Debt and Why You Should Care...
Let's face it, most of the gains of the past ten years have been off the back of borrowing from the future. That is the essence of debt. People often forget what it is and why it is significant.
When you borrow from your future to create a need that may otherwise not have been there it often produces an effect that you hadn't bargained for.
What happens is people take cheap money or any money for that matter and they try to circulate it. What ends up happening is it takes more and more of that money that was stolen from your future to produce anything of value. The ideal ratio is that it should take one dollar of debt to produce three dollars of value or produce. The problem we have at the moment is that this ratio is just the opposite.
About 4 dollars of debt at the moment produce 1 dollar of produce.
The problem with the enormous, crushing, weight of the debt is that it becomes at some point unmanageable.
How does it become unmanageable?
By implementing policies that are counter to the people carrying the debt.
So let's look at consumer credit or debt. It has never been higher once again. What will make this a problem is exactly what Trump is trying to do at the moment? That is to create trade tariffs.
The trade tariffs might balance out the nasty trade deficit but it will do nothing to alleviate the pain people feel when paying for everyday staples that they need. The thought, of course, is to bring manufacturing back to the USA. Well, the problem you have with that is the cost of labor and the cost of production. Neither favor a good product that the consumer can easily afford.
Obviously, the student loan is not good. That is simply encumbering an entire generation to debt servitude to the banks taking away from any creative endeavors that they might have done.
Auto loans. Well, I hope that I don't have to touch on this one but autos are not a good investment as a depreciable.
Sky high home prices don't necessarily help either. The people that own them are not really any better off selling them at today's high prices. Unless you are happy living free of debt and in an unorthodox way. It can be done but I think that the ideology still hasn't changed enough so that people realize that McMansions are out.
What happens to all this debt as it piles up?
Well, it slows things down. The money that was once used in a productive state gets used to pay back bills slowing down the speed of monetary circulation. This goes on until the speed slows so much that it stops.
Are we close to this sort of a scenario?
Maybe?
You see Trump's tariffs are deflationary in effect not inflationary. They are more likely to harm than help. When you have an entire populace groomed on cheap products it isn't so easy to get them off this merry go round.
Here is an article outlining what Tariffs really are although the point is missed about why they are not very good at solving anything. https://moneyandmarkets.com/trumps-tariffs-mexico-china/?post_ids=11266,11362,11366,11357,11208&utm_source=MAM-Newsletter&utm_medium=Email&utm_campaign=Daily-Article-Traffic
All I would add to the article is that the global period of stagnation that resulted as a result of the great depression was a result of tariffs imposed by governments. In essence "trade wars eventually lead to military conflict". Each side thinks the other is getting a raw deal and ups the ante.
Sound Familiar?
I think that finally, you might want to look at precious metals as a hedge against all this nonsense. Perhaps gold in particular. Don't throw too much at it. Maybe 20% of your portfolio but at the moment I think it has a chance to break out to the upside. Time will tell.
Just remember, Debt indeed does matter.
So what is the solution you might ask?
Leave it be! The Chinese can produce all the shit they want as far as I am concerned. What are they getting in return? A useless treasury from a monetary system not worth the paper it isn't printed on. Sounds like a good deal to me!?
Give someone well....nothing....for cheap products while the developed nation continues to focus on advanced technology. Sounds like a fine trade-off to me, don't you think?
When you borrow from your future to create a need that may otherwise not have been there it often produces an effect that you hadn't bargained for.
What happens is people take cheap money or any money for that matter and they try to circulate it. What ends up happening is it takes more and more of that money that was stolen from your future to produce anything of value. The ideal ratio is that it should take one dollar of debt to produce three dollars of value or produce. The problem we have at the moment is that this ratio is just the opposite.
About 4 dollars of debt at the moment produce 1 dollar of produce.
The problem with the enormous, crushing, weight of the debt is that it becomes at some point unmanageable.
How does it become unmanageable?
By implementing policies that are counter to the people carrying the debt.
So let's look at consumer credit or debt. It has never been higher once again. What will make this a problem is exactly what Trump is trying to do at the moment? That is to create trade tariffs.
The trade tariffs might balance out the nasty trade deficit but it will do nothing to alleviate the pain people feel when paying for everyday staples that they need. The thought, of course, is to bring manufacturing back to the USA. Well, the problem you have with that is the cost of labor and the cost of production. Neither favor a good product that the consumer can easily afford.
Obviously, the student loan is not good. That is simply encumbering an entire generation to debt servitude to the banks taking away from any creative endeavors that they might have done.
Auto loans. Well, I hope that I don't have to touch on this one but autos are not a good investment as a depreciable.
Sky high home prices don't necessarily help either. The people that own them are not really any better off selling them at today's high prices. Unless you are happy living free of debt and in an unorthodox way. It can be done but I think that the ideology still hasn't changed enough so that people realize that McMansions are out.
What happens to all this debt as it piles up?
Well, it slows things down. The money that was once used in a productive state gets used to pay back bills slowing down the speed of monetary circulation. This goes on until the speed slows so much that it stops.
Are we close to this sort of a scenario?
Maybe?
You see Trump's tariffs are deflationary in effect not inflationary. They are more likely to harm than help. When you have an entire populace groomed on cheap products it isn't so easy to get them off this merry go round.
Here is an article outlining what Tariffs really are although the point is missed about why they are not very good at solving anything. https://moneyandmarkets.com/trumps-tariffs-mexico-china/?post_ids=11266,11362,11366,11357,11208&utm_source=MAM-Newsletter&utm_medium=Email&utm_campaign=Daily-Article-Traffic
All I would add to the article is that the global period of stagnation that resulted as a result of the great depression was a result of tariffs imposed by governments. In essence "trade wars eventually lead to military conflict". Each side thinks the other is getting a raw deal and ups the ante.
Sound Familiar?
I think that finally, you might want to look at precious metals as a hedge against all this nonsense. Perhaps gold in particular. Don't throw too much at it. Maybe 20% of your portfolio but at the moment I think it has a chance to break out to the upside. Time will tell.
Just remember, Debt indeed does matter.
So what is the solution you might ask?
Leave it be! The Chinese can produce all the shit they want as far as I am concerned. What are they getting in return? A useless treasury from a monetary system not worth the paper it isn't printed on. Sounds like a good deal to me!?
Give someone well....nothing....for cheap products while the developed nation continues to focus on advanced technology. Sounds like a fine trade-off to me, don't you think?
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