In this interview with Rosenberg, Jeremy Grantham discusses the severe financial risks stemming from unprecedented debt levels and rising interest rates. He highlights $600 billion in unrealized banking losses and trillions of dollars in system-wide pain, with more likely to come.
Grantham warns that devaluing multiple asset classes, such as real estate and bonds, by trillions will stress the credit system. He draws parallels to past cycles, noting that larger bubbles lead to longer, more painful downturns.
Citing Japan’s decades-long recovery from its 1989 bubble, he stresses the immense scale of current financial imbalances, which exceed those of 2000, and urges careful examination of past outcomes.
Here’s an excerpt from the interview:
Grantham: When you keep up a pressure, we have more debt now than we have ever had. We probably have more debt than we realize. It is well argued by some people and, consequently, when you put the interest rates up, you have, well, in the banking system, 600 billion dollars of unrealized losses. But in the system writ large, you have a lot of pain already—quite a few trillion dollars and quite a few trillion more likely to come.
Everything has consequences when you write down perceived value by many trillions of dollars, and it will be more than ten by the end for sure, collectively. You’ve got multiple asset classes contributing; they all have consequences, and you should not be surprised if a chunk of the credit system comes under stress.
Maybe you shouldn’t be surprised if we get lucky this time and muddle through, but these are the kind of things that have happened in each of the prior cycles. As a general principle, the bigger and broader the bubble, the longer and more painful the downside.
Japan, the biggest of all, is not back to the high of 1989 in the stock market. It’s not back to the high in land or real estate. That’s getting to be quite a long time—that’s 34 years and counting—and it still hasn’t reached the old high in nominal terms.
So, you know, the biggest lag getting back to a high ever and the biggest pain, but it was the biggest bubble. It’s perfectly symmetrical, and this one is pretty damn big. It’s bigger than 2000 because it includes real estate and bonds, and that one did not. So, go and have a look at what happened.
You can find the entire discussion here:
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