Richard Vague is well known to Delawareans as the co-founder and CEO of two credit card companies – First USA and Juniper Financial. He also founded and led Energy Plus, an electricity and natural gas supply company sold in 2011.
Among many other interests, investments and projects, Vague has now turned his sights to raising awareness about what he sees as an impending global economic crisis caused by excessive levels of private debt. TSD connected with Vague to talk about these concerns outlined in his new book, “The Next Economic Disaster.”
Town Square Delaware: To get this out of the way, some people might be wondering why someone who founded two credit card companies – and did quite well financially in the process – is now warning about an impending apocalypse of private (consumer and business) debt. Have you changed or has the market?
Richard Vague: Credit cards are only 2.4% of all private debt—only $600 billion out of a total of $25 trillion—and were not a contributor to the 2008 crisis. However, since as credit card managers we were in the lending business, we did get to see the storm clouds gathering, and virtually all of those clouds were in the mortgage market. The heart of the issue was that mortgage debt increased from $5 trillion to $10 trillion in just six short years—2001 to 2007.
TSD: What are you saying we need to do differently to avert this disaster?
RV: We don’t see a crisis in the U.S., since private debt growth after 2008 has been very benign. The potential crisis is in China, where private debt to GDP has grown 60% in the last five years. It is the largest buildup in private debt in history. So we expect a major slowdown or crisis in China.
TSD: And if things do go bad, what would we expect to see?
RV: It will be evidenced by plummeting non-agricultural commodity prices—iron, steel, copper, aluminum, oil, etc.—and much financial pain throughout Asia. The U.S. and Europe will feel the impact too, though not nearly as acutely as Asia.
TSD: Is there a connection between the stratospheric stock market and private debt?
RV: Private debt does play a part in rising stock markets, especially margin debt, which is at record highs in the U.S., but it is not currently the biggest factor. Today, the biggest factor by far is zero interest rates which leaves investors with fewer good alternatives to the stock market and therefore drives money into stocks.
TSD: You also started and sold an energy company. What is your view of the energy marketplace over the next five to ten years?
RV: Fuel prices, especially oil and natural gas, will continue to moderate over the next few years. Geopolitics always plays a big role and therefore it’s always hard to predict short-term movements, But longer term, prices will remain soft because of a weak global economy and improved extraction techniques.
TSD: Proceeds from sales of your book will go to a children’s literacy project. You are an avid reader of history and a major supporter of the arts. If you were in charge of our education system and you could change one or two things in our schools, what would they be?
RV: That’s one of the toughest questions of all, and I am not that knowledgeable in this area. But clearly many state and local governments have failed in a colossal way, and the condition of many schools is unimaginably bad. I think the move toward charter schools has born a lot of fruit, even though there are plenty of failures there as well.
TSD: Our readers are mostly Delawareans. You’ve spent a lot of time here and built two companies that employed thousands. As a such a small state, and with Philadelphia right up the road, how can Delaware distinguish itself as a place that attracts smart people who will build great new businesses?
RV: Delaware has done an exceptional job in this area over the last 20 or 30 years, and most of that has been through sheer hustle and hard work on the part of top elected officials—in helping existing companies, in making pro-business changes to state laws and tax policy, and in visiting with out-of-state companies to try and get them to relocate to Delaware. With the continued lackluster economy, other states have woken up and are doing more in these same areas, so it is now much more competitive. Future success will require a continual high level of hard work and hustle. In addition, every state needs to bolster its top universities and its new business “start-up” efforts with the objective of nurturing its intellectual capital and building the businesses of the future.