There’s one number that Dr. Lacy Hunt, noted economist and the Executive Vice President of Hoisington Investment Management Company, thinks is important: 275 percent.
As far as Hunt’s concerned, when a nation’s cumulative public and private debts reach 275 percent of GDP, the jig is up. At that point, economic growth grinds to a halt and things start to look pretty dreary.
Why should we care? Because the United States' debt currently sits at 345 percent of GDP.
In his presentation at the Altegris Strategic Investment Conference (SIC) 2014 in San Diego, Dr. Hunt laid out precisely why there should be some real concern directed towards the economic issues that follow excessive indebtedness. Previous periods in history saw economic growth begin to collapse in America once that 275 percent threshold was crossed, most notably during the 1920s.
So what about the current state of affairs? Dr. Hunt doesn’t think it looks good.
“What’s happening now? These figures are very disconcerting,” he said at SIC 2014 on Thursday. “We have a little bit of rise in the saving rate during the worst part of the recession, but we’ve been coming off since then. In the first quarter, we were actually under 4 percent. Not at the worst levels prior to the recession, but almost unprecedented in the 81 years of data that we have. So by either measure, we deleveraged very little and we’re now going in the wrong direction.”
This dreary outlook extends to just how quickly this house of cards can collapse. And, unfortunately, the United States is actually doing better than most of the other major industrialized nations.
“The other important consideration is that not only is the United States extremely over-indebted, but the rest of the world is even more over-indebted,” he said. “And this is particularly true for the other major economic sectors. … Canada and Australia, which together only have about 4.5 percent of global GDP, are below the United States, but even Canada is trending upward and is above the 275 percent level. The Euro Zone, the UK, and Japan, all significantly higher. Here’s the important point: some have asserted that we’re in a deleveraging cycle. Does this data look like we’re in a deleveraging cycle?”
In short, for all the people wondering if there’s an acceleration of the current recovery around the corner, Dr. Lacy Hunt seems to believe we may be on the verge of another recession.
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