But even in the U.S., where substantial deleveraging has taken place in the household and banking sectors, total debt has been on the rise. U.S. debt hit 251% of GDP at the end of 2015, the BIS said, up from 228% in 2007. Government debt in the U.S. has risen to 100% of GDP from 60% over that span, reflecting in part the costs of cleaning up the 2008 meltdown.
U.S. growth was softening even before the crisis, largely reflecting debt that reached problem levels around the turn of the century, said Lacy Hunt, executive vice president at Hoisington Investment Management Co., which has $6.12 billion under management in Austin, Texas. The firm has been positioned since the fall of 1990 to benefit from declining U.S. interest rates, boosting the price of the long-term Treasury bonds Hoisington holds.
Borrowing for current consumption means that “you’re mortgaging your future revenues,” Mr. Hunt said.
That effect is evident in slumping U.S. economic performance. Inflation-adjusted U.S. median household income has fallen 7% from its 1999 high to $53,657. Food-stamp use has more than doubled, to 43.6 million people.
Slow growth and risk aversion have found their purest expression on Wall Street, where today’s hot product is the low-volatility stock portfolio promising slow and steady gains.
That promise is hard to keep in an age of low returns and crowded trades, but that isn’t the biggest problem, said Mr. Strongin of Goldman Sachs.
Buyers of highly valued technology stocks in 1999 at least sought out cutting-edge firms in a topsy-turvy economy. Purchasers of so-called minimum-volatilty, or minvol, portfolios are driving up prices in pursuit of sheer boringness, muffling the market’s capacity to pick winners.
“The tech bubble left us with the internet. What is the minvol bubble going to leave behind?” asks Mr. Strongin.
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