, Jim Rogers Blog: Making money is one of the most dangerous things you can do as an investor

Sunday, November 20, 2016

Making money is one of the most dangerous things you can do as an investor

When debt is good – and bad

“There’s nothing wrong with borrowing huge amounts of money – as a country, as a family, as an individual – as long as you’re putting it into productive assets, building for the future. In the nineteenth century, the United States borrowed stupendous amounts from all over the world, mainly from Europe. We were a gigantic debtor nation. We put the money into productive infrastructure such as railroads and factories. And by 1914 we got our payoff. We became a creditor nation for the first time in our history. We then became the world’s largest creditor nation and the most powerful country in the world. We borrowed all that money, but we invested it wisely. But if you borrow a lot of money and buy Rolexes and Porches and big houses… you are not going to thrive long term.”

Around five years after Rogers wrote that, the 2008-2009 global economic crisis delivered what should have been a crowbar-to-the-head message about debt: Too much debt is bad.

But since then, overall levels of debt haven’t declined. Total lending has actually risen – by 40 percent. The world economy owes itself US$57 trillion more than it did in 2007. Total debt – money owed by bank, households, companies and governments – has risen by US$112 trillion, or 129 percent, since 2000.Meanwhile, over the past 25 years, the global economy grew an average of 3.6 percent per year. But global GDP increased 3.4 percent in 2014. Then it slowed to 3.1 percent in 2015. It is expected to be around 3.2 percent this year. Despite all the “stimulus” and escalating debt, the best efforts of central bankers and negative interest rates around the world, global economic growth has – at best – stalled.

Has the money that the world has borrowed been invested in productive assets – or used, as Rogers said, to buy Rolexes and Porches and big houses? It looks like the latter.

- Source, Business Insider