Be wary of the growing debt in this country

Ten years ago corporate, government and household debts were a fraction of what they are today. They have grown spectacularly over the last decade.

It’s important to understand what all the implications are because they are, and will continue, to shape the lives of everyone in the US. And because global debt is also rising, this is a crucial factor shaping all of our economic futures.

In 2011 the total household debt (mortgage, automobile, credit card and college debt) of the U.S. was around $12 trillion dollars, which was accumulated over the last century. In the last 10 years it has risen to $15 trillion dollars; a 25% growth in 10 years.

Even more astounding has been the growth of corporate debt (the borrowings either by issuing bonds or borrowing from a bank) that corporations have had to turn over the last 10 years, basically between the “Great Recession” of 2008 and what’s now being called the “Covid economic downturn.” In those 10 years corporate debt went from $6 trillion to $12 trillion dollars. We have never seen debt grow like that. This is not just a catastrophe for the corporations. It’s a catastrophe for the whole network, the web of all the people who have made decisions based on the assumption that corporations will make their payments. U.S. government debt has grown even faster than corporate debt.

We have no precedent for this, regardless of the reassurance we get from Janet Yellen and Jerome Powell at the Federal Reserve, or anyone else in a position of authority. These people are scared. They are aware that they are in unknown territory.

We do not know whether the Fed can manage an economic crisis with this level of debt. This is a reasonable fear. We’ve never had debt to this level before.

We don’t know how the debt will play itself out. We’ve had some super scary hints about it. We had that with the dotcoms crisis of capitalism in the year 2000, and even bigger in the collapse of 2008 and 2009.

But all the debts are bigger, more global, have more people hanging on them now than ever before. This is an enormous credit risk of an enormous credit bubble that we’re living with because the central banks of the world, led by the Fed, are terrified of doing anything that might burst the bubble.

So they keep printing money and pumping it into the “system,” recognizing that they make the bubble worse but are terrified of doing anything else. This is a very dangerous time for modern capitalism and may be the end of this system’s ability to function. Debt may be playing that role. It certainly has played that role in the demise of other economic systems and empires of the past.

Horacio Moronta,