'..Moreover, the growth impediments on the U.S. economy are more serious in many other parts of the world. As Friedman rigorously proved, a noticeable period of monetary deceleration, now synchronized globally, is consistent with lower, not higher, interest rates.''Using this theory – that the excess application of an input will lead to diminishing returns – it is possible to see why academic work has concluded that excess application of debt within an economy leads to slower economic growth in a nonlinear fashion. If debt is adjusted for price level changes, then debt is in real or physical terms and thus consistent with the law of diminishing returns. The pattern of unexpected economic weakness in heavily indebted economies has been repeated frequently in Japan, Europe, China and the emerging markets. Japan, the most indebted nation, experienced three additional recessions after the 2008-09 recession. Among the world’s major economic areas, the U.S. economy presently stands out. The disparity in this performance is an unseen consequence from the excess use of debt.
After decades of overuse, debt is increasingly less productive in all of these areas. Ten years ago, the debt overhang was centered in the U.S., the euro area and Japan. Currently, all major economic regions fit this description as China and the emerging markets now separately carry record levels of debt relative to GDP. The Bank for International Settlements (BIS) shows that in 2017, one dollar of nonfinancial debt generated $0.40, $0.38, $0.39, $0.35 and $0.27 of GDP, respectively, in the U.S., the euro area, China, the U.K. and Japan (Tables 1 & 2). All of these data points have significantly worsened over the last decade, the greatest deterioration being that of China which has declined by 43% since 2008. Among all regions, Japan’s debt exhibited the weakest level of debt productivity at $0.27. While one dollar of emerging market debt produced a seemingly enviable $0.52 of GDP in 2017, this ratio was down 38% from 2007.
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In addition to capital, output is a function of labor, natural resources and technology. Thus, one of these latter three factors must accelerate in order to offset the overuse of debt if production growth is to accelerate and thus boost the standard of living. Natural resources and labor are unlikely to be of immediate benefit. New discoveries of raw materials have been occurring, but only serve to balance exhaustion of known supplies.
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..The excess levels of debt continue to amass and the short-term beneficial aspects of even higher levels of debt are likely to be increasingly fleeting. Moreover, the growth impediments on the U.S. economy are more serious in many other parts of the world. As Friedman rigorously proved, a noticeable period of monetary deceleration, now synchronized globally, is consistent with lower, not higher, interest rates.'
- Van R. Hoisington & Lacy H. Hunt, Ph.D.,
Quarterly Review and Outlook - Second Quarter 2018, page 4 & 5
Context (Banking Reform - English/Dutch) '..a truly stable financial and monetary system for the twenty-first century..'Our Obsession with Consumption — while Ignoring Saving and Investment — Is a Big Problem'The ongoing "global government finance Bubble" is unique in history.''..market extremes..'