"It is quite likely that the current synchronized global economic boom and the universal, all-encompassing asset bubble will lead to a colossal bust." In other words, the synchronized boom will have a synchronized bust.
What folks would like to know is when that will happen. It's impossible to say, but Faber would not be surprised if it were to occur in the next couple of years (though I expect it could happen sooner).
ARRRRGH!
For the past 30 or 40 years, it's taken increasingly larger amounts of debt to increase GDP. From 2000 to 2007, total credit market growth was $21 trillion, and nominal GDP growth was only $4 trillion. We have reached the stage where a dollar in debt produces only 20 cents or so in economic growth (versus about 90 cents produced in the 1960s).
I'm on the edges of my understanding with this. Where does the other 80 cents go? Only into the velcroed shut pockets of someone who is not using it to purchase goods & services, whether personal type consumption or industrial type consumption?
Although it's impossible to know whether we will actually reach zero hour, it does seem possible when thinking about adding more debt to a post-housing-bubble economy. An economy that reaches Faber's zero hour is one in which increasing debt creates no growth. It only increases prices.
This sounds like the old truism "too many dollars chasing too few goods." But am I simplifying? And is part of the answer to cut back availability of credit, as is already happening?
The unanswerable question is how long the world debt markets will allow inflation to ratchet up before they start to decline, as they price in, say, a 6% inflation rate and 2% to 3% of "real" yields!
"The world debt markets"---What's that? Again this is at the edges of what I know anything about. Are we talking about lenders or something like the secondary market for ownership of credit--such as the repackaged housing loan debts? And then "real yields" would be profit even with inflation taken into account? So 2 or 3% profit above whatever the inflation rate is might not be enough to keep "the world debt markets" doing business?
I think I need to go read an ECON 100 text book. Or I don't know, maybe I need to read some kind of principles of business text.
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