When will the recession end? Part 14 Four options for America's race to the bottom

All the leveraged debt bubbles (15 in total) that I’ve been discussing on this blog, were not started in 2001 after the last recession, as most people assume. It actually goes back to 1980 or 28 years to mount to these levels. Total US consumer debt in 1980 was a manageable $352 billion. Compare that with $2.6 trillion today. American consumers have increased their total debt level by 738% in 28 years. Revolving credit increased from $56 billion in 1980 to $982 billion today, an order of magnitude increase of  1,750%  in 28 years.

In 1980, the US GDP was $2.8 trillion. Today it’s  $14 trillion and but declining. Since, 1980, American GDP has grown by 500%, but the national debt has grown more than twice as fast as GDP.

 

(Source: stats from the  James Quinn blog )

 

This is an unsustainable trend. America’s  financial debt bubble and resulting economic disaster took 28 years to inflate  and will not likely be fixed in a single year or two, unless the US defaults on its debts As I see it, there are only 4 real options for America's race to the bottom. Take all you bad medicine all at once, but risk overthrow of the current government in power (see options 1) and 2) below)  or prolong the agony and pain of the depression for everyone, possibly for 2 decades like in Japan currently -since 1990. (see options 3) and 4) below)

 

1. Cancel debt & start first-world debt restructuring
2. Default-like the Russians and Argentines did last decade
3. Print more money & live with the consequences-hyper inflation and devalued currency
4. Just keep borrowing more money, assuming the world still has faith in the $US and T-bills-prolong the pain for everyone.

Niall Ferguson makes a case for outright default in a Vanity Fair story - Niall Ferguson: America Needs to Cancel Its Debt

Prudent businesses need to make contingency plans for all 4 cases and ask the right "what -if" questions.

© 2005-2009

Walter Derzko -"Changing the world, one idea at a time"©

Author of the soon-to-be-released book: Hard Times Golden Opportunities.. about opportunity recognition in a recession/ depression featuring 45 opportunity scenarios.

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