For a long time I have been calling the period starting in the late 1980’s into the Great Recession the “Free Money Era.” The currency arrangements of today were put into place in the 1980’s with the Louvre Accords. This established the system of fiat currency we have today. Not only are all currencies fiat, they float against one another according to the dictates of the main central banks. It is what has allowed China to go from a backward society to a semi-modern industrial power in one generation.
It is also what has allowed for the massive expansion of credit. That credit bubble has manifested itself in many ways. One is the housing boom and subsequent bust. The public sector debt problems are another. Easy money allowed Detroit to borrow into oblivion. The record amounts of personal and corporate debt is another result. In the 1970’s, it was impossible to run up tens of thousands of dollars in credit card debt. No bank would every lend that much, without suitable collateral. Today, it is common.
Another, less obvious example is entertainment. Sports entertainment has boomed since the 1980’s. A big part of that is borrowed money. The owners buy the franchises on debt and since debt is easy, there are lots of people with credit money bidding for franchises, so the value of franchises skyrocketed. In fact, credit money has inflated all assets. Then you have the patrons who pay higher and higher ticket prices, because they finance their lifestyle on easy credit. The modern age is built on piles of IOU’s.
Nothing can last forever. All of this debt fueled growth will come to a screeching halt when the upper limit of debt is reached. This is a decent article on the topic of college football. touches on the underlying irrationality of the college sports model. The article goes into a lot of stuff, but skips past the root cause. The college bubble is also a product of the debt bubble. Eventually, the colleges will run out of people able to borrow for college. At that point, the financial model of college and college sports begins to unravel.
