There is a very distinct connection between borrowers and lenders; they're fate is intertwined so what's bad for one is bad for the other. Lenders can mitigate this risk by diversifying their loan portfolio however, that strategy doesn't work well if the problems are systemic with breakdowns that affect a wide swath of borrowers like COVID for example. Nearly 70% of private lenders failed in 2020 due to the imposed restrictions that decimated business revenues in multiple industries and jurisdictions.
There has never been a time in history which had the current level of global debt:
"Government debt on all levels is spiraling out of control, corporate debt has ballooned to absurd levels, and consumers have been gorging on debt as if there will never be any consequences. Unfortunately, a time of reckoning has arrived, and it is going to be incredibly painful."
The cost of servicing the debt soon squeezes out other expenditures, and the borrowers' incomes no longer support investing and spending on the scale to which they're accustomed. The solution is of course to borrow more, and pass through the portal to the Magical Kingdom of Magical Thinking where we believe that we can "borrow our way out of debt" because borrowing more will enable us to "grow our way out of debt."
Once the mountain of debt is towering, this notion is fantasy. The only sustainable options are painful: 1) devalue the currency, wiping out both the debt and the currency's value, 2) tighten our belts and pay down the debt by reducing consumption, or 3) default on the debt and absorb the enormous losses, as every debt is somebody else's asset.
That choice already looms large, and reformers must reckon with that as well as their reformist agenda. Here is total debt:
I can't tell exactly when there will be a breakdown of financial order causing another scramble like the one in early 2023 which saw three of the four largest bank failures in US history in just one month (March 2023). I am certain however that it WILL happen because, math! The accumulated paper losses on the books of most banks right now are epic and they can only be reversed if the Fed drops rates back to zero - That's not going to happen.
Merchants have to consider that any solutions to the inflation problems they're facing may cause more distress than they fix at first. It will take a lot of time to reverse the course we are currently on. My father always said something to me that is very true:
"If you don't watch where you're going you will end up right where you're headed."
Current lending conditions are still quite favorable to business owners with approvals coming it at record levels. my advice is to carefully consider debt only when the money borrowed can earn more than the cost of the capital loan and only borrow if the math works in your favor.
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I have a limited amount of time to write this today so here are some interesting links I think could be of interest:
"Trump is talking about abolishing the income tax and granting $10K in tax credits per homeschooled child, not to mention blowing up college accreditation systems, among other sweeping changes."
"Already, the feds paid $1.13 trillion in interest on the US debt over the last twelve months. It’s unlikely that that amount will go down — not with rates rising and debt increasing by $3 billion per day."
"President Trump has been busily staffing his incoming administration with urgency and alacrity. Here are some of his more consequential cabinet choices to date:"
"Collectively, Americans now owe a record $1.17 trillion on their credit cards, according to a new report on household debt from the Federal Reserve Bank of New York."
"Organizations sympathetic to DEI like Microsoft, Google, and other large tech companies, have scaled back how much they talk about the issue and how many resources they devote to it."
"I have never seen such blatant manipulation of government statistics."