Licking the Log

American workers, as a whole, are facing a disagreeable disorder.  Their debt burdens are increasing.  Their incomes are stagnating.


There are many reasons why.  In truth, it would take several large volumes to chronicle all of them.  But when you get down to the ‘lick log’ of it all, the disorder stems from decades of technocratic intervention that have stripped away any semblance of a free functioning, self-correcting economy.


Happy workers from the distant past…


The financial system circa 2017, and the economy that supports it, has been stretched to the breaking point.  Shortsighted fiscal and monetary policies have propagated it.  The result is a failing financial order that has become near intolerable for all but the gravy supping political class and their cronies.

Take consumer spending.  This is the primary driver of the U.S. economy.  Yet it requires vast amounts of credit.  In fact, American consumers presently hold $1 trillion in revolving credit.  At the same time, they have nowhere near the income needed to finance these debts, let alone pay them off.

Remember, the flip-side of credit is debt.  Obviously, the divergence of increasing debt and stagnating incomes is a condition that cannot go on forever.  But it can go on much longer than any sensible person would consider possible.


The consumer revolving credit mountain – back at its previous peak – click to enlarge.


Debt Slaves

If you haven’t noticed, the financial services industry is extremely accomplished at compelling people to go whole hog into debt.  Moreover, the entire fiat based financial system, which depends on ever increasing issuance of debt, hinges on it.  Just a slight contraction of credit, like late 2008, and the whole debt repayment structure breaks down.

On an individual basis, there are only so many credit cards that can be maxed out before the shell game ends.  Wolf Richter, of Wolf Street, recently clarified the relationship between the economy and deep consumer debt:


“The US economy is fueled by credit.  Americans turning themselves into debt slaves makes it tick.  Take it away, and what little growth there is – nearly zero in the first quarter – will dissipate into ambient air altogether.  So it’s time to take the pulse of our American debt slaves.

“In a new study, life insurer and financial services provider Northwestern Mutual found that 45 percent of Americans that have debt spend ‘up to half of their monthly income on debt repayment.’  Those are the true debt slaves.

“Excluding mortgage debt, Americans carry an average debt of $37,000.  Of them, 47 percent carry $25,000 or more, and more than 10 percent carry $100,000 or more in debt, excluding mortgage debt. Most of them expect to get out of debt before they die, but 14 percent expect to be in debt ‘for the rest of their lives.”’


Debtor’s prison, new and old.


The Coming Debt Reckoning

Consumers with elevated debt levels are playing a high risk game.  They are one job loss or illness away from losing it all.  Even without such difficult life events, the compounding interest of massive amounts of debt relentlessly pile up like straw upon a camel’s back.  Eventually the breaking point is crossed.

The process may be subtle at first.  Later it’s abrupt.  Here we turn to a brief dialogue from Ernest Hemingway’s 1926 novel, The Sun Also Rises, for a succinct explanation of the process of going broke:


“How did you go bankrupt?” Bill asked.

“Two ways,” Mike said. “Gradually and then suddenly.”


By our estimation, the gradual trickle toward bankruptcy for many Americans is giving way to the sudden deluge.  On an individual basis, greater amounts of debt may be a temporary solution to a debt problem.  But greater amounts of debt gradually compound to a sudden bankruptcy.

First-quarter GDP , reported last Friday, came in at an annualized rate of just 0.7 percent.  Of this, personal consumption increased just 0.3 percent.  Up and down, in and out, of the economy, consumers are struggling.  Some are attempting to tighten their belts.  Others are at the end of their rope.  Is it any surprise that retailers are shuttering stores at a record clip?


Retail drama… at least timberland should continue to boom.


Obviously, the effects of consumer retrenchments will spread out beyond just retail. Commercial real estate, manufacturing, shipping and transportation, automotive, oil and gas – you name it.  A coordinated supply glut, fueled by excess debt, is upon us.

Make of it what you will.  By our estimation a debt reckoning is coming, and that doesn’t even account for government debt.  What better time than now to get one’s financial house in order?


Chart by: St. Louis Fed


Chart and image captions by PT


MN Gordon is President and Founder of Direct Expressions LLC, an independent publishing company. He is the Editorial Director and Publisher of the Economic Prism – an E-Newsletter that tries to bring clarity to the muddy waters of economic policy and discusses interesting investment opportunities.




Emigrate While You Can... Learn More




Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.


Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA


Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • US Stock Market: Conspicuous Similarities with 1929, 1987 and Japan in 1990
      Stretched to the Limit There are good reasons to suspect that the bull market in US equities has been stretched to the limit. These include inter alia: high fundamental valuation levels, as e.g. illustrated by the Shiller P/E ratio (a.k.a. “CAPE”/ cyclically adjusted P/E); rising interest rates; and the maturity of the advance.   The end of an era - a little review of the mother of modern crash patterns, the 1929 debacle. In hindsight it is both a bit scary and sad, in...
  • A Giant Ouija Board - Precious Metals Supply and Demand Report
      Object of Speculation The prices of the metals fell last week, $22 and $0.24 respectively. It’s an odd thing, isn’t it? Each group of traders knows how gold “should” react to a particular type of news. But they all want the same thing — they want gold to go up. And when it doesn’t, many hesitate to buy. Or even sell. This is why speculation cannot set a stable price (I’m talking to you, bitcoiners).   Everybody wants gold to grow wings. Unfortunately it's rather...
  • How to Blow $12.2 Billion in No Time Flat
      Fake Responses  One month ago we asked: What kind of stock market purge is this?  Over the last 30 days the stock market’s offered plenty of fake responses.  Yet we’re still waiting for a clear answer.   As the party continues, the dance moves of the revelers are becoming ever more ominous. Are they still right in the head? Perhaps a little trepanation is called for to relieve those brain tensions a bit?  [PT]   The stock market, like the President,...
  • Purchasing Power Parity or Nominal Exchange Rates?
      Extracting Meaning from PPP   “An alternative exchange rate - the purchasing power parity (PPP) conversion factor - is preferred because it reflects differences in price levels for both tradable and non-tradable goods and services and therefore provides a more meaningful comparison of real output.” – the World Bank   Headquarters of the World Bank in Washington. We have it on good authority that the business of ending poverty is quite lucrative for its practitioners...
  • Broken Promises
      Demanding More Debt Consumer debt, corporate debt, and government debt are all going up.  But that’s not all.  Margin debt – debt that investors borrow against their portfolio to buy more stocks – has hit a record of $642.8 billion.  What in the world are people thinking?   A blow-off in margin debt mirroring the blow-off in stock prices. Since February of 2016 alone it has soared by ~$170 billion - this is an entirely new level insanity. The current total of 643...
  • Stock and Bond Markets - The Augustine of Hippo Plea
      Lord, Grant us Chastity and Temperance... Just Not Yet! Most fund managers are in an unenviable situation nowadays (particularly if they have a long only mandate). On the one hand, they would love to get an opportunity to buy assets at reasonable prices. On the other hand, should asset prices actually return to levels that could be remotely termed “reasonable”, they would be saddled with staggering losses from their existing exposure. Or more precisely: their investors would be saddled...
  • Despondency in Silver-Land
      Speculators Throw the Towel Over the past several years we have seen a few amazing moves in futures positioning in a number of commodities, such as e.g. in crude oil, where the by far largest speculative long positions in history have been amassed. Over the past year it was silver's turn. In April 2017, large speculators had built up a record net long position of more than 103,000 contracts in silver futures with the metal trading at $18.30. At the end of February of this year, they held...
  • From Bling to Plonk – An Update on the Debt Mountain
      Serenely Grows the Debtberg We mentioned in a recent post that we would soon return to the topic of credit spreads and exotic structured products. One reason for doing so are the many surprises investors faced in the 2008 crisis. Readers may e.g. remember auction rate securities. These bonds were often listed as “cash equivalents” on the balance sheets of assorted companies investing in them, but it turned out they were anything but. Shareholders of many small and mid-sized companies...
  • US Equities – Mixed Signals Battling it Out
      A Warning Signal from Market Internals Readers may recall that we looked at various market internals after the sudden sell-offs in August 2015 and January 2016 in order to find out if any of them had provided clear  advance warning. One that did so was the SPX new highs/new lows percent index (HLP). Below is the latest update of this indicator.   HLP (uppermost panel) provided advance warning prior to the sell-offs of August 2015 and January 2016 by dipping noticeably below the...
  • Return of the Market Criers - Precious Metals Supply and Demand
      Ballistically Yours One nearly-famous gold salesman blasted subscribers this week with, “Gold Is Going to Go Ballistic!” A numerologist shouted out the number $10,000. At the county fair this weekend, we ran out of pocket change, so we did not have a chance to see the Tarot Card reader to get a confirmation. The market criers are back in gold town [PT]   Even if you think that the price of gold is going to go a lot higher (which we do, by the way—but to lean on...
  • Good Riddance Lloyd Blankfein!
      One and the Same   “God gave me my money.” – John D. Rockefeller   Today we step away from the economy and markets and endeavor down the path less traveled.  For fun and for free, we wade out into a smelly peat bog.  There we scratch away the surface muck in search of what lies below.   One should actually be careful about quotes like the one attributed to Rockefeller above, even if it of course sounds good and is very suitable for the topic at...

Support Acting Man

Item Guides


Austrian Theory and Investment



THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts


Gold in USD:

[Most Recent Quotes from]



Gold in EUR:

[Most Recent Quotes from]



Silver in USD:

[Most Recent Quotes from]



Platinum in USD:

[Most Recent Quotes from]



USD - Index:

[Most Recent USD from]


Buy Silver Now!
Buy Gold Now!

Diary of a Rogue Economist