The Coming Epic Collapse of the Bond Bubble
Graham Summers / Gold Seek
In the 1960s every new $1 in debt bought nearly $1 in GDP growth. In the 70s it began to fall as the debt climbed. By the time we hit the ‘80s and ‘90s, each new $1 in debt bought only $0.30-$0.50 in GDP growth. And today, each new $1 in debt buys only $0.10 in GDP growth at best.
Put another way, the growth of the last three decades, but especially of the last 5-10 years, has been driven by a greater and greater amount of debt. This is why the Fed has been so concerned about interest rates.
You can see this in the chart below. It shows the total credit market outstanding divided by GDP. As you can see starting in the early ‘80s, the amount of debt (credit) in the system has soared. We’ve only experienced one brief period of deleveraging, which came during the 2007-2009 era.
Bernanke couldn’t stomach this kind of deleveraging. The reason is simple: those who have accumulated great wealth as a result of this system are highly incentivized to keep it going.
Bernanke doesn’t talk to you or me about these things. He calls Goldman Sachs or JP Morgan. And most of the Wall Street wealth of the last 30 years has been the result of leverage (credit growth). Take away credit and easy monetary policy and a lot of very “wealthy” people suddenly are not so wealthy.
Let me put this in terms of real job growth (created by startups) vs the “job growth” of the last five years.
According to the National Bureau of Economic Research, startups account for nearly all of the US’s net job creation (total job gains minus total job losses). And smaller startups have a very different perspective of debt than larger more established firms.
continue article at GoldSeek.com:
http://news.goldseek.com/GoldSeek/1389214232.php
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