The Credit Expansion is Over, the Tide Has Turned

Financial Times: US Household Debt Falls for First Time Since WWII

Yes, dear reader, we have been a voice howling in the wilderness. First the wilderness around the Café des Dames in Paris’s 19th arrondissement…recently the wilderness of Bethesda, Maryland…and lately the wilderness near the Taj Mahal Hotel in old Bombay.

Reading the TIMES of India is a delight. We see that a politician has been given a colorful, over-the-table bribe…a garland made up of 50,000 thousand-rupee notes (about $1 million)…

…a headless body has been found in Kandivli…26 people were killed when their bus fell off a bridge…

…and that more than half the population defecates in public.

In fact, India is Number One in outdoor Number Two, if our dear, delicate readers know what we mean. It has 10 times as many people defecating in public as the runner up, Indonesia. The US didn’t even make the top ten.

The poor Indians. They can’t handle alcohol. Research shows that Indians suffer higher rates of heart disease if they drink. Even light drinkers face a 40% higher risk of heart trouble, according to the study. Heavy drinkers’ risk of heart problems is twice that of non-drinkers…still, well worth it, in our humble opinion…

“110,000 killed on India’s roads and railways,” says another news item.

“Is that all,” we asked a colleague. Every time we cross a road we narrowly escape death. And we’re being careful. Other pedestrians seem to ambulate in the middle of highways…beg between lanes of busy rush-hour traffic…and make daredevil dashes across chaotic intersections. It’s amazing more aren’t killed.

There’s also an item that shows how India’s civil justice system works. A landlord has finally won an eviction – thirty-three years after he went to court! The unauthorized tenant lived in the apartment for an entire generation before finally being booted out.

But wait…our beat is money. So back to the big money story…

Mainstream economists and mainstream financial media tell us that the worst is over…that the ‘recession’ has passed…and that things are getting back to normal.

Nope, we reply. Not a chance. The old economy that existed since the end of WWII is dead. No way could it recover; you can’t revive a corpse.

It was beginning to look as though we would have to eat our words: the cadaver was sitting up in bed and watching TV.

Everything was beginning to look eerily normal, after all. A year after the stock market hit bottom, it still has not resumed its downward slope. Businesses that should have gone bust are still in business. Politicians who should have been run out of town on a rail are still putting their earmarks on everything. Bankers who should now be parking cars are still making loans.

The government is still misleading… Economists are still mis-interpreting… Investors are still mis-understanding…

…it sure seems like things are back to normal!

But something important has changed. And here comes the proof from the good ol’ FT.

The FT, by the way, has the same dim economists as everyone else. While we wouldn’t trust a government employee to manage a coffee shop, the FT’s leading economist, Martin Wolf, thinks they can manage the whole world’s economy. It’s just a matter of getting the balance right, he thinks.

But beneath the surface of the flow of silly opinions and distracting noise, there is a powerful tide…an undertow that is sweeping everything out to sea. For the first time since 1946, household debt in the US is actually going down.

This is what de-leveraging is all about. The credit expansion is over. The tide has turned. Credit flowed for 61 years. Now it ebbs. No more increases in household credit. No more increases in consumer spending, over and above wage gains. No more extra sales. No more ‘growth’ at the expense of private sector debt.

It’s over.

About Bill Bonner 144 Articles

Affiliation: Agora Financial

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities.

Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance.

Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning.

Visit: The Daily Reckoning

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