My book Young, Longer is a warning.

I follow financial markets and the economy and I don’t like what I see. I am vocal about it and can feel a little alone when I realize no one wants to hear it.

Poor me. (Actually, poor Barb. She has to hear about all my new findings continuously.)

I was quite excited about an “economic forecasting seminar” put on by a local bank and Chamber of Commerce titled “Which Sky is Not Falling?”.

Could it be that there are other like minded people that see what is coming?

I typically don’t care for seminars as I can’t sit still for very long. The topic has to be very interesting for me to stay engaged. I felt this one met my criteria.

The speaker was an Economics Professor from a local college. He did not disappoint. He discussed many of the factors that I follow on a regular basis:

• Inflation – its causes and effects.
• The Federal Reserve Bank raising interest rates to fight inflation.
• Stubborn low employment that is making it difficult to reduce inflation.
• The effects on GDP, manufacturing and housing.

He then summed up his forecast for the future, which he felt the majority of economists share, as:

• Need more data to see where things are heading. We’ll have a better idea by this summer.
• Most economists believe interest rates will remain higher (5-6%) for the next few years and we should see the Fed’s 2% target by 2025.
• Most economists expect a ‘moderate’ recession to begin this year.

I thought the speaker did a good job in the time allotted. The idea that he was even willing to offer a potential forecast in public was brave.

Because he had such a limited time, some very important things were left out. Unfortunately, the seminar ran out of time for questions from the audience. This was a big planning error, as Q&A is often the only reason some people show up to seminars (like me). I was very disappointed to have such a smart person not be available. I felt my questions could have rounded out the seminar nicely.

As I left the seminar disappointed, Barb mentioned to me that instead of asking the questions in the seminar, I could ask the questions publicly, like to a local paper.

Brilliant. Why limit the discussion to those only at the seminar?

Here were my questions:

• Please speak to the overwhelming amount of debt we have in consumer, corporate and government sectors. What do you feel are the odds of having a major credit event that will trigger the Fed to pivot away from increasing interest rates?
• Please speak to Demographics. With all the people retiring today, won’t this put pressure on the labor market thereby increasing inflation by wage increases?

The second question was not near as important as the first, so I actually scratched that one.

The problem is debt.

Debt is the major issue facing our economy today, yet it was not discussed at all. Debt is an anchor to growth. Any growth, such as with GDP, that is built on debt is built upon a foundation of sand.

Government Debt: Raising interest rates makes debt more expensive. This year alone, it is expected that the interest on government debt will increase by $250 billion because of the Fed’s policies!

Consumer Debt: The cracks are already showing as consumer credit is at record highs as interest rates are increasing. Auto loan delinquencies are up.

Corporate Debt: This sector is where some see the next big problem arising. This article does a good job exposing all debt issues and makes a case why corporate debt is the biggest issue facing us today. Please note in the article that debt is considered as percentage of GDP. GDP in 2008 was about half of what it is today, so even though ALL debt levels are much higher than 2008, some levels such as household and banking are lower when compared to GDP.

My Prediction

• We’re going to experience some major credit events in Corporate and Consumer sectors. By summer, if the government doesn’t kick the can down the road again regarding student loans, the poop is going to hit the fan as $1.6 TRILLION of debt will be released back on the public.
• U.S. Consumers spend until they can’t. Many will max out their credit cards and then stop paying their cards, auto loans and mortgages. This is exactly what happened during the Great Financial Crisis (GFC). You think we would have learned.
• Corporate bankruptcies are already on the rise and many more are forthcoming. The cheap money that has been keeping zombie corporations alive is gone.
• Jerome Powell will hesitate to drop interest rates, but will likely start buying debt and Treasuries again soon. When it gets real bad, he will drop the rates slowly at first and then quickly. This will invite inflation back like we’ve never seen.

As our debt burdens grow exponentially, our government has been signaling that it is OK not to pay debts through its student loan and rent moratoriums. During the GFC, people struggled with the moral implications of not paying their mortgages. I don’t think you’ll see that level of morality during the next crisis.

It’s here and now, folks. Read the book.

Ron