Issuing Extreme Levels of Debt to Mimic True Growth (w/ Danielle DiMartino-Booth & Chris Cole)

could possibly ignite inflation? Because it’s the one thing that nobody is
expecting. We’re all expecting wash, rinse, repeat. More deflation next time there’s a disruption
of any kind, and again, every central bank comes riding into the rescue with more stimulus. CHRISTOPHER COLE: More stimulus– so look
at looking back at– there have been other cycles across history that are like an Ouroboros
eating its own tail. If we take this beyond just short volatility,
we can think of it as part of the entire debt deflation cycle. So this idea that you start out with something
good, you start out with real economic growth, technology, and demographics, and that leads
to growth. And fantastic– you’re growing. The economy is growing. It’s fundamental growth. At a certain point in time, the fundamentals
get stretched and we become reliant on fiat devaluation and debt expansion. DANIELLE DIMARTINO BOOTH: So think of the
baby boomer generation generating genuine economic growth, and then they’re starting
to move to spending less. And how do you fill that gap? CHRISTOPHER COLE: Exactly. So to this point, we start out in this framework. It’s in the period of 1984 to 2007– one of
the most incredible periods of asset price growth and asset appreciation growth in not
just American history, in history period. 90% of the returns of a 60-40 stock-bond portfolio
came from the 22 years between ’84 and 2007. Just 22 years drove 90% of the gains of that
portfolio over 90 years. DANIELLE DIMARTINO BOOTH: I probably couldn’t
count on one hand the number of investors who have been around since before 1984. CHRISTOPHER COLE: Exactly. The average investment advisor is 52 years
old. They were a kindergartener during the stagflationary
period of the 1970s. So you have all these baby boomers, 76 million
baby boomers– largest generation in American history. They’re teenagers right into the devaluation
of gold in the 1971. That is driving a tremendous amount of inflation
at that point in time. Interest rates go up to 19%, and then these
baby boomers, 76 million of them, enter the workforce in the early ’80s. And they start making money. They start making money, and they start spending. They start investing. So you have baby boomers coming on in. Then you have a trend towards globalization,
so we’re able to export our inflation overseas. You have a technology boom as well. And then, interest rates begin dropping. DANIELLE DIMARTINO BOOTH: Oh, yes. CHRISTOPHER COLE: So and– DANIELLE DIMARTINO
BOOTH: May he rest in peace, Paul Volcker. CHRISTOPHER COLE: Exactly. And as if that’s not enough, taxes start coming
down. So you have this once-in-a-generation, once-in-several-hundred-years
economic boom, asset price boom that occurs, driven as baby boomers come into the workforce,
begin savings, enter into their prime earning years. But now, those boomers are going to be retiring. They are going to be drawing $20 trillion
dollars out of markets instead of putting that into markets. This, obviously presents a tremendous deflationary
force. So I’d like to think about this as a snake. If we take the snake metaphor and we pull
it out, it’s not just short volatility. It is almost like a snake devouring its own
tail as part of a business cycle. The snake is eating prey and naturally compressing
inwards through secular growth. And that’s healthy. But towards the end of the secular growth
cycle, that snake relies on financial engineering, excess leverage, and begins eating its own
tail. And that is where we’re at, I would say, in
the cycle right now. And you’ve written beautifully on this about
some of the debt problems out there. Currently, we’re at 48% debt to GDP, highest
corporate debt to GDP, highest level in American history. DANIELLE DIMARTINO BOOTH: You tack on– you
aggregate non-financial, we’re at 74%. CHRISTOPHER COLE: 74%. DANIELLE DIMARTINO BOOTH: Unheard of numbers. CHRISTOPHER COLE: And what are we doing with
this? What are corporations doing with this debt? They’re issuing debt to buy back their own
shares at a trillion dollars a year. And then institutions are funneling that in
in order to– they need to find ways to generate yield absent any fundamental growth. So we had a year like last year, where there’s
no actual earnings growth, but it’s all multiple expansion driven by share buybacks and speculation. So this is– we’re at this end of the cycle,
where the snake is devouring its own tail.


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  • AMazing info. Thanks for posting these details.

  • Yea, it's a perfect description. What's next, for future generations that are now in kindergarten?
    As yet, undiscovered technology? A.I.?

  • It looks as if central banks have been and continue to be successful in pushing on the multiple expansion. Even now as the global economy is coming to a near halt.
    So unite with the baby boomers and live of inflated equity investments.

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