Is the economy already in crisis?

7.13.23 - Is the economy already in crisis?

Gold last traded at $1,960 an ounce. Silver at $24.86 an ounce.

The economy is in a 'rolling financial crisis' as private sector debt balloons, GMO says -Yahoo!Finance

The economy is in the throes of a slow-moving financial crisis thanks to ballooning amounts of debt being racked up in the US private sector, according to GMO.

"We seem to live in an era of rolling financial crisis. I suspect this is the result of a massive build-up of private sector debt," GMO partner James Montier said in a whitepaper published Monday. "Sometimes these build-ups are accompanied by very high rates of credit growth, giving rise to a credit bubble. On other occasions these builds-ups sit simmering in the background, largely unnoticed until the proverbial s**t hits the fan, when they suddenly act as an amplifier causing a much steeper decline than would otherwise have been the case," he warned.

Montier believed the second scenario describes most financial markets today, with private debt levels ballooning all over the world. But it's at particular risk of happening in the US, he warned, where the ratio of private sector debt to GDP has been north of 150% for most of the last 20 years.

Meanwhile, five-year private credit growth has remained relatively low, which suggests the US isn't yet in a credit bubble.

That mountain of private debt poses a threat to financial stability and to asset prices, especially considering other macro headwinds that are beating down on the economy. Some experts have warned of a recession to soon hit, thanks to high interest rates overtightening the economy.