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April 7, 2017 | Banking on Never-Ending Expansion is Bad planning

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel (www.venablepark.com) Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog: www.jugglingdynamite.com

Whether they’re aware or not, debt-gorging consumers and businesses have all been banking on the same unreasonable assumption:  that consumption/sales and wages will increase and economic growth continue to expand, without a downturn, indefinitely.  But more than 8 years since the last recession, that bet faces increasingly unfavorable odds.  And having used the extra-long expansion since 2009 to accumulate record debt, rather than pay it down, fall back plans are now generally non-existent.  Not good financial or business planning.  No expansion cycle can last forever, especially one this dependent on adding more debt.  See:  Not a Dot-Com Bubble, Not 2007, But a Nasty Mix of Both.

This chart showing the leverage on corporate balance sheets today, versus the past cycle peaks in 2000 and 2007, is not a picture of strength and resilience.

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April 7th, 2017

Posted In: Juggling Dynamite

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