Executive Summary

• The debt bomb waiting to explode is truly staggering in size
• Key warning signals we’re approaching a late cycle market crash
• The Fed’s aggressive actions belie its fear that the system is extremely sick
• How to use the time left to be on the right side of the coming wealth transfer

If you have not yet read Part 1: The End of Money , available free to all readers, please click here to read it first.

The Wealth Transfer is underway.  Because it’s such a large topic, let’s look at just one small part of the overall story.

The small is a fractal of the large.  Understanding one gives you a sense of the other.

Remember this chart from Part 1?

See all those different colors?  Within that red band on the bottom lie the various components of “private debt.”  The two biggies in there are household debt and corporate debt.

Here’s the corporate debt story.  By way of a backdrop, let’s recall that steadily rising levels of debt imply that the future is going to be bigger than the present.

More debt means more money that has to be paid back at some point in the future.  Not just the principal, but also the interest.    Even if borrowed money had a 0% rate of interest, a larger pile of debt means that more more money has to be paid back in the future.

Inflation is one ‘moderating force’ in this tale.  If the rate of inflation is the same as the rate of growth of both the principal + the interest, then no growth is implied. Once inflation is factored in, the only other variable that can take care of a growing pile of debt is a growing economy.

However, credit + debt is growing far faster than inflation and, in the case of corporate debt, there’s a substantial interest component that has to be paid too.

Taken together, rising corporate debt levels imply corporations are collectively betting that the future is going to be larger, and more profitable, than the present.

Here’s that data:

Corporate debts and loans are up a whopping +$3.8 trillion from the ‘lows’ of Q1 2011.