Are Your Unrealized Gains Just … Debt?
Think about it: If the economy is the sum of all transactions—both settled and debt-fueled unsettled ones—then easy credit fuels an illusion of growth by inflating aggregate debt backed transactions. Since 2000, a highly financialized global system has powered this.
👉 Cheap debt means liquidity is high and it needs a place to land. Capital flows into stocks, real estate, and financial markets rather than investments in real economy and productivity growth. Asset prices rise, liquidity chases returns, and we convince ourselves that all is well as “GDP” is growing and we can always settle debt later.
This is the great wealth effect of last decade - take any asset, in any class, anywhere in the world and compare its prices 10 years prior, and 10 years after 2015.
🚨 But here’s the problem: At some point, the cycle demands repayment. If too many people demand settlement at once, we face market slowdowns and contractions. Or…we extend, pretend, and pass the burden forward, leveraging modern monetary theory to keep the illusion alive.
Extend and pretend is what we have done every contraction since 2000, but now we are in a new world. The fragmentation in this world, and the resulting rotation can disrupt this liquidity - asset price correlation in some parts....
Somewhere in this rotation, and the squeezed middle class & small business dragging consumption lies a pin that can trigger a settlement wave and prick this long term debt cycle…
💡 The big question: Have we really created wealth (barring the top 1%).... or just passed around IOUs (those who own real estate, and unrealized equity gains)?
