Have you heard of Ross Perot? If you haven’t, don’t feel too bad. I just conducted a quick office survey and only one out of the 20 folks I asked could tell me who he was. But then, we’ve got a pretty young staff.
Of course, when I asked our newsletter editors the same question, every one of them knew the answer. Well-read bunch!
I bring this up for a reason. And not just because I was raised in the US.
In case you’re among the majority who don’t know the man, let me fill you in.
Ross Perot is a Texan, and a self-made billionaire. But he’s most famous for his run as an independent candidate for the US presidency in 1992. I’ll wager you have heard of the other two candidates: Bill Clinton and the then sitting president, George Bush.
The way the US system is set up meant that the debates and actual voting took place in 1991. That’s the year I was finishing up my economics degree at uni.
Some of Perot’s ideas resonated so strongly with the American public that he won more than 18% of the vote. That’s unheard of in modern American politics, where the Democrats and the Republicans rule the roost.
I didn’t agree with all of Perot’s positions. But as a young economist, raised by frugal Dutch parents, his insistence on balancing the US budget struck a chord. I recall him saying that the government should run its budget no differently than a household, or a successful business.
He pointed out that public debt had been rising exponentially for the past decade, and insisted he would put America’s financial house back in order.
Whether or not he would have succeeded, we’ll never know. But we do know what happened under Clinton, Bush, and Obama.
Have a look at the graph below. It shows the US public debt from 1900 until present…with an estimate through to 2020.
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If you look at 1991, when Perot was sounding the alarm, you can see that debt had indeed been ballooning for the past 10 years. Yet back then it ‘only’ stood around US$5 trillion. Even without hindsight, you’ll probably agree, that would have been a pretty good time to tackle the problem.
But as you can also see, they didn’t.
Does this look sustainable to you?
Public debt, like a good balloon, continued to expand at an ever more rapid rate. And if this estimate is correct, US debt levels will top $25 trillion by 2020. Does that sound sustainable to you? Or does it sound like a balloon you’ve put one breath too many in? We all know what happens then.
Of course it’s not just the US. It’s the entire world. Japan’s government debt to GDP ratio hit 230% last year. And the Japanese government’s not done yet.
Here’s what Vern Gowdie, editor of The Gowdie Letter wrote to his subscribers on Wednesday.
‘Japan’s audacious plan to double its money supply to create inflation appears to be failing…no great surprise.
‘The Japanese economy shrank by 0.4% in the second quarter. In a world that is contracting on all sides, it doesn’t matter how much money you print if consumers do not want to spend.
‘The IMF has issued a warning to Tokyo — its debts are unsustainable and if it continues unchecked, public debt will reach 300% of GDP by 2030. I have two things to say about this warning. Firstly, it is far too late in the day to state the bleedin’ obvious. And secondly, Japan will hit 300% debt to GDP long before 2030.’
Japan may be the biggest offender, but Australia is also pretty far along in the game.
Take a look at the graph below.
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It shows you that Australia’s net foreign debt is at $976 billion. That’s four times the level it was in 2000, and up 57% since 2009. Again I ask you, does this look sustainable? Or does it make you want to cover your ears in preparation for the imminent ‘POP!’?
I’ll be honest with you. I don’t know how much further government leaders and central bankers can keep inflating this balloon. We’re in uncharted territory here. That means no one knows when this is going to blow.
In Vern’s new book, The End of Australia, he’s the first to admit that the world’s central bankers have manipulated the system far longer than he originally thought possible. And they may well have a few more rabbits in their hats.
But when the well finally does run dry — and it will — he’s warning of a 50–80% downside in the markets. If your portfolio can withstand that kind of a hit, I’d love to hear from you. If not, I strongly suggest you read Vern’s book. He does far more than explain why the system is headed for a meltdown. He also offers you a number of useful, actionable ideas you can put into play to prepare yourself today.
To find out how you can order your free copy online, go here.
Managing Editor, Port Phillip Publishing
Ed Note: The above is an extract of an article first published in Port Phillip Insider.