Paul Brodsky, principal at Macro Allocation Inc., doesn’t just follow the mainstream opinion. His analysis of the global economy and financial system goes deeper than anybody else’s and yet he managed to express the complex problem in just three pages.
The problem is too much debt and leverage : “For median households, debt levels continue to rise more than wage growth; for governments, obligations are rising more than tax revenues; for publicly-owned businesses, debt is rising faster than revenues; and for investors, debt could easily grow more than income and asset appreciation, suddenly and without warning should markets stall or fall,” writes Brodsky in the first part of his MAI View Series.
This is not necessarily new, but Brodsky analyzes the factors driving the debt and concludes it is driving nominal growth while at the same time choking real growth.
He argues that it simply takes too much debt to create real capital formation and production (i.e. growth), which ultimately drives prices higher without actually adding value, whether in quantity or quality.
“The global economy seems to be suffering from a late-stage paradox in the financial leveraging cycle in which nominal output growth has become countercyclical to real output growth. The more commerce and trade rely on credit growth and asset appreciation, the more the ultimate benefit of growing economies is diminished,” he writes.
