No Bang for Our Borrowed Buck

US debt growing and the effects it will have on the economy, greenback

Nothing lasts forever.

Plain spoken and no-nonsense, this is a saying that governs all aspects of our lives. And when it comes to the markets, this impermanence is the shadow that is always lurking behind the scenes.

Vern Gowdie, author of The End of Australia, hammered in this point throughout his speech at Port Phillip Publishing’s Paradox of Prosperity conference. An event where influential financial thinkers from all over the world have come to put in their two cents about the state of the markets.

As Vern began his talk, the realist attitude that he’s known for in his writing shone through. And the questions he posed reflected both the concerns of many Australians, and the critical tone that pervaded the speeches of the day.

Now that we live to 100, how are we going to afford it? It’s a very good question.’

Economic sustainability is a topic Vern cares deeply about. And with rapidly evolving technology, rising debt and a changing economic landscape, he believes it’s a topic we should all be paying attention to.

As Vern pointed out, the consequences of our rapid innovation are easy to see. With Netflix came the death of video rental stores. Newspapers disappeared as our screens multiplied. And with the rise of robotics, traditional labour will likely vanish as well.

But even with all of this innovation, our economic growth is slowing. The reason for this, Vern argues, is that we have failed to be adaptive in our economic model. And now we are drowning in debt and are struggling to keep our economy stable. 

Although we are accustomed to our GDP always rising, and our living conditions becoming ever-better, it’s an expectation that we need to rethink. Because the cost of having decades of economic prosperity has been trillions of dollars in government promises. And now we are left with an unsustainable welfare system, falling productivity, and non-productive debt.

As Vern confirmed: ‘Borrowing our way to growth is a model with a finite life. It’s impermanent. We know that.’

Vern then noted that increasing immigration and debt to drive growth was a Ponzi scheme. But as it’s political suicide to suggest any drastic change to our financial system, things are unlikely to change anytime soon. And Vern believes that this complacency will likely lead to the next recession.

How to solve the economic dilemma?

Dr Marc Faber, coined Doctor Doom, couldn’t agree more. Taking the stage after Vern, he lamented Vern’s point that we need to adjust our expectations:

If you want the government to give you everything, they will take everything from you.’

In our delirious state of economic boom, Dr Faber argues that we have become unproductive and greedy. And as a result, GDP outperformance in the Western world has come to an end.

He noted that China is slowly but surely becoming top dog. They’re consuming roughly 50% of commodities, hold some of the world’s top brands and have increasing geopolitical influence. They’re doing so well in fact, that they couldn’t care less about the looming US tariffs.

Dr Faber sombrely conceded that the Western world is fast falling behind. And that in these times of rapid change and global uncertainty, it can be very difficult to know where to look as an investor.

But even in these challenging circumstances, both Vern and Marc proposed practical solutions for Australian investors. Outlining how you should invest in this environment and how to protect yourself in the event of a recession. I can’t specify the details here, but if you’d like to access the presentations in full, it’s not too late to grab your virtual seat at the Paradox of Prosperity conference.

Our camera crew has recorded all the speeches, questions and ideas from the conference, which include notable financial figures including Greg Canavan, Jonathan Pain, Gerard Minack, and Tim Murray. Get in before midnight tonight to get your 20% discount.

You can secure your copy, here.

Kind regards,

Katie Johnson,
Editor, Money Morning

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