We had Ken Fisher on TechTicker yesterday. Ken has managed money for nearly 40 years, and now has $35 billion of assets under management.
I have not been following Ken’s columns recently. I was therefore more than a little startled to hear him say that what ails this country is not TOO MUCH debt, but TOO LITTLE.
You make the big money on Wall Street when you hold a view that is so contrarian that most people think you are nuts. So Ken’s argument certainly merits consideration. But I have to admit that, right now, I think he’s nuts.
TechTicker: The conventional wisdom is that Americans are struggling to crawl out from under a mountain of debt that will restrain growth and weigh down the economy for decades.
As this chart shows, the US debt-to-GDP ratio recently soared to an all time high of 370%, meaning that for every $1 of output we produce, we have borrowed $3.70. This compares to a long-term debt-to-GDP average of about 150%.
Last time we went on a massive debt binge, in the 1920s, our debt-to-GDP ratio hit a relatively mild 250%, and we spent the better part of two decades (and the Great Depression) working it off. Many economists think the same thing will happen this time around.
But they’re wrong, says Ken Fisher, CEO of Fisher Investments ($35 billion under management), in a wildly contrarian view.
The U.S. has too little debt, not too much, Fisher says. The U.S.’s return on assets is high and interest rates are low, so our borrowing capacity is much higher than our current debt levels.
Also, Fisher says, you have to look at the U.S. in the context of the world, because the U.S. is only 25% of world GDP. The world is way under-leveraged, so one country’s particular debt-to-GDP ratio doesn’t matter.
To say Fisher’s view is unusual is an understatement: I, for one, haven’t heard it since before the crash, when everyone from Fed Chairmen to fund managers to Wall Street economists were seeing no evil and projecting blue skies into the hereafter. Fisher was making the same argument then, too, by the way–before the housing sector crashed and triggered a foreclosure crisis among millions of Americans whose debt burden had become way more than they could manage.
This is not to say that, in a perfect world, in which every borrower knew his or her exact debt capacity and never exceeded it, in which no borrower ever made a stupid investment (think those who lent money to banks) or used debt to fund consumption (think using houses as ATMs), we could not safely boost total debt far beyond today’s levels. It is also not to say that the U.S. debt-to-GDP ratio won’t keep charging upwards to 500%+ of GDP and stay there forever.
But Fisher’s view is certainly startling.