The Next Economic Disaster: Why It's Coming and How to Avoid It

The Next Economic Disaster: Why It's Coming and How to Avoid It

The Next Economic Disaster: Why It's Coming and How to Avoid It

The Next Economic Disaster: Why It's Coming and How to Avoid It

Synopsis

Current debates about economic crises typically focus on the role that public debt and debt-fueled public spending play in economic growth. This illuminating and provocative work shows that it is the rapid expansion of private rather than public debt that constrains growth and sparks economic calamities like the financial crisis of 2008.

Relying on the findings of a team of economists, credit expert Richard Vague argues that the Great Depression of the 1930s, the economic collapse of the past decade, and many other sharp downturns around the world were all preceded by a spike in privately held debt. Vague presents an algorithm for predicting crises and argues that China may soon face disaster. Since American debt levels have not declined significantly since 2008, Vague believes that economic growth in the United States will suffer unless banks embrace a policy of debt restructuring.

All informed citizens, but especially those interested in economic policy and history, will want to contend with Vague's distressing arguments and evidence.

Excerpt

The US economy is elbowing its way to recovery. In fact, booms have returned to some pockets of the economy. Unemployment is still painfully high but is coming down. The stock market is at historic highs. The rest of the world is struggling back as well.

There is one statistic that could return the global economy to the terrible old days of 2007–2008. It is one I learned about during my thirty years in banking, much of that time spent as cofounder, president, and then CEO of one of the nation’s largest consumer lenders. Although my bank did not make mortgage loans, from my ringside seat to the lending industry, I saw the massive increase in mortgage loans starting in the early 2000s that helped make me an expert on an underrecognized yet critical economic indicator: private debt. That might sound esoteric, but it’s crucially important. This one element in the economy is responsible for the financial crisis of 2008 and will precipitate the next one if it goes unheeded.

The idea that private debt can accumulate to the point that it is harmful comes from the very beginnings of civilization. On some occasions when debt had increased to . . .

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