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Debt as Far as the Eye Can See

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While mainstream pundits and talking heads cluck about great jobs number and amazing economic growth, by and large, they completely ignore the fact that the entire economy is built on giant piles of debt.

In our Friday Gold Wrap podcast last week, Mike Maharrey talked about the fact that the economy is drowning in debt, focusing on ever-increasing consumer debt and government debt. He didn’t even get into corporate debt.

So, just how much debt is really out there? The following bullet points will give you a good birdseye view of the debt stretching from horizon to horizon. 

Government Debt

The federal deficit is projected to hit $833 billion this year, up from $666 billion from the fiscal year that ended last September.

Public debt amounts to $121,000 per American Household.

The US Treasury borrowed a record $488 billion in the first quarter alone.

According to the CBO, payments on the national debt will roughly triple to $915 billion in 10 years.

At the current trajectory, the cost of paying the annual interest on the US debt will equal the annual cost of Social Security within 30 years.

Social Security costs will exceed income this year, three years early than expected.

The Social Security trust fund will be depleted in 2034, a year sooner than projected in last year’s report.

Consumer Debt

Total consumer debt rose by $176 billion in Q2, a 4.8% year-on-year increase. That pushed total debt to a record $3.87 trillion.

Outstanding credit card balances crossed the $1 trillion threshold.

Auto loans and leases for new and used vehicles rose by $40 billion over the last year to a record of $1.13 trillion.

Student loans jumped by 5.8% in Q2, increasing $84 billion, year-over-year to $1.53 trillion.

The US Education Department forecasted a $36 billion shortfall in government student loan programs in a report last November.

Corporate Debt

Corporate debt is at 45% of GDP.

According to Moody’s, the majority of US companies have a “speculative” credit rating, meaning they are considered high risk.

The last time the corporate debt to GDP ratio was this high was just before the 2008 crash, and before that, right before the tech bubble popped.

There are $1.27 trillion in junk bonds in the marketplace.

According to Bianco Research, 14.6% of S&P 1500 companies are zombies, meaning their earnings before interest and taxes fail to cover their interest expense.

Corporate credit downgrades have outpaced credit upgrades since the first quarter of last year.

Global Debt

According to Gluskin Sheff, at the peak of the last credit bubble, the amount of US debt across household, business, and government totaled $27 trillion, or 225% of GDP. It now stands at nearly $50 trillion, or 250% of GDP.

The global economy has added $25 trillion of debt over the past year to reach 318% of global GDP.

Global leveraged lending reached a new high of $1.6 trillion in 2017. New issues surpassed the previous record in 2007.

Most leveraged loans are “covenant-lite,” with fewer restrictions on collateral, payment terms and level of income.

As you can see, there is debt as far as the eye can see. As an article in Seeking Alpha put it, exploding debt could blow the economy into a crisis.

Both US political parties have made it clear through their actions that they are not interested in reducing, or even stabilizing, the growth in debt. Likewise, voters are not willing to hold their leaders fiscally accountable. Without any adults in the room, we believe debt will continue to grow until it brings a crisis, just as sub-prime mortgages grew until 2008 when a crisis forced lenders and borrowers to stop. The difference now is that government debt is at the center of the current credit bubble.”

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