Understanding Debt in Today's World....
It seems whenever there is a sudden surge of debt and market turmoil the talking heads emerge from their underground lairs to talk up the next great depression or market catastrophe. I have said it for a long time but I will say it again as I think it bears repeating. "If you listen to them at times such as these you will likely be on the wrong side of the market".
Take for instance the recent recapitalization of the repo market where liquidity began to dry up as a result of all the debt that was being carried. It is a factor only if liquidity is NOT injected into the overnight lending markets of the big banks. If it is (and it was) solvency no longer becomes a problem because of access of cash and the lending game can continue. It is when the lending game cannot continue and the weight of the debt becomes too great that you have a problem.
Are we in such a scenario now?
No, we are not in a scenario such as this like in 2008. When you forgive the consumers that are in debt problems and recapitalize the banks you can continue the Ponzi scheme. That and the high markets still dictate that there is no problem with liquidity at the moment. Most markets are still artificially manipulated where the central banks want them to be so once again not a problem.
You have seen it time and time again over the past five years or so where an entity that is at risk and may cause some sort of contagion is mysteriously bailed out either directly or indirectly by companies or banks.
Krugman is correct in the fact that the debt that is being accrued is to ourselves so in a sense "No, it doesn't matter" unless you hold yourself responsible.
Does anyone hold themselves responsible these days for financial irresponsibility?
No, they don't.
This particular game that the central banks are playing can go on for a very long time. Measured in decades.
The irritation comes from the fact that it seems as if we can recklessly accrued debt and irresponsibly spend ad infinitum. As it presently stands, we certainly can. As Bernanke said a few years back, "we'll print it as we need it", that is what you can safely look forward to.
To quote Krugman. "Debt doesn't matter". Sadly at the moment, it doesn't.
Take for instance the recent recapitalization of the repo market where liquidity began to dry up as a result of all the debt that was being carried. It is a factor only if liquidity is NOT injected into the overnight lending markets of the big banks. If it is (and it was) solvency no longer becomes a problem because of access of cash and the lending game can continue. It is when the lending game cannot continue and the weight of the debt becomes too great that you have a problem.
Are we in such a scenario now?
No, we are not in a scenario such as this like in 2008. When you forgive the consumers that are in debt problems and recapitalize the banks you can continue the Ponzi scheme. That and the high markets still dictate that there is no problem with liquidity at the moment. Most markets are still artificially manipulated where the central banks want them to be so once again not a problem.
You have seen it time and time again over the past five years or so where an entity that is at risk and may cause some sort of contagion is mysteriously bailed out either directly or indirectly by companies or banks.
Krugman is correct in the fact that the debt that is being accrued is to ourselves so in a sense "No, it doesn't matter" unless you hold yourself responsible.
Does anyone hold themselves responsible these days for financial irresponsibility?
No, they don't.
This particular game that the central banks are playing can go on for a very long time. Measured in decades.
The irritation comes from the fact that it seems as if we can recklessly accrued debt and irresponsibly spend ad infinitum. As it presently stands, we certainly can. As Bernanke said a few years back, "we'll print it as we need it", that is what you can safely look forward to.
To quote Krugman. "Debt doesn't matter". Sadly at the moment, it doesn't.
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