. I have passionately suggested you consider other strategies that can move you partially or completely out of the stock market should we get into a serious downward correction or a bear market, including several of the investment opportunities we offer at Halbert Wealth Management – some of which do not include equities at all. Yet as always, I have no idea how many of my readers have actually followed my recent advice. I hope many of you have. But the equity bull market over the last decade has many cheerleaders who believe it will last indefinitely. This is always the case with long bull markets. That is why I dedicated last week’s Forecasts & Trends to a discussion of YCG Investments, something I rarely do. And this is my final reminder that our free webinar with YCG is this Thursday at 4:00 PM Eastern time. You can register here. You can see our FACT SHEET on YCG, including their actual past performance record, which is quite impressive. As always, past performance is no guarantee of future results. In case you can’t attend the live webinar on Thursday, you should register anyway, and we will send you a recording of the discussion with YCG, which you can listen to at your convenience. You really should hear this, especially if you are a buy-and-hold or index fund investor. Finally, most of the forecasters I read believe the US economic expansion will continue this year without a new recession, unless there is some major negative surprise. A lot of my friends and business associates are asking me if I believe the coronavirus will be that major negative surprise. Obviously, I can’t answer that, no one can at this point. What I can say is with no vaccine in sight, the corona epidemic in China has the potential to spread rapidly to other countries. It’s already doing that, as you know. Will it become bad enough to topple equity markets around the world. That, of course, is impossible to say. My argument is, why take the chance. Use the current market strength to take some profits off the table and diversify with investments that can do well even, or at least minimize losses, if the equity markets top out and turn lower just ahead. At the very least, consider moving some of your equity exposure to YCG. Wishing you profits,
Gary D. Halbert SPECIAL ARTICLES Household Debt Burden Manageable For Most Families Could the Global Debt Balloon Pop? Yes! Lifelong Democrat Goes to Trump Rally – Guess What? Gary's Between the Lines Blog: Strong Jobs Report, Manufacturing Surprises In January
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Forecasts & Trends E-Letter is published by Halbert Wealth Management, Inc., a Registered Investment Adviser under the Investment Advisers Act of 1940. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of the named author and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific advice. Readers are urged to check with their financial counselors before making any decisions. This does not constitute an offer of sale of any securities. Halbert Wealth Management, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have their own money in markets or programs mentioned herein. Past results are not necessarily indicative of future results. All investments have a risk of loss. Be sure to read all offering materials and disclosures before making a decision to invest. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent. |
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The CBO says this trend in US debt is “unsustainable.” DUH!! We all know that. Yet the problem is, our politicians are intent on increasing spending every single year and seem just fine with rising budget deficits to finance it. They don’t care about the dangers, and apparently we Americans don’t either. We keep re-electing them over and over, don’t we?
