Latest / Financial Survival Network / A New Path to Prosperity Without Crisis -- Richard Vague #5878

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A New Path to Prosperity Without Crisis -- Richard Vague #5878 · Financial Survival Network

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Private debt is where the calamities have come from. It's the thing that influences
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economic outcomes the most. And if you look at back, private sector debt
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in the United States has gone from about thirty five percent of GDP in nineteen
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forty five, you know, ex in World War Two, to one hundred
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and sixty percent today, So it's you know, it's almost Quintaholk in that
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period. You're listening to carry Letts's Financial Survival Network where you get valuable information.
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more than ever. Welcome, you are listening to the Financial Survival Network.
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I'm your host carry Letts. Well, hey, you look at the debt,
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maybe your own personal debt, maybe others the country, companies, corporations
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around the globe, municipalities, you name it. Everybody's in hawk up to
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their eyeballs. No one seems to care about it. We've got a debt
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fueled economy, We've got a debt based currency, and basically we no longer
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have capitalism, we have creditism. And what can go wrong? What can
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possibly go wrong? Well, we're going to talk to Richard Vig. Richard,
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you've done a lot that you've venture capitalist authors, Secretary of Banking and
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Securities in the Great State or once Great State of Pennsylvania, and now you've
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got a book out called The Paradox of Debt? What is the Paradox of
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Debt? Well, thank you so much for having me. Yeah, our
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book, The Paradox of Debt is really about out dead as in dual nature,
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it is both a creator and the destroyer. You can't have economic growth
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without debt, and yet that can get us in a lot of trouble witness
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the two thousand and eight global financial crisis. You know, it's funny when
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you talk about that. He makes me think of Robert Kiyosaki, and he
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says, there's good debt and there's bad debt. Good debt is money you
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borrow that helps you make more money and you know, create jobs, expand
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your company. Bad debt is debt that is taken on to further consumption of
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things like flat screen TVs. He even sees a your own home as a
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consumer item. What's your take on it? What's good debt, what's bad
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debt? Well, you know, I sometimes the lines are fuzzy, but
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I think it relates to a personal debt. His guidelines seem to me to
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be very useful. If you can buy a home at a at a fair
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value, you know, not in a moan, for example, and you
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you don't over leverage that long, it can be a way to create wealth
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for you over time. If you borrow, as he says for the flatscreen
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TV or robecation, that's the kind of thing that can and regularly get folks
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into trouble. Well, you know, you're in different cycles in your life.
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Right when you're young, you get married, you don't have kids,
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you're kind of like maybe or you're about to have kids. You're in the
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acquiring phase of your life. Then later on the kids are gone, they're
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through with college, and you're in the kind of you not in the acquisition
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phase of life anymore. You're more just experiential kind of phase. Enjoying your
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life is sometimes a debt justified to have a better life, to have more
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fun in the present at the expense of the future. Well, we kind
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of have a development over the last decade or two on that very issue,
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and that has been the massive increasing student debt. You know, going back
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about a little over ten years, total student debt and the economy was two
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hundred and fifty billion. Today it's close to one point eight trillion. And
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that has been a function of several things, among which are for profit colleges
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that have degrees or diplomas of questionable value. And as a result, we
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have, you know, something on order forty three million Americans a student debt,
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and it's not just pay in thirty year olds, it's sixty and seventy
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year old and that has changed the dynamic that you're talking about somewhat. You
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see folks leaving college with all board debt as a percent of their income that
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used to be true. You see a delay in household formation, buying homes,
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getting married, having kids, and you have folks you know, later
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in life that have more debt particulars relates to student debt than they get a
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generation and go. So it's sewing all of those things that used to be
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true in an adverse way. Yeah, I totally agree with you there,
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and uh, you know, student learned debt has not you know, the
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idea is to increase the number of people getting college educations. In theory,
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that's a good thing, right, But in reality, all it's done is
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line the pockets of the educational industrial complex. Right. Well, and one
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thing spiritual or true is that tuition in real terms has gone up significantly and
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that part of the equate we just have folks incurring more debt early in their
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lot. Yeah. So, but I just had a guest on the other
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day. You don't have to really take on all that ted. Yeah,
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if you're going into STEM and there's a reason why you need to go to
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an Ivy League college or one of these high cost colleges, yes, definitely.
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But maybe our values as a society or a little skewed, and that
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we're reaching for the you know, the Mercedes Bens of education when a little
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what a FUNDAI would be adequate. Well, and yeah, another phenomenal.
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I think that's true. We're we have another phenomenon as well, and that
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it's been the kind of the buyas towards a liberal arts education as opposed to
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more you know, functional education. And I there was a haunting moment I
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had. I did a tour of the country a couple of years ago when
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I went around the fifteen different states, stopped to loutbolks, you know,
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and it disciplined way about these issues. And there was a general there,
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a big guyl in his undergraduate degree and level aren't had gotten a man sure
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saying this was in Charleston, South Carolina. Gut a master's degree in music,
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was now a teacher of music at several of the area colleges, which
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he was doing without bil fire benefits, because you know, kenure is something
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that's the university shy away from as much as possible. So he was supplementing
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his income with gigs as a musician around town. So here he is in
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his forties. He still got over a hundred thousand dollars in death. His
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brother in law, as he reported denying, was a plumber making well little
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one hundred thousand dollars a year with generous benefits and z raking death. And
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he looked at me and he said, you know, why didn't somebody tell
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me when I was eighteen years old? So yeah, you have a buy
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it's I think up and down the line that might not be the most productive.
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Yeah. So getting back to our debt paradox, here, what are
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we supposed to do well? It is a paradox we you know, we
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look at both government debt and private debt in this book, and we look
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at it for the seven largest countries in the world. There's two hundred countries
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in the world, but seven of them together constitute two thirds of the world
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GDP. So if you look at it just so seven, you really have
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I think a fairly comprehensive understanding the world and within though, private sector debt
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is a much larger phenomenon than public debts and US as an example, private
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sector debt is about forty trillion, government debts about thirty trillions. So private
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debt is where the calamities have come from. It's the thing that influences economic
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outcomes the most. And if you look at that, private sector debt in
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the United States has gone from about thirty five percent of GDP in nineteen forty
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five, you know, exit in World War Two, to one hundred and
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sixty percent today, So it's you know, it's almost when told in that
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period, folks are just lugging around a lot more. And you know,
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so we need several things on the private debt side. One of them is
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what you've already mean in which is just more discipline around the issue session.
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I think we need to find more creative ways to let folks get out of
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their debt in affair, but more straightforward way. And another thing we need
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to do is be vigilant for rapid build build ups and unproductive debt. Has
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happened, you know in two thousand and two to two thousand and seven.
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It brought our great financial crisis. You know, in two thousand and two,
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Mortgard debt was five trillion. By the time you get to two thousand
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and seven, it's ten trillion, it's doubled, and a little over four
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and a half years. That's millions of loan being made to popes with no
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income, no jobs, no assets, are very little of me about.
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It's millions of homes that said empty. We had a global financial crisis and
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nobody you know, in the mainstream economics profession even noticed and gave us any
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forewarning of that. So you know we need we need reform up and down
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long, Yeah, that's for sure. And you know, things like taken
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out a student loan which could adversely impact a young kid, basically a child
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at seventeen eighteen, you know, could ruin their lives, make them into
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a total death sleeve. There's no counseling for this. Nobody explains to this
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kid, not that they would necessarily understand it anyway, because it's complicated and
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they don't have the life experience, but nobody explains to the kid what they're
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in for for this stuff. You know, it's really you really have to
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a disservice to this, uh two people in this situation, you know,
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Yeah, there's there's very little financial bastion. We actually when I was banking
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Secretary and Pennsylvania, we actually had a department that provided this training. We
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provided a lot of training students to the elderly, you know, the military,
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well franklingtoncar started individuals about to re enter the work wars, and we
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did a lot and all totally it was just to drop on the bucket.
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The lack of knowledge around these subjects is so vast. Yeah, I mean
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you and I being professionals, having dealt with death, mortgages whatever our whole
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lives, we get it. But you know when they when a person my
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age, my advanced age, goes to take out a reverse mortgage, you
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know what happens. You have to take like an eight hour course on all
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the ins and outs and what you're going to be paying and what can happen
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in your estate and all that stuff. And to me, it just seems
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like there should be mandatory education, just like the when we were growing up,
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cigarettes didn't have a warning on the label on the side. Now they
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got warning labels all over. Maybe every loan that you take out and every
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debt that you incur should come with a warning label. You know, I
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was unaware of what you just said about the reverse mortgage. That's actually very
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encouraging to hear that, and it sounds like a terrific idea that perhaps is
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citing a lot of seniors citizens from Calamate. Yeah, well you learn that
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right. There's no free lunches, right do we learn that in economics?
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Right? There's no such thing as a free line. It's not it's not
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like the folks at the lottery or would happen believe. Yeah, well,
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you gotta be in it to win it, right, you got to be
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in it to win it. But seriously, we could just do so much
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better than we're doing here. You know. That's my grape is where really
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it's unnecessary the issues that we're going through here. They're all avoidable and fixable.
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And maybe that's the crux of your book. Yeah, we we also
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sent an area and it well spend time that which is a far more controversial
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and and really that's you know, in and around the subject of government debt
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and also around inequality and to give you a sense of that in the pandemic,
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you know, when the government spends money, it doesn't disappear and it
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effectively goes into asshole checking cap. So in the in the very period for
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roughly nineteen eighty one to the present, total debt in our economy is it's
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grown from one hundred and twenty five percent it's a two hundred sixty percent of
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GDP, just been massive growth. But in that exact same period, households
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network that's assets minus lineabilities has grown even and even greaterar map from three hundred
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fifty percent of GDP to almost six hundred percent of GDP. So the growth
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and debt has created an increase and household well and in the three years of
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the pandemic we saw this from dramatically eight trillion dollars eight trillion dollars increase in
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government debt and well three year period caused a thirty trillion dollars increase in household
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well. So the phenomenon of debts bringing wealth is not one well understood.
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But as we go to great links the show, I'm nost other of that
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increase in well goes to the top one percent or ten percent, right,
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you want to seize the wealthiest people in the economy. So the thirty trillion
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and wealth and was created in the three year created in the candidate, which
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was by the way, the greatest theoryod of wealth creation in economic history in
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the United States is best we can measure. And probably twenty three trillion,
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that thirty trillion went to the top ten percent, so it actually increased inequality
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and to a greater degree than we really seemed, probably after we're serving end
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a long time. Yeah, yeah, Well, so was it really wealth
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creation that took place though during the pandemic or was it inflation induced wealth creation?
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Well you can break it down and you can come to your own conclusion.
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But you know, basically, the eight trillion of the governments spent ends
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up in the household checking against then, so that much is real also,
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you know, and then the remaining twenty two million charity and excuse me,
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is roughly divided between the increase and the value of real estate and then the
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increase in the value of the stock market. And as we know, those
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go up and down. If we look at the trend over an extended period.
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In this case, you know, most of that occurred in a sixty
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to sixty five year period starting l forty to forty five year period starting in
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outteen eighteen. You know, it's gone up and down, but over time,
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the trend is always up over time. Like I said, hustling,
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that work was you know, three hundred and fifty percent of GDP and nineteen
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eighteen today it's six hundred percent. I'm JDP all right, so I'll buy
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you. There's a wealth effect, but that wealth could be very fleeting.
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You know. It's just like when you take out a student loan. Uh
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hey, it's your liability, but it's the government's asset. In theory,
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but you know, now you're you're you're exactly right, You're exactly route.
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And the important principle there is you don't have assets without liabilities. So you
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know, somebody's wealth is gaining over here, that means somebody's becoming more indebted
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when we're there, and that's that's the increase in inequality that we we talk
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about. So, you know, what you say is undoubtedly true, but
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it kind of feeds into the division that's decided and we've been saying. So
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it's true in the US, by the way, that's that's true in every
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GUD. So debt increases income inequality, right, because inflation does it.
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Well, yeah, inflation certainly does because the people holding the assets make all
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the money, right, that's right, that's right, So they're they're the
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net beneficary, all right. So interesting phenomena, and it's kind of it's
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kind of a conundrum for our policy makers. And it also fits into demographics
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too, because we've got a appending demographic disaster in the country because people aren't
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having kids, they aren't getting married, right, Yeah, it's it's it's
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something that most folks don't notice, and it's apting in the United States,
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but it's happening in a much more pronounced way in places like China, in
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Germany and Spain and Japan, you know, were our demographic picture isn't that
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great, but it's a lot better than most of the rest of the world.
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But anywhere you look. That deceleration and population growth is creating all sorts
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of problems that are frankly very interest I just looked at this number the other
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day. The average age the immediate edited in the nineteen eight thirty. Today
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the meeting age is thirty nine. That's substanct. We're getting old. Yeah,
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I feel it. I feel even older now that you said it.
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But it's a legitimate problem for which the government has no you know, in
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Russia they were paying people to get married and have kids. I don't think
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that's really a long term solution, and it may no difference. Yeah,
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in the end they just blew it on vodka, I guess, right.
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But yeah, I mean, and there's a there's a there's an aspect of
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that where it becomes unrecoverable. I remember looking at the data in Spain and
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looking for women, so you know, you kind of have to look at
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women because they're the ones that advocates, and the number of women is saying
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that we're age. The road to five was thirty perc lower than the number
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of women eight thirty to third and fove Well, well, there's kind of
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no way to recover from that, you know, unless less those well three
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year olds are going to be willing to have inter fifteen kids when they're when
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they get through to the age. It's an irreversible phenomenon. So some some
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I think the US and still in a position where we can we can just
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staying in population brow that's not training some countries very very very much the case.
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Well, we covered a lot of issues here. Really appreciate to your
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coming on with us, sharing your book, Richard again, tell us the
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book where we find it, wherever fine books used to be sold. I
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assume absolutely it's paradox of debt, and you can find our own Barge and
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Noble and Amazon. We have to hold paradox. I'm so grateful to be
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able to come on the show, and we're very grateful to have you.
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Sure, if you've got a question for Richard to myself, shoot me an
21:02
email k l at krylts dot com. The link to his site is in
21:07
the show notes to this interview on Financial Survival Network dot com. Make sure
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you go sign up for your free newsletter. Richard. Sure, we'll have
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you on again. Appreciate you stopping bye, Thank you, bye bye,
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Thanks for listening to carry Lets's Financial Survival Network your solution to today's trying times.
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