With sharp insight, finance guru Richard Vague provides both a bird’s eye and a worm’s eye view of the state of our economy in his new book, Paradox of Debt. Taking the topic well beyond the all-too-familiar emphasis on government debt, he addresses the ramifications of mounting private sector debt and its relationship to dramatically increasing total debt in both a national and global context.
Over the past half century, total debt has more than doubled in ratio to GDP — not only for the US, but also for the seven other countries representing the world’s largest economies. The private sector debt we’ve amassed over the past few decades reflects the current reality that individuals and businesses are leveraged to the hilt. The amount of private sector debt has a spiraling effect as more income is diverted from spending and investing to the payment of interest and principal on debt.
The paradox Vague refers to in his book’s title pertains to how economies can’t function without debt — how, in essence, all GDP stems from growth in debt. It’s no accident that debt eventually outgrows income, as it’s an inherent feature of the modern economic system. Yet, he points out, “The paradox of debt is that, at some point in a debt cycle, debt levels will get too high and strangle this economic growth at great personal cost to many households and businesses.”
Citing historical trends and using boiled-down scenarios, Vague effectually explains why the conventionally cited strategies for deleveraging don’t often succeed and how, without intervention, crisis is sure to result.
He points out that, since 1980, mortgage debt has eclipsed other forms of household debt as a percentage of GDP. In 2021, household mortgages totaled nearly two-thirds of total household debt – $11.7 out of $18 trillion. This, along with other forms of debt — from student loans to healthcare payments — exact a tremendous burden on households, particularly those in middle- to lower-income brackets. Vague outlines realistic debt forgiveness programs that address issues of fairness and ultimately allow the nation’s economic engine to get back to running smoothly.
Among other insightful explanations he provides in the book that give context and clarity to today’s economic headlines include how and why high global inflation has occurred. He dispels the pervasive notion that government debt and spending have caused inflation, and instead points to compounding influences of pandemic-depleted supply chains, the war in Ukraine, and the “decoupling” of the economies in the West from China and Russia. The ongoing issues portend a difficult resolution to the problem.
Also salient among the topics covered in The Paradox of Debt is how each of the world’s economic powerhouse countries structure their economies, and what advantages and disadvantages result from each country’s model. The comparisons cast more light on how the US economy holds up within the global community.
Vague’s latest book proves illuminating for gaining better understanding of how our economy works and where it needs to be better managed. Whether readers are looking for guidance related to economic policy or simply better insight into our economic status, The Paradox of Debt will provide answers they may not have known they were looking for.
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