Wealth Podcast Post

Book Club featuring Richard Vague

George Grombacher July 26, 2023

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Book Club featuring Richard Vague

On this edition of the Book Club, Richard Vague talks about his newest book, The Paradox of Debt: A New Path for Prosperity without Crisis. Richard is an established and independent expert on the role of private sector debt in the global economy and a retired Secretary of Banking for the Commonwealth of Pennsylvania.

You can learn more about Richard at ParadoxOfDebt.com and LinkedIn.

Get your copy of the Paradox of Debt HERE

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Our Guests

George Grombacher

Richard Vague

Episode Transcript

george grombacher 0:02
Well, this is George G. The time is right. welcome today’s guest strong and powerful Richard veg. Richard, are you ready to do this?

Richard Vague 0:09
I am. And it’s such a privilege to be with you.

george grombacher 0:12
Oh, excited to have you on. And Richard, this will be our monthly book club. So welcome. Again, tell us about your personal life’s more about your work. And what motivated you to put pen to paper on your third book, your fourth book

Richard Vague 0:27
is actually my fear, believe it or not, I don’t know when to stop. So my wife and I have six kids, we live here in Philadelphia. They’re all pretty much grown up at this point in time. I’ve been a banker. For most of my career. For the last three years, I’ve actually served in the cabinet of the governor of Pennsylvania as his secretary of banking insecurities. And I kind of got started on writing these books, which are you know, about the economy coming out of the great financial crises, this is something that no one saw in her hurt millions of people. Even today, I think conventional economists have not really been able to speak to it in a way that’s convincing. So that’s been the basis of my work to try to bring a new perspective to that.

george grombacher 1:30
And I appreciate that. So, debt, oftentimes, when we think about debt, I think we think about government debt. But that’s not what you are approaching with with with the new book and shame on me, I did a pretty bad job introducing you the new book is the paradox of debt, a new path for prosperity? And without crisis, let me try that again. Paradox of debt, a new path to prosperity without crisis?

Richard Vague 2:05
Yeah, you’re exactly right. You know, people immediately start thinking about government debt whenever the conversation comes up. And we, of course, have the most recent debt ceiling crisis in Washington, DC, but there’s actually far more private sector debt than government debt in the US, private sector debt is about 40 trillion. In the US, it’s government debt is about 30 trillion. If you look at it globally, private sector debt is about 150 trillion. And government debt is only about 90 trillion and private sector debt is the data of households and businesses added together. And it’s the bigger issue. And, you know, we were just talking about the crisis of Oh, eight, the crisis of oh eight, obviously, was something where we piled on $5 trillion in mortgage debt, a lot of that very inappropriately. And, you know, that crisis, as I just mentioned, is the one that kind of got me interested in digging deeper into the subject of debt.

george grombacher 3:11
There’s no way I would have guessed that private sector debt is greater than public sector debt.

Richard Vague 3:20
Well, and you’re, you know, you’re, you know, a very sharp individual. So if you don’t know, about, you know, the masses of folks, but, you know, there’s 13 to $14 trillion in mortgage debt alone. And then you start adding from there. So it’s about $40 trillion worth of private sector debt in the United States. And it’s a pretty high number, and it weighs down the economy. So, you know, we, you know, we’ve talked, I think a lot about student debt. And we had the recent announcement that a Biden effort to try to do something about student debt was unsuccessful. But, you know, as I’ve gone around the country, you know, it’s not just 20 year olds that have student debt, I met plenty of 60 and 70 year olds, that are still trying to pay off their student debt. So private sector debt is pervasive, it seeps into every corner of our lives. And it’s an it’s a subject we need to pay a lot more attention to, and that’s, frankly, one of the purposes of my book.

george grombacher 4:26
Why do we need to pay more attention to it?

Richard Vague 4:29
Well, it’s, you know, I call private debt. The paradox because debt does two things kind of at the same time it it creates wealth, and then using debt as a way to buy a house that might have appreciate value. It’s a way to buy stocks that might appreciate and value but it’s also something that can get you into trouble if you overpay for something or if you borrow, to spend rather than This. So I call debt the creator and the destroyer. It’s a paradox. And it’s something that we need to look at very carefully, not just individually. I mean, we obviously need to look at it in our own personal lives, and do what we can to manage it appropriately. But we need to look at it economy wide to see what the trends in the economy are going to be.

george grombacher 5:27
Make sense in your role, as you are the secretary of Banking and Securities for the Commonwealth of Pennsylvania? What, what does that mean? Well, I

Richard Vague 5:41
mean, I’ve just retired is Governor Wolf ended his term and, but our job was to regulate banks to make sure banks were healthy, to license and oversee in securities firms, including your friendly registered investment advisor that, you know, your corner what we used to call a stock broker. And these are the folks that I must say, did not really do the right job in the state of California. For those of you guys who, who saw the failure of the Silicon Valley Bank, and first republic bank, so my counterpart in California, you know, was the individual who was supposed to be watching over that and made sure it didn’t happen. And it obviously did happen. And so being a regulator of financial institutions is an important thing for the economy.

george grombacher 6:38
Yeah. Important, challenging, maybe even impossible. But

Richard Vague 6:47
well, you know, you know, if you think of, you know, in my lifetime, you know, there’s been a banking crisis of some sort every, you know, 10 to 20 years. So, you know, there were, in my own lifetime, there was a major financial institution crisis, the savings and loan crisis in the 1980s. Folks that are, you know, my certainly remember that that was kind of punctuated the end of the Ronald Reagan era, there was obviously the Oh, a crisis we, we’ve had get in and around this most COVID, recent COVID crisis, the PPP loans were a big part of it. So yeah, regulating observing, analyzing debt, I think is a neglected art and something that we need to focus a great deal more on. And that’s really what the paradox of debt is in part about.

george grombacher 7:39
And I think it’s a perfect title, because it very clearly is a paradox. And, on one hand, the the government is interested in having a robust economy where the citizens can, can be successful and flourish and pursue their hopes and their dreams. And they want to make sure that we focus don’t get too far over our skis and like over consume and have that debt crush us.

Richard Vague 8:13
Well, that was clearly on President Biden’s mind when he was trying to, you know, address the student debt crisis. I do want to say one thing about government debt, though, that I think folks will find interesting and counter intuitive. And that is, if you look at the three years of the COVID crisis, 2020 21 and 22. The government obviously spent a lot of money trying to repair the economy. And as a result, public sector debt increased by $6 trillion in just that three year period. And I think instinctively, a lot of folks kind of would say, Oh, my goodness, you know, it’s increased by 6 trillion. What do we do? What happened to the economy? Isn’t that gonna create all sorts of problems for us? Well, one of the fascinating things is that growth and debt actually brought wealth to the household sector. And in the very three year period that private or that government debt increased 6 trillion, household wealth increased by $31 trillion. And that was the government’s payment to households that went into household checking accounts. But also the flood of money that came from the government increased the values of real estate and stocks, the stock market, and the real estate market went up tremendously during this three year period, even with the reversal in 2022, that you know, we briefly wrung our hands about. So the the the irony here is, growth in debt can and increase asset values. And I think, you know, you have asked George a little bit about how do we apply this personally? Well, one thing that I would tell our audience here is that 70% of all household wealth is in the form of just two things, real estate and stocks. So, you know, the folks that benefit in periods like this are the folks that own real estate and own stocks. And it’s very clearly the case, while it’s not true for every single person, on the whole, increases in household wealth really relate to just those two things, stocks and real estate. So one of the things I think from a personal application standpoint, folks need to do is focus on acquiring those kind of assets and holding those kinds of assets over time.

george grombacher 10:58
When you now look back and say $6 trillion increase in that three years in public sector debt that led to $31 trillion of an increase in personal wealth? Do you think that that was by design? Is that a happy coincidence? They lock out?

Richard Vague 11:21
Well, it’s very interesting, because I don’t think too many focus people focus on this phenomena. But you know, we look and we spend some time in the book talking about this. And I think folks that read the book will find this Avengers. But debt as a percent of GDP was pretty flat, from the period of 1950, to 1980. But the household wealth to GDP was also pretty flat during that 30 year period. And something that we call in the book, the great debt explosion really began in 1981. Total debt to GDP in 1981, was 125%. Today, it’s 260%. So in that 43, year, 42 year period, it’s more than double. Well, in that exact same period, household wealth has gone from 350% of GDP, to almost 600% of GDP. So not quite a doubling, but a massive increase in household wealth. So, you know, you asked the question, do you think that, you know, that was by design? Well, I think perhaps in some people’s mind, to a certain extent it was, but I think most folks aren’t really aware of this correlation. The more debt there is, the more wealth there is. Now, I got a footnote that before, you know, for folks get carried away with that idea. The other thing that’s true is more debt creates greater inequality, because it’s really the debt of some that feeds the wealth of others. So through that same period, we’d have a great divergence and a great increase in the inequality among households in the United States.

george grombacher 13:20
Again, that which feeds us destroys us kind of a thing.

Richard Vague 13:24
Yeah, I mean, you know, we, you know, folks, there’s certain folks that want to vilify debt and one camp, there’s certain folks that want to laud debt, the other camp, the very title of this book gets to the fact that it’s both, you know, a creator and destroyer at the same time, and the book really gets into why that is, what the explanation is, how we should view that and how we can take advantage of it.

george grombacher 13:52
Like riding a bull,

Richard Vague 13:54
Richard, you know, I’m gonna have to borrow that phrase from you. So you can have it. It’s, like all of life, it’s kind of like riding a bull.

george grombacher 14:04
Yeah, it’s fascinating. I, I am by no means an economist, and I just admitted at the top that I didn’t realize that private sector debt was more so than public was more than public sector debt. So I think that’s from a level setting perspective. That being said, you know, I read about things like monetary, modern monetary policy, and that doesn’t necessarily make a lot of sense to me. And you just laid out that there was pretty flat from 50 to 80/95 1980. And then, over the last 40 years, it’s things have exploded, the amount of depth but also the amount of wealth. So, again, paradox.

Richard Vague 14:48
Absolutely, you know, the, you know, you know, I guess one thing that you know, to focus on and you refer to modern monetary theory, which you know, I think informs a little bit of this book and what I do, but, you know, when the government spends money, it doesn’t disappear. It goes into household checking account. So, you know, I think a lot of times folks talk about government debt, you know, government deficits is being all bad, but somebody is the beneficiary of that. And I, that’s one of the ideas we explore in the book.

george grombacher 15:22
Right does not just wind up in some rich person’s pocket, it goes back into the the greater economy and is circulating around. So. So you mentioned, from an individual standpoint, the more we can be participants in the real estate market, the stock market buying assets of some kind, that is for the better, you and your experience in the Commonwealth of Philadelphia versus counterparts in other states? Is there something that you wish that? Or perhaps what do you know that that you wish more people knew? It’s probably a long list of stuff that I think it’s

Richard Vague 16:03
the these very things, you know, a key to wealth building is simply to buy and hold long term assets, like stocks and real estate, you know, and that requires discipline, in terms of, you know, putting aside some money, it also requires patience in terms of being willing to hold over a longer period of time, but there’s no tricks, there’s no magic, there’s no shortcut. You know, our book really points out that this is where household wealth resides. And I think that’s one of the lessons you can take away from it. It’s, you know, we don’t we, you know, in this book, we really roll up our sleeves and, you know, get to the core facts, we don’t talk about exotic things, mysterious things where we gain and look at the hardcore things. And I think folks will come away with from the book with a really deep appreciation of what the real building blocks of economy are. I appreciate that.

george grombacher 17:04
So your fifth book, tell us a little bit about your your, your your writing process, something you do every day? Tell me a little bit about that.

Richard Vague 17:13
It’s absolutely something you have to do every day. You know, we it’s it’s like the the assignment you’ve got in, you know, in junior of high school English, where you at a term paper or big writing project, if you waited till the night before, that, it was panic time. If If on the other hand, you you did a little bit every day was an easy thing. And, you know, that’s what I tried to do, I try to write, you know, for no less than 1520 30 minutes a day, no matter whether I feel like it or not, and no matter whether what I’m writing is drawers or not. I get finished this book, I’m working on my sixth book right now, which is a biography of one of the banking pioneers that was in Philadelphia, and, and, you know, appear Washington and Franklin and Jefferson and all those guys. And, you know, if if I got to sit down every day, I got to read those study a little bright a little. And, you know, if you wake up after a few months, you got a few. You’ve got a lot of words on the page, and you’ve got a real healthy start toward a book. I heard I heard, I recently heard that Jack London, who Jack London called the wild fame and white Fame Fame, had a rule that he wrote 1000 words a day, before he did anything else. I don’t quite measure up to that standard. But you know, that’s a good goal. Yeah,

george grombacher 18:49
well said. So when somebody picks up a copy of or picks up their copy of the paradox of debt, what are you hoping that they take away?

Richard Vague 18:59
Well, I hope they have a good grounding in what the debt picture of the economy is really like. I don’t think you can understand economic trends. Unless you understand what a pivotal role that plays in it. I think this will give folks kind of the ABCs The blocking and tackling around debt so that you know, as they move forward in their economic lives, when they hear or read something about government debt, or student debt or mortgage debt, they have a context for it, and that they will understand it in a way that I think most folks don’t when they read stories that I had, I gotta tell you, you know, we have become very knowledgeable over about 15 years and all the nuances of debt. You know, we study it deeply every day. And, you know, we’ve gotten to the point where when we see a headline, we often chuckle because, you know, you’ll you’ll see somebody who report some num We’re all in credit card debt or student debt. And the headline will either be alarming or excited or something. And more often than not, they’ve really come to the wrong conclusion. You know, they’ll have, you know, some increase in credit card debt, which they, you know, they act like the sky is falling. But if you understand that the way we presented this book, and you understand that the context of it, you can look at the numbers and say, Oh, that’s not that big of a deal one way or the other. So, I think you, if you read our book, you’ll have a perspective on the economy that that’s quite important and quite helpful.

george grombacher 20:42
I certainly appreciate that. Well, thank you so much for coming on, Richard. And thank you for taking those 1520 30 minutes or hour every day to be writing. we’re all better off because of it. Where can people learn more about you? Where can they get their copy of paradox of debt?

Richard Vague 21:01
Well, you know, you get it on Amazon or Barnes and Noble or any of the usual places. There’s, we actually have a web website for the book paradox of debt.com and then I have my own website, Richard vague.com. So any of those places will get

george grombacher 21:16
you there. Excellent. Well, if you enjoyed as much as I did, sir richard your appreciation and share today’s show with a friend who also appreciates good ideas, get your copy of paradox of debt, wherever you buy your books can also go to paradox of debt.com and also Richard veg.com or ichrdvgue.com and jump into the world of all things, Richard, thanks again, Richard.

Richard Vague 21:46
I really grateful to you and sure enjoyed the visit.

george grombacher 21:50
Until next time, remember, do your part by doing your best about

Transcribed by https://otter.ai

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