Distinguished Economist Paul Kasriel Says Americans Are Bankrupting Themselves

Economist Paul Kasriel has a reputation of being a bit of a contrarian when it comes to his projections and estimates of future market activity. But he is also widely respected. He is the 2006 Lawrence R. Klein Award for Blue Chip Forecasting Accuracy award winner and is the Director of Economic Research at Northern Trust. He writes a series of articles called the econtrarian.

Mr. Kasriel believes that the economy has been propped over the last 10 years and perhaps longer by the massive use of debt. Consumers have borrowed their way to wealth and the bill is now coming due. He has long predicted the type of event seen with the credit crunch and feels it will only get worse. In addition, he doesn’t see many palatable ways of resolving the problem.

He graphed the chart below which shows the growth of US Debt versus the country’s capital. In other words, how much are we borrowing versus our asset and production base. As you can see, the figure it truly sobering.