{"id":29409,"date":"2018-01-04T15:27:15","date_gmt":"2018-01-04T20:27:15","guid":{"rendered":"http:\/\/olduvai.ca\/?p=29409"},"modified":"2018-01-04T15:27:15","modified_gmt":"2018-01-04T20:27:15","slug":"the-debt-beneath","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=29409","title":{"rendered":"The Debt Beneath"},"content":{"rendered":"

The Debt Beneath<\/a><\/h3>\n
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\"\"<\/a>Debt is irrelevant and matters not. It\u2019s different this time. That\u2019s the message from politicians, markets and participants. Tax cuts pay for themselves (they do not), leverage doesn\u2019t matter (it does) and the increased costs of servicing the debt as a result of rising rates will be offset by imaginary real wage growth to come (they won\u2019t). But the calmest market waters in history continue to keep these illusions alive as asset prices keep levitating from record to record.<\/p>\n

Debt does matter and it was ironically left to Janet Yellen to voice any remnant concerns about the sustainability of debt to GDP: \u201cIt\u2019s the type of thing that should keep people awake at night<\/em>\u201d she said<\/strong><\/em><\/a>.<\/p>\n

With good reason:<\/p>\n

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After all the debt burden has never been higher and rates, following years of enabling the largest debt expansion in human history, are starting to rise in the US. In the larger historic context rates are still low, but let\u2019s be clear, they are rising:<\/p>\n

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And with rising rates come questions of the sustainability of servicing incredibly high debt loads.<\/p>\n

The worldwide equity rally since the early 2016 lows has resulted in a massive increase in the market capitalization of global asset prices which have increased by over $25 trillion in value since then. As discussed in my\u00a02017 Market Lessons<\/strong><\/em><\/a> US market capitalization is now north of 143% of US GDP.<\/p>\n

Low rates and free money in form of global QE and now US tax cuts make it all possible and consequence free. But is it?<\/p>\n

Let\u2019s take a look at the leveraging game over the past 2 years since this is when the most recent rally began. And note in many cases we don\u2019t have full 2017 data yet so I\u2019m using the running 2 year data where I can pull it. The trend is the same: Up, up and away.<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n<\/article>\n<\/section>\n","protected":false},"excerpt":{"rendered":"

The Debt Beneath Debt is irrelevant and matters not. It\u2019s different this time. That\u2019s the message from politicians, markets and participants. Tax cuts pay for themselves (they do not), leverage doesn\u2019t matter (it does) and the increased costs of servicing the debt as a result of rising rates will be offset by imaginary real wage […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[195,303,353,451,7788,7542,661,662,783,827,3650],"class_list":["post-29409","post","type-post","status-publish","format-standard","hentry","category-economics","tag-debt","tag-fed","tag-gdp","tag-janet-yellen","tag-market-capitalization","tag-northman-trader","tag-qe","tag-quantitative-easing","tag-taxes","tag-united-states","tag-us-federal-reserve"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/29409","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=29409"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/29409\/revisions"}],"predecessor-version":[{"id":29410,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/29409\/revisions\/29410"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=29409"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=29409"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=29409"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}