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Do not give in to Evil, but proceed ever more boldly against it

Thursday, January 22, 2009

US and UK On the Brink of Debt Disaster


From India's Economic Times via Global Guerrilla's John Robb, who notes in introduction:

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Sustainable debt levels for a nation (public/private) are around 120-150% of GDP. We are at 350%. That's a 200% of GDP delta, or somewhere between $20-26 Trillion in excess debt (almost all of which is in the private sector).

This debt was only sustainable if the economy moved forward on a narrow/stable path (low environmental stress). Once it began to deviate due to the casino crisis on Wall Street, the leverage acted as a feedback loop to drive the economy into deeply non-linear behavior.

The ratios are such that no matter what is done at the gov't level in regards to stimulus (counter trend dampening), it will pale in comparison to the destabilization caused by this debt...
***


Read the whole thing, but here's a sample:

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...
The data makes clear the rise in private sector debt had become unsustainable. In the 1960s and 1970s, total debt was rising at roughly the same rate as nominal GDP. By 2000-2007, total debt was rising almost twice as fast as output, with the rapid issuance all coming from the private sector, as well as state and local governments.

This created a dangerous interdependence between GDP growth (which could only be sustained by massive borrowing and rapid increases in the volume of debt) and the debt stock (which could only be serviced if the economy continued its swift and uninterrupted expansion).

The resulting debt was only sustainable so long as economic conditions remained extremely favorable. The sheer volume of private-sector obligations the economy was carrying implied an increasing vulnerability to any shock that changed the terms on which financing was available, or altered the underlying GDP cash flows...
***


Here's the bottom line: we are only in the early stages of an public and private economic collapse unprecedented in human history.

And remember this as well: you have to read non-American media to see that story.

Alea iacta est.

1 Comments:

Blogger jon said...

mish, mike shedlock, has been following this, because he predicted it some time ago. he's a fairly good economist, seemingly austrian school. his blog is worth checking out for those interested in economics.

January 22, 2009 at 3:59 AM  

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