On today show, we are looking at why we might be experiencing a global debt crisis. So far virtually nobody in a position of authority is admitting that we have a debt crisis. As I said, on the show a couple of days ago, when a balloon bursts, it’s very often the case that the pin gets the blame and it’s almost never the pins fault.
Before we can understand the problem, we first need to go back to a basic definition.
Debt is a claim on future earnings. The only way to liquidate a debt is for those future earnings to be equal or larger than the debt service. The problem we have globally is that debt has been growing at a much faster rate than the economy.
Why is it that the house of cards has not come crashing down yet?
As recently as two weeks ago, Jerome Powell admitted in the congressional hearings that our current path of exponentially, growing debt is clearly not sustainable.
The answer can be found in the silent tax. The devaluation of the currency, what we commonly call inflation is the magic through which we pay back every penny and still cheat the lender out of their money.
On today’s show we are going to do some math to see the impact of inflation on the value of a loan.
Host: Victor Menasce