10. The Great Deleveraging

What goes up—must come down.

The capability of many of the world’s developed economies to support a rising level of debt relative to their economies and continue the trend of debt growth exceeding economic growth is reaching its limits and might be close to the tipping point. That is, the point when additional incremental debt will begin to be economically destructive. In this scenario, additional debt will coincide with economic decline, which will not be slowed by further leverage—continuing to increase debt faster than the economy grows.

The United States appears to have begun its second period of structural deleveraging in the last 100 years. The first period began in 1930, but debt to GDP did not peak until 1933. ...

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