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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: John Vosilla who wrote (26490)1/10/2005 3:45:08 AM
From: Elroy JetsonRead Replies (3) of 306849
 
Excessive debt leaves you with only four solutions:

1.) Simply cope with it. This reduces your economy to living merely on it's current available income without additional demand from new debt;

2.) Slowly pay it off. This reduces economic activity even further;

3.) Devalue your currency through inflation to reduce your real debt level, while maintaining the fiction you are making full payment on your debt;

4.) Simply default on your debt. This de-leveraging process deflates the value of assets, especially those which have been widely leveraged.

It's little wonder that many have pondered in recent years whether we face inflation or deflation as Options #3 and #4 are always the most popular options in a Monetarist economy. While the ultimate outcome is essentially the result of a policy decision by the central bank, many situations can occur where the result will be the result of random events. This is especially likely when a policy choice is too long postponed.

Many point to "average levels of debt" and claim not to see a problem. But this is disingenuous. A significant portion of any population can not be induced into further debt, or any debt, even with interest rates at zero or sharply negative. The economic weakness created by excess debt occurs among those desirous of borrowing, but can borrow no further.
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