When you get to a party and things are a little dull and boring, the first thing people immediately do is turn to booze. The way alcohol operates in our systems has been documented for thousands of years, as well as the consequent hangover and its artificial impact on our moods and characters.
Very similarly, debt does the same thing. Borrow $1M today and by nighttime, you could be the owner of a brand-new Ferrari, a luxury condo and an upgraded wardrobe.
Only problem is that you’ll either have to pay for it, or default on the loan and answer to creditors.
When it comes to consumers, debt is toxic, but when it comes to corporations and investors, it can be a beneficial tool when implemented correctly. They can use it for good purposes, up to a point.
Just like with beer or wine, one too many introduces a heck of a lot of unwarranted behavior, and the consequences soon follow.
When government borrows money to the tune of TRILLIONS – not thousands, not millions, not tens of millions, not billions or hundreds of billions, but TRILLIONS – they work financial wizardry, which exists due to an historic Nixon decision in 1971.
For them, there’s a 3rd and 4th option as to how to deal with debt, which individuals and corporations don’t have access to. Because of the way our system works, governments can (1) default (only the small ones ever do), (2) refinance for extremely lengthy durations, (3) pay up, fair-and-square, (4) partially default (which Portfolio Wealth Global believes is coming), and (5) INFLATE the real burden of purchasing power, which is dangerous, but a popular strategy.
I’m 100% convinced that we will see all the above happening between 2020 and 2030. The coming decade will boggle your mind even more than this current one has.
Nobody could have predicted even 1% of what’s transpired on the planet, economically and financially, since the Great Recession of 2008 up until present day. Who could have even foreseen $17T in negative-yielding bonds? UNFATHOMABLE, but here we are.
Profits went to outer space, thanks to tax cuts, and now they’re returning to the atmosphere. Lower profits mean less hiring, a reversal in employment trends and, finally, a recession.
Who doesn’t enjoy a free lunch every once in a while? Yet, if all of us were eating for free, it would be an impossibility, as are many of the financial magic tricks being proposed in this day and age.
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We will snap out of this illusion, this grand delusion, very shortly.
What’s wrong with this picture? It’s easy to see that every time that corporations load up on debt that reaches just below 50% of GDP, the economy goes into a death spiral, yet the default rate is nearly non-existent today – It is super-low, as opposed to all previous times.
The reason is the artificially low-interest rates environment, which make it sustainable to keep borrowing.
It is more likely that corporations will slow up their borrowing than it is for the default rate to rocket higher. The end result is the same, though – slower economic activity. Companies will simply find no good reason to borrow, even at low rates.
We’ve had a good run; for 10 years, the U.S. economy has been expanding, but now the end is near.
On the left, the title of the chart ought to read “Financial Insanity and Sure-Fire Bankruptcy,” and on the right it should say “Reality.”
When the 504 largest corporations in America pay out 103% of every 100% they earn in cash, you need to put your helmet on and get to the nearest shelter.
Just know Judgement Day for these CEOs is coming and you better have some safety measures in place.
Research Partner, PortfolioWealthGlobal.com
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Governments Have Amassed ungodly Debt Piles and Have Promised Retirees Unreasonable Amounts of Entitlements, Not In Line with Income Tax Collections. The House of Cards Is Set To Be Worse than 2008! Rising Interest Rates Can Topple The Fiat Monetary Structure, Leaving Investors with Less Than Half of Their Equity Intact!
This work is based on SEC filings, current events, interviews, corporate press releases and what we’ve learned as financial journalists. It may contain errors and you shouldn’t make any investment decision based solely on what you read here. It’s your money and your responsibility. The information herein is not intended to be personal legal or investment advice and may not be appropriate or applicable for all readers. If personal advice is needed, the services of a qualified legal, investment or tax professional should be sought.
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