Industrial Insight

We are not paying off debt, we are buying more debt…. | September 23, 2010

http://www.realclearmarkets.com/articles/2010/09/23/the_deleveraging_deception_98682.html

September 23, 2010

The “Deleveraging” Deception

By Michael Pento

In fact, as a country, we haven’t deleveraged at ALL. All the moves made by the private sector have been vastly outpaced by the federal government’s efforts to add leverage to the economy. The net result is that we are much more indebted now than we were before the recession began; as a result, we are digging ourselves even faster into debt.

So, even though households and state and local governments have begun to learn some valuable lessons, DC still managed to increase the overall level of non-financial debt in the US to a record $35.45 trillion. In an era of supposed deleveraging, the rate of debt accumulation has increased from 4.5% to 4.8% annualized over the past quarter.

In the real world, all government stimulus comes from borrowing, spending, or printing, or to put it another way: deferred taxation, capital redistribution, or inflation. That means all US debt is ultimately backed by the tax base of the country. Therefore, whether the consumer or the government that does the borrowing is really unimportant because, in the end, it is the consumer that will receive the bill.

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I'm the executive vice president for a steel casting trade association, the Steel Founders' Society of America. I've got a crazy wife, five crazy children, three crazy people that married into the family, and two crazy fun little grandsons.

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