Robert J. Samuelson: Are We Ready For Financial Crisis 2.0?

Investors Business Daily ^ | Oct. 17, 2016 | ROBERT J. SAMUELSON

[expat_panama]

While everyone fixates on the U.S. election, developments in the world economy threaten to create problems for the next president and, possibly, trigger a major financial crisis. A little-noticed study by the International Monetary Fund (IMF) delivers the bad news. It finds that global debt -- including the debts of governments, households and non-financial businesses -- reached a record $152 trillion in 2015, an amount much higher than before the 2008-09 financial crisis.

What's worrisome about this is that the global economic recovery has assumed widespread "deleveraging" -- the repayment of debt by businesses and households. Initially, the theory went, these repayments would slow the economy. To reduce their debts, households would cut consumption and companies would cut investment. But once debts had receded to manageable levels, consumer and business spending would bounce back. The economy would accelerate.

It hasn't happened...

...just the opposite has occurred. Many countries have become more indebted. On a worldwide basis, the $152 trillion of debt (again: both private and governmental) is up from $112 trillion in 2007, before the financial crisis, and $67 trillion in 2002...

...Whether or how this might become a full-blown crisis is uncertain...

...some economists urge more "infrastructure" spending on roads and ports by countries that can still borrow. This might help, but a little arithmetic suggests that the potential is limited. The world economy is about $75 trillion. Boosting growth by 1 percentage point would require $750 billion in extra annual spending. Does that seem likely?

The next president cannot escape these issues. Compared to many countries, the United States survived the Great Recession in relatively good shape. But we are inevitably affected by the broader global economy. The delay of deleveraging suggests a slowing world economy and a continued political backlash against global trade and investment.

[Jack Hammer]

So who do you want taking care of business when TSHTF - some quivering elitist who can’t answer a question right without being given a crib sheet in advance, or a guy who’s been making big money all his life?

[rb22982]

35% increase in global debt is very scary indeed. All it takes is for a couple of medium/large entities to not be able to rollover their debt or interest rates to go soaring to bring the whole thing down again.

[ClearCase_guy]

Debt may be a necessary and unavoidable economic reality.
But debt is not really a good thing.

I believe that the USA produces all the food and energy that we need and could produce sufficient consumer goods as well.

If the US were to dramatically move against debt, even with a jubilee event, the people who would suffer most would be the Elitists who got us into trouble in the first place. We could restructure the economy, work less, enjoy more, and have half the government we used to have.

Obama set the stage for an all-powerful government to do many things it is not supposed to do.
I hope that Trump uses an all-powerful government to refuse to do most things that people expect it to do.
Part of that would be cutting government spending in half. At least as a start.

We need some real economic nationalism.

[rbg81]

Gee...isn’t it ironic how debt keeps increasing, but interest rates keep dropping?

Almost like a conspiracy, huh?

[central_va]

A 20% import tariff balances the budget and would slash trade deficits tomorrow. Not painless but the best pro American approach to get out of the globalist box we've been forced into.

It is the only solution. Face up to it. The party is over.

[GailA]

We did it before WW2 and we can do it again. The question is can we get our manufacturing jobs back from the chinese before the next Depression and we won’t have the means to be self sufficient. Many can’t even grow food in their back yards any more. Let The SHTF and you will see gardens in the front yards despite Home Owner ASSE$$ RULES. Along with chickens in the back yard, maybe even a pig or two.

Make use of EARLY VOTING, you don’t know what life’s curve balls with throw, hospital, funeral or death. Make your vote known And counted before Nov 8th.

[Mr. Douglas]

This thread gets to the heart of why I believe this election is the equivalent of re-arranging deck chairs on the Titanic.

I’ve believed this to the point that two weeks before the 2008 election I bought a hobby farm in south-central KY and moved there in 2011 from my home of 46 years, Seattle.

It’s taking longer than I anticipated, but it’s happening as I anticipated. This is going to be so ugly when it happens. I weep from my family that can’t get here.

[VTenigma]

How can you boost an economy by taking on debt when your debt is already bankrupting you? Even Keynes wasn’t this stupid.

[Ken H]

If the US were to dramatically move against debt, even with a jubilee event,

Meaning a default on US sovereign debt?

[DIRTYSECRET]

Once EVERYONE defaults aren’t we all off the hook?

[expat_panama]

Good morning;  and the plodding/slogging continues as yesterday's 1/3% slip moves into today's futures pointing another -0.12!  Metals not much different:  metals futures are -0.28% and gold/silver are still trading above Oct. support levels.

There may not be any interest in this stuff:

8:30 AM CPI
8:30 AM Core CPI
10:00 AM NAHB Housing Market Index
4:00 PM Net Long-Term TIC Flows

--but imho the CPI is news.

Other news:

In Taunting Trump about Taxes, Buffett Misleads - George Harbison, RCM
Just Like Trump, I Avoided Federal Taxes - Bert Stratton, New York Times
Could Pres. Clinton Be Tough on Wall Street? - Andrew Ross Sorkin, NYT
The Chimera of Stock-Market Short Termism - Mark Roe,Project Syndicate
No USA Today, Wall Street Didn't Cause Foreclosures - John Tamny,RCM
The CFPB Helps Neither Banks nor Consumers - Richard Hunt, USA Today
Many Americans Balancing Two, Even Three Jobs - Paul Davidson, USAT
Harvard Endowment's Private Equity Lesson - Barry Ritholtz, Bloomberg
To Divine Market Direction, Follow Leaders - Kevin Marder, MarketWatch

[VTenigma]

Um, no. The middle class (proletariat) will be under the heal of the jackboot then. Count on it.

[PLMerite]

Good plan. I don’t think I’m going to get my stuff together in time. But I do hope to be out of the DC combat zone in the near future.

[wita]

Early voting is for many a myth and dangerous to boot.

One may think one is voting early and that may be true. You are casting your vote early, but in the case of most states, the votes themselves are locked up and not counted until election day Tuesday November 8th as an example. So why do it. Election day is important, giving in to so called early voting is just one more way of diluting the importance of Election Day. If you have a problem with Election Day there is always absentee voting, which for most states is what early voting means, voting absentee.

Once your vote is cast up to six weeks early in many cases you are done, no change can take place. In six weeks a lot can happen in a campaign. Suppose your candidate is arrested, or has a dui, or any number of issues, you just could not wait for Election Day. Early voting is another of the progressive’s ideas that are BAD for America.

[Gay State Conservative]

Obola has added more to the national debt than did all the previous Presidents combined.

[bert]

You advocate the destruction of America by imposing total government control

[Lorianne]

I’m not opposed to an import tarrriff per se, but that would mean pretty much what expat_panama described. We’d have to be very self sufficient and have a much more localized economy. I’m fine with that but are most Americans ready for this? Doubtful.

Second point. Who gets all the tariff money? Just because we take in all the money in tariffs doesn’t mean the money will be used to retire some or all of the debt. If we go by what has happened in the last 25 years or so we would spend that money largely on useless things, and/or leverage it into more debt. That has been the pattern. I don’t see any reason why TPTB would change their spots overnight and use the money wisely. A better plan would be to cut off as much money going to the Federal government as possible, choke them off so they are forced to spend less money overall and only on necessary things, like defense. (I don’t see any other way to get them to stop spending like drunken sailors nor the electorate stop demanding for mucho pork and freebies).

This is what I don’t get about all these government get rich quick schemes like putting a tax on all financial transactions, taxing the rich, etc. Even if we did generate a lot of money in these ways (bad in itself) the money generated would in all likelihood not be used for any good or useful purpose. It certainly would not be used to pay down the debt.

[central_va]

Bert, Did George Washington impose "total governmental control" when he signed the Tariff act of 1789? The USA would be an agrarian second world country if the tariff acts were not signed. Progressives ruined it in 1913 when we were saddled with the income tax you love so much.

Why are progressives allowed to disparage tariffs and promote income taxes? You should be ashamed of yourself.

The only thing worse than a Keynesian is a Free Trader.

[central_va]

Tariffs may destroy the economy - OF CHINA.