I am a big fan of Dr. Hunt, and he graciously agreed to let me post some of the charts from his 42 page PDF.
I selected charts on a theme of US debt vs. Debt in other countries. The charts that follow are from Lacy Hunt. The comments that follow are mine.
US Private and Public Debt as Percent of GDP
click on any chart for sharper image
The above chart looks (and is) extremely alarming. But how does it compare with debt in other countries?
Major Countries Private and Public Debt as Percent of GDP
Many other major countries are as bad off as the US. But those charts show public and private debt. Inquiring minds may be interested in public debt alone.
Government Liabilities as Percent of GDP
US vs. Europe
It would be very interesting to see stats on China, but detailed stats were not available. For now, please compare the US to France, Japan, the UK and even Germany.
Germany is widely viewed as the bastion of fiscal sanity. Is it? The above table suggests otherwise, and the closer you look, the worse off Germany seems.
Recall that Spain’s deficit is projected to hit 100% of GDP next year. I wrote about Spain recently in Pensions, Unemployment, Interest on Public Debt, Consume 54% of Spain’s Budget; Debt Hits 100% of GDP; Expect Plan “B” or Plan “C”.
If Spain, Italy, or Greece exits the eurozone, then Germany will be left holding the bag for its share of the defaults.
And if peripheral Europe stays in the Eurozone, expect another decade of no growth for all of Europe, not just peripheral Europe.
China’s Hidden Debt
In China, credit is on an explosive trend up (again). Hidden debt is massive. See Bulls and Bears Debate China: Property Bubble Expands Again; GDP Growth Picks Up; Economic Recovery Underway? No Says Michael Pettis
US Centric Focus
Curiously, most bloggers ignore vitally important global data, and focus solely on the US, primarily money supply.
In Ron Paul Ruins a Great Economic Rant, Being Seriously Wrong on One Key Point, I was critical of a statement made by Ron Paul “At some point the Fed’s policies will result in hyper-inflation“.
I happen to be a huge fan of Ron Paul and his libertarian philosophy in general, but such statements do not stand up to close scrutiny.
To be fair, I do not know precisely what Paul meant by “at some point“, but economic advice beyond a 5-10 year timeframe is at best useless.
One reader emailed me …
“YOU fail to understand HYPERINFLATION is a PANIC event, when governments lose control.
And whilst you keep banging the drums of no hyperinflation and nonexistent deflation, you keep missing the big picture which is of EXPONENTIAL INFLATION, a trend around which asset prices oscillate.
Understand this Hyperinflation is a feedback loop. It emerges FROM the midst of an exponential inflation trend as a consequence of government deficit spending and central bank money printing – QE!
Hyperinflation is a Political Event
Actually, I do understand that hyperinflation happens when governments lose control.
More specifically, hyperinflation is not even a result of a monetary event (but rather the result of a political one).
I have written about the politics of hyperinflation at great length on numerous occasions.
For a discussion regarding the politics of hyperinflation (including Weimar Germany, Argentina, Chile, other countries), please see Reader Questions On Hyperinflation; Would Printing $50 Trillion Tomorrow Do Anything?
Glut of Labor, Dearth of Jobs
When I look around (globally), and see a glut of labor, a dearth of jobs, and pressure on wages. People are still deleveraging.
These are not conditions of hyperinflation. Heck, they are barely inflationary at all (in this sense I am referring to prices of consumer goods, not asset prices).
The Fed wants QE to spur lending and job creation. But the Fed can only make money available for lending. It cannot control where the money goes (or if it goes anywhere at all). The Fed cannot force people to borrow or banks to lend. Currently, money piles up as excess reserves.
$2.3+- trillion dollars is parked at the Fed as excess reserves.
For all its herculean efforts, the Fed (central bankers in general) did not spur lending or job creation. However, the Fed did create another bubble in assets (especially stocks and corporate bonds).
I suggest the Fed would be hard-pressed to create hyperinflation even if it wanted to (and it most assuredly doesn’t want to).
On the other hand, Congress could easily create hyperinflation (in theory), simply by giving everyone in the US $5,000,000 per month to spend. That would surely do it, but that’s not about to happen (in practice), and it’s the “in practice” that matters.
One at the debt ceiling debate is enough to conclude Congress is not going to be sending multiple $5,000,000 checks to everyone in the US.
The Case for Gold
I fully expect the Fed to continue its efforts to spur economic growth, but I do not expect the Fed to succeed. In the meantime, and unless it’s different this time, gold stands to be the beneficiary (sooner rather than later, and well within reasonable investment horizons).
Here is the pertinent chart courtesy of Sharelynx Gold from my post US Debt Already Exceeds Debt Limit by $48 Billion Minimum; Gold vs. Debt Ceiling.
US Debt and Debt Limit vs. Gold
click on chart for sharper image
The Case for Treasuries
Amusingly, the case for treasuries is similar. The Fed is highly unlikely to hike and probably will be far slower at tapering than most think.
Growth will be far lower than most think. That combination is not enough to ensure treasury yields drop, but it is enough to suggest treasury yields are not likely to soar out of sight.
For further discussion, please see Case for Gold vs. the Case for Treasuries; Is Bill Gross Talking His Book or Talking Reality?
So here we are. One does not have to like US treasuries, but it sure would behoove analysts predicting massive inflation to consider the entire global picture instead of focusing solely on US money supply growth.
- Glut of labor – nearly everywhere
- Dearth of jobs – nearly everywhere
- Pressure on wages – nearly everywhere
- Consumer attitudes towards borrowing and going into debt have soured – US and Europe
- Demographics of Aging Boomers – US, Japan, Europe
- Student loans turn kids fresh out of college into debt slaves – US
- Low household formation – Many countries including US
- Household deleveraging – US and Europe
- Property bubbles in China, Australia, Canada, UK
- Credit explosion in China
- Massive overbuilding of infrastructure in China
- Massive problems, inefficiencies, and hidden debt related to SOEs in China
- Technology trends suggest more layoffs in widespread industries – everywhere
- European banks leveraged to the hilt in their own sovereign bonds
- European banks in worse shape than US banks
- Abenomics – Japan
- Insufficient retirement savings – everywhere
Huge Price Inflation Not Imminent
Yes, I understand the Fed is doing “all it can”. And it has created bubbles as well as economic distortions everywhere.
But bubbles, by definition, collapse. And collapsing bubbles are deflationary.
So forget about hyperinflation (or even strong price inflation), and ponder the implications of collapsing bubbles, the change in consumer attitudes towards lending and borrowing, the glut of labor, the dearth of jobs, increasing competition, Abenomics, and a huge demographic need to save for retirement.
All things considered, I fail to see how one can look at the global picture and conclude a huge amount of price inflation in the US is imminent.
And if high price inflation is not imminent, are treasury yields going to rocket higher? Is the Fed going to hike rates? Taper? In turn, what does that suggest for gold?
No answers are guaranteed. But it’s important to consider things from a global point of view instead of running around like chicken little screaming “hyperinflation” at every opportunity.
Link if video does not play: Chicken Little
Mike “Mish” Shedlock