Q: “Since 1971 when we became a Fiat currency Total Credit Market Debt rose from $1.7 Trillion to $58 Trillion. From 2000 to 2008 the Total Credit Market Debt expanded nearly $30 Trillion. Since 2009 it has only grown about $5 Trillion. Gold rose from $250 to $1900 and is now back to $1170. During that period the Dollar Index $USD fell from 120 to 72. The recent rally has it at $87. The CCI Index rose from 180 to 680 and today it is back to 482. My point is that all of this borrowing had a major impact on economic activity around the world leading to a falling dollar and rising commodity prices. Now as the borrowing has slowed dramatically since we can't afford to pay the interest on existing debt nor add anymore debt, the dollar is rallying. And as you know commodities are priced in dollars so they are falling as the dollar rallies. I think it was this massive borrowing binge which is a major reason for the rise and fall of the dollar and commodities. Does my analysis have any merit?”
A: I tend to agree with your analysis in that the debt bubble of 2000-2007 most definitely contributed to the commodities bull market. Where I would differ is on the idea that we can't afford to pay the interest on existing debt or add anymore debt. Consumer debt levels have been pared down considerably since 2008 and can be expanded if consumers get the "itch" once again (which I suspect they will in the coming years).
Government debt can also expand through deficit spending. The government, moreover, can always handle the debt load since it is the one issuing the debt in the form of Treasury bonds by printing even more. Don't forget the demand for Treasuries has been voracious in the last couple of decades. If investors ever decide to again increase their risk aversion and sell Treasuries, the money would most likely go into equities and other riskier assets which in turn would further along an economic expansion. This in its turn would increase government tax revenues, hence shrinking the deficit. For the U.S. to ever get into a position where debt expansion is impossible would require another catastrophic credit crisis (or perhaps a series of them). It usually pays to never underestimate the extent to which the debt game can be played in a highly complex and ultra-sophisticated financial system such as ours.