The Ponzi Economy (from John Hussman)

The central point is this. The U.S. economy has shifted course from one of productive capital accumulation to a reliance on continuous expansion of debt in excess of the economic ability to repay it. Call this the Ponzi Economy.

The U.S. Ponzi Economy is one where:

1. Domestic workers are underemployed and consume beyond their means;
2. Household and government debt make up the shortfall;
3. corporate profits expand to a record share of GDP as revenues are sustained by household and government deficits;
4. Local employment is replaced by outsourced goods and labor;
5. Companies refrain from productive investment, accumulate the debt of other companies and issue new debt of their own, primarily to repurchase their own shares at escalating valuations;
6. Our trading partners (particularly China and Japan) become our largest creditors and accumulate trillions of dollars of claims that can effectively be traded for U.S. property and future output;
7. Fed policy encourages the yield-seeking diversion of scarce savings toward speculation in risky securities; and
8. As with every Ponzi scheme, everyone is happy as long as nobody seeks to be repaid.

LINK HERE to the article chart taken from

HUSSMAN: Though a certain amount of disruption resulting from overvalued financial markets, compressed risk premiums, and excessive debt issuance is baked-in-the-cake, there is also a ray of hope. Regardless of the point the U.S. economy has arrived to, there is room to improve matters by making each next decision well. Those next decisions should include ……

“an abandonment of financial repression by the Federal Reserve and a gradual normalization of interest rates that would increase savings, discourage speculative yield-seeking, and allow the markets to signal supply and scarcity without distortion“

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.