Global Debt Bubble

Debt Bubble is More Threatening Than Any Single Economic Sector Now

History shows that once a financial bubble bursts, it can take a long time to bounce back. We had a crash in 2008 and since then nothing has been fixed other than printing money and handing it out to the failed banks. Now we are doing more of the same that brought us the crash. How long can it last? Will there be another economic crash soon? 

Recent history offers an example: Real estate prices topped in 2006-2007 – then came the worst part of the sub-prime mortgage crisis in 2008.

Yet instead of recovering with the passage of time, real estate prices just keep getting worse:

Home prices dropped for the fifth consecutive month in January, reaching their lowest point since the end of 2002.

CNNMoney, March 27

As values sink and desperation grows, the number of owners giving their timeshares away for $1 — or less — has doubled in the past year, says Brian Rogers, of Timeshare Users Group, an owner advocacy group. “There’s never been a worst time to try to sell a timeshare,” he says.

SmartMoney, April 4

Observers have called for a bottom numerous times in the five or so years since the bubble burst.

Again, this is what can happen. Recovery can take far longer than many expect.

Real estate is just one sector of the economy. Let’s consider another sector:

According to Citigroup economist Steven Wieting health care is the next big bubble looming in the distance.

And to make matters all the more worrisome, his analysis suggests it’s like nothing we’ve seen before.

CNBC.com, April 12

Although health care is a huge part of the economy, it’s still just one sector. Let’s consider yet another sector:

The amount Americans owe on student loans is far higher than earlier estimates…Total student debt outstanding appears to have surpassed $1 trillion late last year…That would be roughly 16% higher than an estimate earlier this year by the Federal Reserve Bank of New York.

Wall Street Journal online, March 22

As big as each of the above sectors are, they are just a fraction of the bigger picture:

…the property market, to me, was a microcosm…of what shape the whole world is in right now — in debt up to its ears and ultimately unable to pay. And that’s what crushed the real estate market and I think it’s going to crush…the entire debt market across the globe… Nobody’s worried…

— Robert Prechter, Financial Sense Newshour interview, March 22

Far from being worried, lenders are once again trying to push credit on risky clients:

[A Brooklyn resident] just emerged from bankruptcy and doesn’t have a job, and her car was repossessed last year. Still, after spending her days job hunting, she returns to her apartment in Brooklyn where, in disbelief, she sorts through the piles of credit card and auto loan offers that have come in the mail.

New York Times, April 10

As bubbles balloon in individual sectors of the economy, the psychology of the pre-financial crisis days have returned.

That’s why it’s important to remember that hardly anyone was concerned about the real estate market in 2006. Then the whole house of cards fell in.

Now consider the entire global debt market: the biggest bubble of all time.

 


 


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2 Comments

  • Maria

    January 18, 2015 at 10:47 am Reply

    Anon, you speak as if Peter Schiff founded Euro Pacific and craeted the company philosophy to invest overseas. No, he came on board in 1996, 16 years after the company was founded. It’s not like he had the option to change the whole course of the company and change the name to “US Capital” if he felt that would serve people better. His job is to convice people to invest with his company, which means overseas investments. Of course there is a conflict of interest.I guess I should expect such a response on a blog where so many seem to think that real estate agents should be out there convincing people not to buy homes. Selling houses is their job, they are bound to the seller to sell the house for the highest proce possible. Anyone who thinks they should act differently is in a delusion. Anyone who relies on a seller’s RE agent for personal financial advise is a fool who deserves whatever happens to them. Of course the seller’s agent is going to talk up the value of the homes they are selling. Grow up people.Of course mortgage fraud is a different matter and should be punished.

  • Seby

    January 18, 2015 at 11:47 am Reply

    Keith,How many times do I have to keep telling you dude. Schiff and Roubini are both smart guys, no doubt, but they enjoy the carema too much. You know that. Schiff had it wrong years ago, now he is changing his tune, saying that student costs will drop. Wasn’t he saying 1 and a half ago that americans wouldn’t be able to afford anything, because everything would go through the roof with hyperinflation. Schiff, keep your stance, and stop copying Mish.I have never seen Mish on carema though. To me, he is the greatest economist there is. He predicted that the dollar and Yen would strengthen against all currencies. He is not a total long term bull on the dollar, but for now, it’s a hold.Mish did say that deflation can happen in a few different ways including the next ones. Everything goes down, except gold. Everything goes down, including gold.I think it is becoming clear that when money is being hoarded, investors are even willing to dump gold, to get their hands into cash. Period. I say gold and any other commodities continue to take beatings. Hell, everything is coming down, except the dollar and the yen.Dny

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