Three Gets You Two
The link above takes you to a great article from Pimco's Bill Gross. In its core this article takes us to the reason why we are not at the end of the Great Recession. The global deleveraging has not yet begun. Rather than retire and reduce their debt burdens governments around the world have started the morning after the GFC hangover with a couple of Bloody Mary(s).
How governments approach deleveraging remains to be seen. In the context of the current level of global indebtedness in many economies such as Greece, austerity measures and rebalancing budget may simply not even be practical let alone politically viable. That leaves the propects of default of which I believe there are at least three distinct kinds (possibly more):
1. Repudiation - "I can't repay and even if I could I'm not going to try"
2. Negotiation - "I can't repay but I would like to if I could. How about you take 50 cents in the dollar and we call it quits"
3. Stealflation - "Actually I will pay you all the money I owe no problems.... I am however going to run inflation at 15% for 5 years and the $1.00 I owed you is now $0.12 real"
My money is still on the smart debtor governments running inflation at 15% for five years, or something similar.
I suspect over the next 5 years we will see all three solutions.
posted by Peter at 2:46 pm
1 Comments:
Hi Peter,
On your Chart#1 there you highlight two peak points. One is our recent peak, which was achieved in a growing economy. The other is a spike created due to the collapse of GDP in the Great Depression.
Our recent high point is low compared to where we will be if GDP collapses again!
Also, your chart shows TOTAL debt, but you write of GOVERNMENT debt: "Rather than retire and reduce their debt burdens governments around the world have started the morning after the GFC hangover with a couple of Bloody Mary(s)"
Can't speak for the rest of the world, but in the U.S. the problem is private debt, not public debt.
Art
Post a Comment
<< Home