Are We Heading Into a Debt Supernova?

Financial luminaries such as Ray DalioBill Gross, Kyle Bass, BCA ResearchKen (“Excel”) Rogoff, John Mauldin and Martin Armstrong think that we’re at the end of a debt supercycle.

Former director of the Office of Management and Budget said we’re facing a “debt supernova“.

Former Fed chief Alan Greenspan said recently

Debt, deficits and entitlement programs are all coming to a head in a few months, all over the world.

The European chief executive of Goldman Sachs Asset Management warns:

There is too much debt and this represents a risk to economies.


The demographics in most major economies – including the US, in Europe and Japan – are a major issue – and present us with the question of how we are going to pay down the huge debt burden. With life expectancy increasing rapidly, we no longer have the young, working populations required to sustain a debt-driven economic model in the same way as we’ve managed to do in the past.

The world’s most prestigious financial institution, the Bank of International Settlements (BIS) – known as the “Central Banks’ Central Bank” –  writes:

We are not seeing isolated tremors, but the release of pressure that has gradually accumulated over the years along major fault lines …

The sum of non-financial private and government debt has not fallen

since the crisis ….  Total debt in advanced
economies has continued to expand (by 36 percentage points of GDP since 2007),
with some exceptions mainly reflecting the recent decline in private sector debt in a
limited number of countries. Meanwhile, total debt in emerging market economies
has risen even more (by 50 percentage points).


Aggregate private debt has barely stabilised, let alone started to correct downwards, even in the corporate sector. And government debt continues to rise steadily, in a manner reminiscent of Japan’s trend deterioration in the 1990s.

BIS notes that this is a recipe for disaster:

Early warning indicators of banking stress pointed to risks arising from strong credit
growth …. Credit-to-GDP gaps – the deviation of private sector credit from
its long-term trend – were well above 10% in Brazil and China. This ratio was also
above 10% for a number of [other] countries … including Indonesia, Singapore and Thailand …. In the past, two thirds of all readings above this threshold were followed by serious banking strains in the subsequent three years.

It’s not just conservatives who think that debt is too high.  Liberals think so as well.

And see this.

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  • Carl_Herman

    Thank you, GW.

    Because what we use for money is created as debt, this mathematical/mechanical structure is like adding negative numbers forever. The debt can only and always increase.

    Obviously, the solution is to stop creating such negative numbers, and begin creating positive numbers. This is what monetary reform does: debt-free money created by government for direct payment of public goods and services. That said, we MUST arrest the current “leaders” to fully communicate the crimes centering in war and what we use for money before such reforms are possible and free from the same inversion tactics we suffer from today.

    My documentation on these mechanics of monetary and credit reform:

  • jadan

    As Carl Herman points out, monetary reform is the way out of this mess. The debt overload represents a systemic failure, over which the BIS presides. The Bank of International Settlements is an authority on financial matters like Al Capone was an authority on the causes and prevention of crime. We are witnessing the failure of the private central banking scheme that was established in this country in 1913. The question is not how we can finesse the debt problem to prevent systemic catastrophe, but how can we initiate a new public banking system that administers money in the public interest? Instead of bewailing the failure of a system that was designed to foster and promoter debt and income inequality in the first place, we should focus our attention on creating a new public banking system along the lines that have been proposed by Dennis Kucinich ( HR 2990 ). We tend to look at this filing system without any awareness that it is but one financial model, and not a good one. Why don’t we read in this blog about alternative financial models? What do you say, GW?

    • Bev

      “but how can we initiate a new public banking system” is not what Dennis Kucinich (HR 2990), Stephen Zarlenga and The American Monetary Institute calls for. They call for monetary reform.
      The American Monetary Institute
      The Bill:

      The Inhuman Failure of ”Austerity”
      By David William Pear, Consortium News

      In comments quoting from the American Monetary Institute:
      Historical experience has taught us what we need to do:
      1. Put the Federal Reserve System into the U.S. Treasury.
      2. Stop the banking system creating any part of the money supply.
      3. Create new money as needed by spending it on public infrastructure, including human infrastructure, e.g. education and health care.

      These 3 elements must all be done together…

      The correct action is for Congress to fulfil its constitutional responsibilities to furnish the nation with its money by making the American Monetary Act law.

      The correct action for the States is to insist on this Federal action!

      Genuine monetary reform is the solution to the nation’s fiscal problems, and that can only be achieved at the national level.

      Joe Bongiovanni, a speaker at AMI’s annual Conferences, says the only thing you have to watch for with a debt-free public money, is that Fascists can still (as also currently) be in charge of the money for themselves, even though the great promise and ability of a debt-free money is to enhance the lives of everyone. Joe’s videos:

      1. Monetary Reform Talk, 4.09, Part 1: Introduction by EconomicStability

      2. Monetary Reform Talk, 4 09, Part 2: Early History by EconomicStability

      3. Monetary Reform Talk, 4 09, Part 3: Lincoln’s Greenbacks by EconomicStability

      4. Monetary Reform Talk, 4 09, Part 4: Post Civil War by EconomicStability

      5. Monetary Reform Talk, 4.09, Part 5: Federal Reserve Act by EconomicStability

      6. Monetary Reform Talk, 4.09, Part 6: Chicago Plan of 1933 by EconomicStability

      7. Monetary Reform Talk, 4.09, Part 7: Robert Hemphill quote by EconomicStability

      8. Monetary Reform Talk, 4.09, Part 8: Milton Friedman by EconomicStability

      9. Monetary Reform Talk, 4.09, Part 9: The Solution by EconomicStability

      • jadan

        Thanks for your post and all the links! “Monetary reform” doesn’t really capture the significance of moving from a privatized monetary system to a public system. “Monetary revolution” is a better description of the consequences of implementing Kucinich’s NEED Act, or the AMI’s proposal. The Fed can be reformed through legislation, but incorporating it into the Treasury and issuing debt free US notes is more than reform. The American Monetary Act is likewise revolutionary legislation. The money power is taken from private hands and returned to the people’s government. So I think we’ve got a misnomer here. We’re actually revolutionaries, not reformers. I can’t speak for Zarlenga or the AMI, but my goal is monetary revolution. End the Fed. Revoution is the consequence of implementing monetary “reform” legislation.