The Big Debt — A Glimpse at the Current U.S. Debt Situation

01. What is Money?

When referring to money, most of the time we actually mean cash. In the eyes of corporations, however, money means any finance-able assets. This is because one could utilize those assets as collateral in exchange for credits and spend those credits the same way as cash. Credit cards are perfect examples where we utilize potential future incomes in exchange for goods & services today. In fact, the total amount of U.S. currency in circulation is ~$1.7T (per the Fed), but the total amount of credit is estimated to be ~30x higher.

Source: Hedgeye

02. Can we keep the ball rolling?

As mentioned above, we are now in the 11th year of a financial/business cycle which began in the depths of the 2008 financial crisis. This period is known as the “Late-cycle”.

03. Not All Debt Are Created Equal

From analyzing all above, here are my takeaways:

  • Credits are created by primary dealers & shadows banks and the Fed influences the amount of credits in circulation by adjusting prices of those credits
  • Unlike the “gold standard” period when the U.S. economy was backed by equity, a good portion of the economy today is backed by debt/credit
  • The U.S. has accumulated a large amount of non-financial sector debt, which is supported by unencumbered assets

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