An Unsustainable Path of Debt Expansion

[drsteph]

Quote from Daal:

There is a limit of how high it can go of course and people went too far too fast in both asset and debt markets, that was a mistake and people are now correcting that.

But there is nothing bad about leverage, its a matter of how much. That is unless you dont believe in capitalism and that people will allocate savings correctly on net over the long-run even in the presence of a central bank and declining purchasing power of the currency(which is the historical record)

Actually, in nominal terms there is really no limit to how high it can go.

BUT - there has to be a corresponding increase in all nominal inputs to obtain stability in real values (following this?)

So, the fly in the ointment has been stagnant wages. No wage hikes, no opportunity to increase debt. And the system fails.

 

[jueco2005]

Quote from Daal:

Debt as a % of GDP is just one measure of leverage and its quite imperfect. That is because it doesnt look at the other side of the balance sheet, assets. They ALSO have gone up a lot from 1950, this provides a cushion for economic agents to be able to support debt(dividends, rents, capital gains, interest income)

Debt HAS rising more then assets but the degree of levering has been smaller than what debt as % of GDP suggests, which is why the scaremongers wont tell you about it

Those Assets you talk about do not generate enough funds to cover the debt. it is just inflated, air made assets. We just call them financial assets.

 

[jueco2005]

Quote from Misthos:

But those are the years that matter - those are the beginning of the final years of this monetary system. It was during those bubble years that the GDP/DEBT disparity grew ever wider. And you know why? There is a trend, and not a good one at that. Look at the charts above.

Is it sustainable? Why does more debt produce less GDP? And how is that debt going to be supported as corporate profits, personal incomes, and government revenues diminish? What is going on here?

I have no doubt this system of debt is collapsing. I just wonder how it will happen during the 2008-2018

 

[Martinghoul]

Quote from Misthos:

Near future - within twenty years. I wouldn't rule out next week - but that probability is low - as low as twenty years is. So I guess somehwere in the middle? I'm in my late thirties and have just recently concluded that 20 years flies by. That's why I used the term "near."

Diminishing GDP - I should not have used that word, or at least described the different meanings I meant by it: In a recession, GDP shrinks, so that's what I meant. However, what I also meant to emphasize was the growing divergence between gdp and debt growth on the same timeline during recessions and boom times of the past 40 years. If one dollar of total debt creates 1 dollar of GDP 30 years ago, and say five years ago the stat is 3 dollars of debt creates 1 dollar of gdp - you have a rate of diminishing returns. I hope that helps explain what I meant. I think others understood, so i don't think I wrote it that poorly. hey, it's message board.

Malthus was delayed, not disproven. Malthus will strike back this century.

GDP requires that something is produced... something derived from nature, and that something is tangible. There is only so much room for landfills, so much easy metals to mine, etc... If the current world's population of 6.7 (?) billion people lived like the average American, and even if the population growth froze - we'd be SCREWED. We would look back to Malthus and say - wow, we should have saw this comming.

But guess what? The other billions that live in mud huts want to live like us. We Americans consume 23% of the world's oil. We may have to share that. When that happens, what does that mean for our lifestyle? Oh wait, we'll be scooting around like the Jetsons by then! Sorry, I don't mean to be a rude smart ass. I just want to address the techno fix cornucopians.

Or, I guess we can create a society based on a ponzi scheme casino, the use of computers, and paper and ink toner. That doesn't use too many resources... oh wait, we tried that.

Or... we can become a society of artists. You buy my music, I buy your ebook. But A LOT of us have to do it. That's not resource intensive, but my faith in humanity producing that many talented authors and musicians is limited.

But seriously... I hope I adressed your disagreement(s) with what I wrote.

No, you haven't, really...

Firstly, while I now understand your point about debt and GDP, I would strongly disagree with it. I think what you're referring to (and correct me if I am wrong) is the velocity of money for wider aggregates. From what I can see, that measure has actually grown since the 50s, although it is quite cyclical, as one would expect.

Secondly, I just don't see this why the 'public debt spiral' has to be a foregone conclusion. Given that we have Japan as an obvious counter-example, it's just not clear-cut to me. Granted Japan is highly idiosyncratic and it seems like its situation has gotten a lot shakier in the past few days. Still, if not for the incompetent DPJ communication, I think Japan could hobble along for a while yet.

Thirdly, I just don't agree that in the modern world economic activity necessarily implies production of something tangible. Given that services are an increasing share of world GDP (I think), surely that's not the case. And it seems that the one resource needed to produce services is only getting more abundant.

Finally, the whole point is that increasing productivity/efficiency implies higher output for the same amount of input. Surely, if you don't put a bound on productivity/efficiency, at the very least Malthus's conclusions are not obvious.

Again, I am not saying that the scenario you're portraying is impossible. I just don't think that it's all that clear what's in store and how things are going to pan out. I have been discussing these issues with people and thought about them a lot, hence my comments.

 

[endsongs]

Any pool on how much they will raise the debt ceiling? I would normally say up to 15T so they wont have to raise it until 2011 as next year is an election year. But since all Republican senators will probably oppose any increase, I will say 14.5T. Any other guesses?

 

[Scataphagos]

Quote from endsongs:

Any pool on how much they will raise the debt ceiling? I would normally say up to 15T so they wont have to raise it until 2011 as next year is an election year. But since all Republican senators will probably oppose any increase, I will say 14.5T. Any other guesses?

Doesn't matter. It's all a ruse.

 

[endsongs]

It is important because the number will give an idea of whether or not Congress plans to seriously balance the budget anytime soon. If it is too high, then maybe the dollar will drop farther in response.

 

[jueco2005]

Quote from endsongs:

It is important because the number will give an idea of whether or not Congress plans to seriously balance the budget anytime soon. If it is too high, then maybe the dollar will drop farther in response.

Congress has other more important stuff to do. Balancing the budge is not one of them.