I’ve Had Enough — I Quit

Do I have your attention?


That was the intent of the deliberately misleading headline.

Don’t be aghast at my intentional deception…everyone else is doing it too.

The other day I was reading the UK Financial Times and saw this headline: ‘The world economy hums as politics sour’

Martin Wolf, the Financial Times’ economics editor, says ‘…the world economy is humming, at least by the standards of the past decade.

There was not a peep on the massive amounts of credit fuelling that humming sound coming from the world economy.

But let’s not allow facts to get in the way of a good news story. It’s all about the headline.

The hoodwinking continued when the article goes on to state:

Remarkably, the world economy has grown in every year since the early 1950’s. Moreover, it has grown by less than 2 per cent (measured at purchasing parity) in only five years since 1975, 1981, 1982, 1991 and 2009.

When you know how that ‘growth’ was achieved, there’s nothing remarkable about the global economy’s past performance.

What I find remarkable is that Wolf didn’t even question ‘how’ that past growth was achieved.

We just have to accept the headline as fact…no matter how misleading.

When you know the ingredients that went into baking the growth cake, you can appreciate that it’s impossible to replicate the same outcome in the future.

Yet, those who should or, worse still, do know better are misrepresenting the facts.

In the June 2017 edition of The Gowdie Letter, I used the ‘boiling frog’ analogy to describe the evolution of the global economy.

Slowly but surely the heat is being turned up. Every decade since the 1950s we’ve experienced population and debt growth.

Those two ingredients have been the major contributors to our ‘remarkable’ growth.

Are they repeatable?

Here’s an edited extract from the June 2017 update:

The 20th century — going from cold to hot

The rear-view mirror is always clearer than the windshield.

Warren Buffett

Looking back is easy. Whereas the future is a little harder to define.

This explains why extrapolation — what has been will continue to be so — is responsible for so many errors of judgement. We use recent experience as our foresight.

Here’s a little bit hindsight…2,000 years of global GDP data (the chart is valued in international dollars — a basket of weighted currencies).

World GDP over the last two millennia | 19-01-2018

Source: Our World in Data
[Click to enlarge]

For almost 1,900 years the economic frog was in cold water.

The industrial revolutions heralded in a new, exciting and prosperous world.

Mechanisation. Sanitisation. Medication. These all contributed to a transformational century.

Population growth (resulting from a reduction in infant mortality rates and increased life expectancies) combined with productivity growth, turbo-charged the global economy. 

Over the past century, the economic temperature has been steadily increasing.

We know no different.

The world we were born into was one of growth, growth and more growth.

This is the mantra of every business and political leader.

Job growth. Wages growth. Earnings growth.

But the low-hanging fruit of real growth was picked a long time ago.

Growth is now a function of credit expansion.

We are conditioned by the past. Expecting the same to apply to the future…

A reversal in trend

The forces behind the growth story of the 20th century have been:

  • Productivity
  • Population
  • Debt


While the following charts are on the US economy, they’re reflective of what’s broadly happening in the rest of the Western world.

The post-Second World War decades of productivity fell away in the 1980s and 1990s.

After 2000, technology kicked in to temporarily boost productivity gains.

Productivity is now in the negative…recording the lowest reading in over 60 years of data.

Nonfarm Business Sector : Productivity | 19-01-2018

Source: CMG Wealth
[Click to enlarge]

The following chart on declining fertility rates will come as no surprise.

Long gone are the baby boomer families of three, four, five and more children.

Families today — if they are choosing to have children — are mostly topping out at two.

U.S. General Fertility Rate | 19-01-2018

Source: CMG Wealth
[Click to enlarge]

According to UN projections on global population growth, the world (ex-Africa) has reached peak population.

Population growth in the developed and developing world may occur at the margins due to longer life expectancies.

However, this is an economic negative, not a positive. No offence, but in economic terms, older people are less productive and are beneficiaries of, not contributors to, government revenue.

Without the drivers of population and productivity growth, there’s only one leg left on the growth tripod…debt.

Debt fatigue is setting in

Debt is future consumption brought forward.

Buy today. Pay tomorrow.

After decades of debt accumulation, tomorrow has arrived.

More income is required for debt-servicing and less is available for consumption.

More and more debt is required to generate economic activity.

The results of debt build-up in the economy are evident in the following chart.

GDP Per Dollar of Debt | 19-01-2018

Source: CMG Wealth
[Click to enlarge]

The black line indicates how much economic “bang” you get for your “buck” of debt.

From 1880 to 1930, the trend saw a dollar of debt reduce from US80 cents of economic output to US30 cents. The Great Depression corrected this trend.

In the 1950s, a dollar of debt was once again producing 80 US cents of GDP.

Today, the bang has reduced to a whimper. A dollar of debt only generates US27 cents of economic output…less than the low reached in 1930.

The first debt accumulation period lasted 50 years (from 1880 to 1930).

Followed by a 20-year period of expunging debt from the system. 

The current trend has been in place for over 65 years.

These periods of conditioning (boiling the frog) last a long time.

Decade after decade we adjust to the rising temperature.

Replicating the economy’s post-Second World War glory days is not possible unless we add more and more debt. And the risk of that strategy is becoming all too evident.

On 29 May 2017, the Financial Times published this article (emphasis is mine):

‘The system is straining with the current debt load.

‘A debt load that’s far greater than the one that bought the world to the brink in 2008/09.

‘Therefore, you have to ask ‘what are the prospects of another US$200 trillion or US$300 trillion being added to the debt heap to replicate the post WWII growth?’

Very slim, I would say.

The greater probability is that we’ll undergo a sustained period of debt repudiation…not too dissimilar to what happened in the 1930s.

If that’s the case, there goes the third leg of the growth tripod.

The end of a supercycle

The point we’ve reached today has been in the making for eight decades. The temperature has progressively been increasing towards boiling point.

An indication of how far we’ve been removed from reality was in this article in The Australian on 7 June 2017 (emphasis is mine):

‘Philip Lowe and RBA take hands off growth lever…

‘The Reserve Bank has continued to distance itself from further interest rate cuts to support economic growth as policymakers confront the risks of an overheated housing market.’

Further interest rate cuts to support economic growth! What utter rubbish.

The only reason to cut interest rates is to entice people to take on more debt. These newly-borrowed dollars are then placed into circulation in the economy and registered as “growth”.

Encouraging more debt for consumption passes as normal these days.

Well, it wasn’t normal between 1930 and 1950. Households shunned debt. They lived through the aftermath of the debt-funded growth of the Roaring Twenties. They knew first-hand what the perils of too much debt were.

The debt, entitlement and the wealth-creation super cycle began after this period of debt purging.

As they say, all good things must come to an end. After more than 75 years, the curtain is about to be drawn on this exceptional and unlikely to be repeated period in history.

In 2008/09 we were given a glimpse of what the end of this super cycle is going to look like.

Nearly a decade has passed since then.

With the passing of time, our position has demonstrably weakened.

We are US$60 trillion deeper into debt.

Boomers are advancing into retirement.

Markets (share and property) have been artificially boosted.

Central bankers have lulled people into a false sense of security…the low volatility reading tends to confirm this.

We are extremely vulnerable.

When the situation again reaches boiling point is an unknown.

However, what is known is that periods of excess always end with a complete reversal of the trend.

Inflation gives way to deflation.

Debt gives way to savings.

Asset growth gives way to income.

High expectation give way to lower expectations.

Entitlements are appreciated not expected.

To add a little truth to my headline…yes, I quit.

I give up trying to understand the economics profession.

This obsession they have with artificial growth — the headline number — is totally and utterly misleading.

The easiest way to boost short-term GDP growth is to double the population and debt load.

Is that formula for growth sustainable in the long term?


But let’s not allow the truth to get in the way of a ‘positive’ headline.


Vern Gowdie,

Editor, The Gowdie Letter

Vern Gowdie has been involved in financial planning since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners. His previous firm, Gowdie Financial Planning was recognized in 2004, 2005, 2006 & 2007, by Independent Financial Adviser (IFA) magazine as one of the top five financial planning firms in Australia. He has been writing his 'Big Picture' column for regional newspapers since 2005 and has been a commentator on financial matters for Prime Radio talkback. His contrarian views often place him at odds with the financial planning profession. Vern is is Founder and Chairman of the Gowdie Family Wealth advisory service, a monthly newsletter with a clear aim: to help you build and protect wealth for future generations of your family. He is also editor of The Gowdie Letter, which aims to help you protect and grow your wealth during the great credit contraction. To have Vern’s enlightening market critique and commentary delivered straight to your inbox, take out a free subscription to Markets and Money here. Official websites and financial eletters Vern writes for:

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