Some time in 2007 or 2008, I wrote an AMD Comment piece under the headline "We Are Floating On a Sea of Debt." It was in relation to what I then figured was an unsustainable bubble of financial madness, driven by a Wall Street culture that was itself fueled by seven-figure bonuses and large bags of cocaine. I was certain that we were hurtling towards a brick wall, with no brakes.
I remember turning up at the then 'Cincinnati' Trade Show at around that time (aka the V-Twin Expo) and, bearing in mind it was supposed to be a business nexus for people who were in a position to run and manage a dealer network program, saw two good 'ol boys from the Bayou (literally) roll a pair of camo paintjob Softails past our booth on set-up day. One of the several dozen 'new' exhibitors that would pop up like overnight mushrooms back then, every time showtime rolled around.
Don't get me wrong. They were perfectly nice, genuine guys. I went to meet them during the show. Though not to my taste, they had nice bikes - mostly catalog builds though - and yes, between themselves, two part-time buddies, and their minimum wage weekend wrenchers, they reckoned they could pump out as many as one a day - so wanted to find themselves some dealers.
Someone from across the aisle saw me watching this, and noted what I hoped had been an imperceptible look of disbelief and shake of the head and came over, looked me straight in the eyes and said: "You're right. We are so f****d."
Throughout that weekend I had a lot of people telling me that I was just an archetypal journo, sensationalizing for the purposes of self-aggrandisement, a typically negative cynic, who just can't stand to see so much success going on around him.
Think back to that pre-financial crisis and 'Great Recession' era. Money was flowing like 'milk and honey', bike sales were going through the roof, Harley dealers were gouging buyers with premiums (there was even, in effect, a futures market for spots on dealer wait lists), and Harley was channel-stuffing in order to keep up with the shareholder dividends that Wall Street needed for all that cocaine. Complete turnkey, air-cooled V-twin engine sales were running at the rate of at least 70,000 a year. That peaked around March 2006, but that number doesn't include the 'catalog-order' component sales for customizer, dealer and consumer self-build engines that could have been running at an additional 15,000 engines a year at that stage.
Either way, the number of 'catalog builds' being seen then was extraordinary, and patently unsustainable. Most were pretty crap really. Maybe Big Dog and American Ironhorse aside, not many of the so-called branded V-twins had any chance of getting insured, even less to pass the then (in hindsight) incredibly lax emissions and noise requirements. Sadly, some projects that actually did deserve to prosper weren't getting a look-in because building well don't come cheap.
Here's the kicker though. They were, of course, almost all being bought on credit. The low or no initial interest rate, zero deposit, and minimal credit check culture of the day built up such a pile of cheaply acquired debt - debt that became expensive to service once the easy-in deals expired - that it was patently obvious that we were headed for a meltdown.
Sure enough, once the collapse of the credit swaps and derivatives 'chicken-into-steak' financial smoke and mirrors culture started triggering steepling mortgage foreclosures, and once the trickle of leaving-box toting Wall Streeters became a torrent, the sea of debt rose up, tsunami like, sweeping away all before it.
To channel Monty Python, "you tell that to the kids nowadays though, and they don't believe it, you know."
So, here we are,17 or 18 years later, and this is my 'Part Deux'. History is mocking us as successive governments, administrations, central bankers and Treasury Department heads have failed to protect us. It is a failure enshrined in institutional memory of global proportions. This is a worldwide problem, I'm not just 'looking at you' America, but the biggest danger we face is from domestic U.S. economic imbalance.
Jamie Dimon, the Chairman and CEO of JP Morgan Chase, is generally regarded, on both sides of the aisle, as one of the 'good guys'. Indeed, he's been touted as a possible future Treasury Chief.
He was interviewed by Bloomberg at a mid-May conference in France that had been convened to try to reignite a sense of urgency that is absent from what is known as the Basel I, II and III process. This was a series of international bank and financial institution agreements and regulations that were devised to protect us all from insane lending practices and unsustainable levels of debt.
Unfortunately, Wall Street has succeeded so well in watering down the final stage of the system that it is so far from being fit for purpose, that it is likely doing more harm than good. Very much the "insider's insider," Dimon is ringing alarm bells. Taken in concert with the failure of the international community to protect democracy from the threats of Russia, China, Iran and others, and the trend to authoritarian politics in general in the West, he for one sounded like a man convinced that we live beneath a deck of cards that can only but tumble. And there are dozens, hundreds of commentators and analysts ringing those same bells.
Consider this random selection of current financial snapshots. In 1992, America's net debt amounted to 46% of GDP; as of 2023, it had reached 96%. S&P and Fitch have downgraded U.S. debt, with Moody's likely to follow suit at any time. U.S. household debt was at an all-time high of $17.3tn entering 2024 - that is approx. 67% of annual U.S. GDP. U.S. consumer credit card debt swelled by 16.6% between Q3 2022 and Q3 2023.
Meanwhile, the default rate for leveraged corporate loans has increased to 3.4% as of mid-January 2024 (the second highest level since 2007) and complacency surrounds the implications of the explosion in the level of assets managed by Private Equity investors. It has grown from $2tn in 2012 to $8tn in 2023. Though we are spoilt for choice, could this be the source of the next 'chicken into steak' moment?
tell that to the kids nowadays