Private debt is where the calamities have come from. It's the thing that influences
economic outcomes the most. And if you look at back, private sector debt
in the United States has gone from about thirty five percent of GDP in nineteen
forty five, you know, ex in World War Two, to one hundred
and sixty percent today, So it's you know, it's almost Quintaholk in that
period. You're listening to carry Letts's Financial Survival Network where you get valuable information.
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I'm your host carry Letts. Well, hey, you look at the debt,
maybe your own personal debt, maybe others the country, companies, corporations
around the globe, municipalities, you name it. Everybody's in hawk up to
their eyeballs. No one seems to care about it. We've got a debt
fueled economy, We've got a debt based currency, and basically we no longer
have capitalism, we have creditism. And what can go wrong? What can
possibly go wrong? Well, we're going to talk to Richard Vig. Richard,
you've done a lot that you've venture capitalist authors, Secretary of Banking and
Securities in the Great State or once Great State of Pennsylvania, and now you've
got a book out called The Paradox of Debt? What is the Paradox of
Debt? Well, thank you so much for having me. Yeah, our
book, The Paradox of Debt is really about out dead as in dual nature,
it is both a creator and the destroyer. You can't have economic growth
without debt, and yet that can get us in a lot of trouble witness
the two thousand and eight global financial crisis. You know, it's funny when
you talk about that. He makes me think of Robert Kiyosaki, and he
says, there's good debt and there's bad debt. Good debt is money you
borrow that helps you make more money and you know, create jobs, expand
your company. Bad debt is debt that is taken on to further consumption of
things like flat screen TVs. He even sees a your own home as a
consumer item. What's your take on it? What's good debt, what's bad
debt? Well, you know, I sometimes the lines are fuzzy, but
I think it relates to a personal debt. His guidelines seem to me to
be very useful. If you can buy a home at a at a fair
value, you know, not in a moan, for example, and you
you don't over leverage that long, it can be a way to create wealth
for you over time. If you borrow, as he says for the flatscreen
TV or robecation, that's the kind of thing that can and regularly get folks
into trouble. Well, you know, you're in different cycles in your life.
Right when you're young, you get married, you don't have kids,
you're kind of like maybe or you're about to have kids. You're in the
acquiring phase of your life. Then later on the kids are gone, they're
through with college, and you're in the kind of you not in the acquisition
phase of life anymore. You're more just experiential kind of phase. Enjoying your
life is sometimes a debt justified to have a better life, to have more
fun in the present at the expense of the future. Well, we kind
of have a development over the last decade or two on that very issue,
and that has been the massive increasing student debt. You know, going back
about a little over ten years, total student debt and the economy was two
hundred and fifty billion. Today it's close to one point eight trillion. And
that has been a function of several things, among which are for profit colleges
that have degrees or diplomas of questionable value. And as a result, we
have, you know, something on order forty three million Americans a student debt,
and it's not just pay in thirty year olds, it's sixty and seventy
year old and that has changed the dynamic that you're talking about somewhat. You
see folks leaving college with all board debt as a percent of their income that
used to be true. You see a delay in household formation, buying homes,
getting married, having kids, and you have folks you know, later
in life that have more debt particulars relates to student debt than they get a
generation and go. So it's sewing all of those things that used to be
true in an adverse way. Yeah, I totally agree with you there,
and uh, you know, student learned debt has not you know, the
idea is to increase the number of people getting college educations. In theory,
that's a good thing, right, But in reality, all it's done is
line the pockets of the educational industrial complex. Right. Well, and one
thing spiritual or true is that tuition in real terms has gone up significantly and
that part of the equate we just have folks incurring more debt early in their
lot. Yeah. So, but I just had a guest on the other
day. You don't have to really take on all that ted. Yeah,
if you're going into STEM and there's a reason why you need to go to
an Ivy League college or one of these high cost colleges, yes, definitely.
But maybe our values as a society or a little skewed, and that
we're reaching for the you know, the Mercedes Bens of education when a little
what a FUNDAI would be adequate. Well, and yeah, another phenomenal.
I think that's true. We're we have another phenomenon as well, and that
it's been the kind of the buyas towards a liberal arts education as opposed to
more you know, functional education. And I there was a haunting moment I
had. I did a tour of the country a couple of years ago when
I went around the fifteen different states, stopped to loutbolks, you know,
and it disciplined way about these issues. And there was a general there,
a big guyl in his undergraduate degree and level aren't had gotten a man sure
saying this was in Charleston, South Carolina. Gut a master's degree in music,
was now a teacher of music at several of the area colleges, which
he was doing without bil fire benefits, because you know, kenure is something
that's the university shy away from as much as possible. So he was supplementing
his income with gigs as a musician around town. So here he is in
his forties. He still got over a hundred thousand dollars in death. His
brother in law, as he reported denying, was a plumber making well little
one hundred thousand dollars a year with generous benefits and z raking death. And
he looked at me and he said, you know, why didn't somebody tell
me when I was eighteen years old? So yeah, you have a buy
it's I think up and down the line that might not be the most productive.
Yeah. So getting back to our debt paradox, here, what are
we supposed to do well? It is a paradox we you know, we
look at both government debt and private debt in this book, and we look
at it for the seven largest countries in the world. There's two hundred countries
in the world, but seven of them together constitute two thirds of the world
GDP. So if you look at it just so seven, you really have
I think a fairly comprehensive understanding the world and within though, private sector debt
is a much larger phenomenon than public debts and US as an example, private
sector debt is about forty trillion, government debts about thirty trillions. So private
debt is where the calamities have come from. It's the thing that influences economic
outcomes the most. And if you look at that, private sector debt in
the United States has gone from about thirty five percent of GDP in nineteen forty
five, you know, exit in World War Two, to one hundred and
sixty percent today, So it's you know, it's almost when told in that
period, folks are just lugging around a lot more. And you know,
so we need several things on the private debt side. One of them is
what you've already mean in which is just more discipline around the issue session.
I think we need to find more creative ways to let folks get out of
their debt in affair, but more straightforward way. And another thing we need
to do is be vigilant for rapid build build ups and unproductive debt. Has
happened, you know in two thousand and two to two thousand and seven.
It brought our great financial crisis. You know, in two thousand and two,
Mortgard debt was five trillion. By the time you get to two thousand
and seven, it's ten trillion, it's doubled, and a little over four
and a half years. That's millions of loan being made to popes with no
income, no jobs, no assets, are very little of me about.
It's millions of homes that said empty. We had a global financial crisis and
nobody you know, in the mainstream economics profession even noticed and gave us any
forewarning of that. So you know we need we need reform up and down
long, Yeah, that's for sure. And you know, things like taken
out a student loan which could adversely impact a young kid, basically a child
at seventeen eighteen, you know, could ruin their lives, make them into
a total death sleeve. There's no counseling for this. Nobody explains to this
kid, not that they would necessarily understand it anyway, because it's complicated and
they don't have the life experience, but nobody explains to the kid what they're
in for for this stuff. You know, it's really you really have to
a disservice to this, uh two people in this situation, you know,
Yeah, there's there's very little financial bastion. We actually when I was banking
Secretary and Pennsylvania, we actually had a department that provided this training. We
provided a lot of training students to the elderly, you know, the military,
well franklingtoncar started individuals about to re enter the work wars, and we
did a lot and all totally it was just to drop on the bucket.
The lack of knowledge around these subjects is so vast. Yeah, I mean
you and I being professionals, having dealt with death, mortgages whatever our whole
lives, we get it. But you know when they when a person my
age, my advanced age, goes to take out a reverse mortgage, you
know what happens. You have to take like an eight hour course on all
the ins and outs and what you're going to be paying and what can happen
in your estate and all that stuff. And to me, it just seems
like there should be mandatory education, just like the when we were growing up,
cigarettes didn't have a warning on the label on the side. Now they
got warning labels all over. Maybe every loan that you take out and every
debt that you incur should come with a warning label. You know, I
was unaware of what you just said about the reverse mortgage. That's actually very
encouraging to hear that, and it sounds like a terrific idea that perhaps is
citing a lot of seniors citizens from Calamate. Yeah, well you learn that
right. There's no free lunches, right do we learn that in economics?
Right? There's no such thing as a free line. It's not it's not
like the folks at the lottery or would happen believe. Yeah, well,
you gotta be in it to win it, right, you got to be
in it to win it. But seriously, we could just do so much
better than we're doing here. You know. That's my grape is where really
it's unnecessary the issues that we're going through here. They're all avoidable and fixable.
And maybe that's the crux of your book. Yeah, we we also
sent an area and it well spend time that which is a far more controversial
and and really that's you know, in and around the subject of government debt
and also around inequality and to give you a sense of that in the pandemic,
you know, when the government spends money, it doesn't disappear and it
effectively goes into asshole checking cap. So in the in the very period for
roughly nineteen eighty one to the present, total debt in our economy is it's
grown from one hundred and twenty five percent it's a two hundred sixty percent of
GDP, just been massive growth. But in that exact same period, households
network that's assets minus lineabilities has grown even and even greaterar map from three hundred
fifty percent of GDP to almost six hundred percent of GDP. So the growth
and debt has created an increase and household well and in the three years of
the pandemic we saw this from dramatically eight trillion dollars eight trillion dollars increase in
government debt and well three year period caused a thirty trillion dollars increase in household
well. So the phenomenon of debts bringing wealth is not one well understood.
But as we go to great links the show, I'm nost other of that
increase in well goes to the top one percent or ten percent, right,
you want to seize the wealthiest people in the economy. So the thirty trillion
and wealth and was created in the three year created in the candidate, which
was by the way, the greatest theoryod of wealth creation in economic history in
the United States is best we can measure. And probably twenty three trillion,
that thirty trillion went to the top ten percent, so it actually increased inequality
and to a greater degree than we really seemed, probably after we're serving end
a long time. Yeah, yeah, Well, so was it really wealth
creation that took place though during the pandemic or was it inflation induced wealth creation?
Well you can break it down and you can come to your own conclusion.
But you know, basically, the eight trillion of the governments spent ends
up in the household checking against then, so that much is real also,
you know, and then the remaining twenty two million charity and excuse me,
is roughly divided between the increase and the value of real estate and then the
increase in the value of the stock market. And as we know, those
go up and down. If we look at the trend over an extended period.
In this case, you know, most of that occurred in a sixty
to sixty five year period starting l forty to forty five year period starting in
outteen eighteen. You know, it's gone up and down, but over time,
the trend is always up over time. Like I said, hustling,
that work was you know, three hundred and fifty percent of GDP and nineteen
eighteen today it's six hundred percent. I'm JDP all right, so I'll buy
you. There's a wealth effect, but that wealth could be very fleeting.
You know. It's just like when you take out a student loan. Uh
hey, it's your liability, but it's the government's asset. In theory,
but you know, now you're you're you're exactly right, You're exactly route.
And the important principle there is you don't have assets without liabilities. So you
know, somebody's wealth is gaining over here, that means somebody's becoming more indebted
when we're there, and that's that's the increase in inequality that we we talk
about. So, you know, what you say is undoubtedly true, but
it kind of feeds into the division that's decided and we've been saying. So
it's true in the US, by the way, that's that's true in every
GUD. So debt increases income inequality, right, because inflation does it.
Well, yeah, inflation certainly does because the people holding the assets make all
the money, right, that's right, that's right, So they're they're the
net beneficary, all right. So interesting phenomena, and it's kind of it's
kind of a conundrum for our policy makers. And it also fits into demographics
too, because we've got a appending demographic disaster in the country because people aren't
having kids, they aren't getting married, right, Yeah, it's it's it's
something that most folks don't notice, and it's apting in the United States,
but it's happening in a much more pronounced way in places like China, in
Germany and Spain and Japan, you know, were our demographic picture isn't that
great, but it's a lot better than most of the rest of the world.
But anywhere you look. That deceleration and population growth is creating all sorts
of problems that are frankly very interest I just looked at this number the other
day. The average age the immediate edited in the nineteen eight thirty. Today
the meeting age is thirty nine. That's substanct. We're getting old. Yeah,
I feel it. I feel even older now that you said it.
But it's a legitimate problem for which the government has no you know, in
Russia they were paying people to get married and have kids. I don't think
that's really a long term solution, and it may no difference. Yeah,
in the end they just blew it on vodka, I guess, right.
But yeah, I mean, and there's a there's a there's an aspect of
that where it becomes unrecoverable. I remember looking at the data in Spain and
looking for women, so you know, you kind of have to look at
women because they're the ones that advocates, and the number of women is saying
that we're age. The road to five was thirty perc lower than the number
of women eight thirty to third and fove Well, well, there's kind of
no way to recover from that, you know, unless less those well three
year olds are going to be willing to have inter fifteen kids when they're when
they get through to the age. It's an irreversible phenomenon. So some some
I think the US and still in a position where we can we can just
staying in population brow that's not training some countries very very very much the case.
Well, we covered a lot of issues here. Really appreciate to your
coming on with us, sharing your book, Richard again, tell us the
book where we find it, wherever fine books used to be sold. I
assume absolutely it's paradox of debt, and you can find our own Barge and
Noble and Amazon. We have to hold paradox. I'm so grateful to be
able to come on the show, and we're very grateful to have you.
Sure, if you've got a question for Richard to myself, shoot me an
email k l at krylts dot com. The link to his site is in
the show notes to this interview on Financial Survival Network dot com. Make sure
you go sign up for your free newsletter. Richard. Sure, we'll have
you on again. Appreciate you stopping bye, Thank you, bye bye,
Thanks for listening to carry Lets's Financial Survival Network your solution to today's trying times.
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