Professor Glenn A. Okun
The Rabid Capitalist: The Big Point is a brief summary of a detailed note available to paid subscribers.
Undoubtedly, the U.S. economy is at a crossroads. While many outcomes are still possible, it is useful to monitor for the worst case scenario: doom. We lived through economic doom during the Global Financial Crisis (“GFC”). The magnitude of damage from the GFC warrants remaining vigilant. It is with this intention that I introduce the Impending Doom Scorecard, comparing recent events with the GFC’s chronology.
- Where we were (during the GFC):
- low interest rates cause mortgage debt to double in six years;
- home prices soar;
- housing completions peak as demand slumps;
- delinquencies rise in the fifth year and spike in the sixth year of the debt expansion;
- lenders fail
- debt markets freeze;
- home prices collapse;
- low income wealth is wiped out;
- foreclosures sky rocket;
- large financial institutions fail.
- Where we are (today):
- low interest rates cause commercial mortgage and corporate debt to double over ten years;
- commercial real estate values soar;
- delinquencies begin to increase;
- refinancing volumes drop;
- corporate bankruptcies rise.
- Where are we going?:
- History has repeated itself as it relates to the first half of the GFC chronology (to the left).
- We must monitor for evidence of the second half of the GFC chronology:
- debt market liquidity?
- asset valuation contraction?
- low income earner wealth effect?
- foreclosure volume?
- large financial institutions’ stability?
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