Repent at leisure

[grumpy]

**Borrowing has been the answer to all economic troubles in the past 25 years. Now debt itself has become the problem, says Philip Coggan **

MAN is born free but is everywhere in debt. In the rich world, getting hold of your first credit card is a rite of passage far more important for your daily life than casting your first vote. Buying your first home normally requires taking on a debt several times the size of your annual income. And even if you shun the temptation of borrowing to indulge yourself, you are still saddled with your portion of the national debt.

Throughout the 1980s and 1990s a rise in debt levels accompanied what economists called the “great moderation”, when growth was steady and unemployment and inflation remained low. No longer did Western banks have to raise rates to halt consumer booms. By the early 2000s a vast international scheme of vendor financing had been created. China and the oil exporters amassed current-account surpluses and then lent the money back to the developed world so it could keep buying their goods.

Those who cautioned against rising debt levels were dismissed as doom-mongers; after all, asset prices were rising even faster, so balance-sheets looked healthy. And with the economy buoyant, debtors could afford to meet their interest payments without defaulting. In short, it paid to borrow and it paid to lend.
…
To understand why debt may have become a burden rather than a boon, it is necessary to go back to first principles. Why do people, companies and countries borrow? One obvious answer is that it is the only way they can maintain their desired level of spending. Another reason is optimism; they believe the return on the borrowed money will be greater than the cost of servicing the debt. Crucially, creditors must believe that debtors’ incomes will rise; otherwise how would they be able to pay the interest and repay the capital?

But in parts of the rich world such optimism may now be misplaced. With ageing populations and shrinking workforces, their economies may grow more slowly than they have done in the past. They may have borrowed from the future, using debt to enjoy a standard of living that is unsustainable. Greece provides a stark example. Standard & Poor’s, a rating agency, estimates that its GDP will not regain its 2008 level until 2017.

Rising government debt is a Ponzi scheme that requires an ever-growing population to assume the burden—unless some deus ex machina, such as a technological breakthrough, can boost growth. As Roland Nash, head of research at Renaissance Capital, an investment bank, puts it: “Can the West, with its regulated industry, uncompetitive labour and large government, afford its borrowing-funded living standards and increasingly expensive public sectors?”
…
The problem with debt, though, is the need to repay it. Not for nothing does the word credit have its roots in the Latin word credere, to believe. If creditors lose faith in their borrowers, they will demand the repayment of existing debt or refuse to renew old loans. If the debt is secured against assets, then the borrower may be forced to sell. A lot of forced sales will cause asset prices to fall and make creditors even less willing to extend loans. If the asset price falls below the value of the loan, then both creditors and borrowers will lose money.

A statement in the economist

economist.com/node/16397110? … d=16397110

A whole subsection of concern to keep everyone happy.

[Larry]

Ctl+F “Ireland”. Wish I hadn’t.

[grumpy]

Only 2 Ireland’s no?

Not an Irish disease, a global one.

[bob3367]

I appreciate that we have merged a few threads…and I may make a fcuk of this…

But… the most recent post that linked to Repeat at Leisure held a sentence…

“getting a hold of your first credit card is a rite of passage, far more important for daily life than casting your first vote”…

There to me is the “war”, a declaration of war on greed… its not a war on being successful, but naked greed.

Greed is not what we need, every person who can needs to vote, and be a part of the change… ohhh its late… but fuck it, we cannot continue on the road that we have driven… into the wall.

I include all societies in this, western ones that is… culture, arts, community, smiles, respect… we all have these things but have being obsesed by being top of the pile, as Johnny Cash says in “Hurt”… you can have my “empire of dirt”…

[The_Unwelcome_Guest]

bob, quarter to three in the morning… Trent Reznor said it in any case not Johnny…

[DeflationIsGood]

This quote from the article jumped out at me

The number of companies with safe AAA credit ratings has collapsed as more have acted on the theory that a debt-laden balance-sheet is more efficient (because interest payments are tax-deductible in most countries).

Loading a company up with debt also enables the managment to siphon off large amounts of cash from the business. They could never do this if the company was financed with real money, or equity. Shareholders wouldnt tolerate it.

Loose money has been a boon for corporate con artists, and greedy CFOs. Every company Ive worked for, the senior managers are sleazy con artists who know how to extract huge remuneration packages, but are not competent to run a business.