Thanks for your explanation. Much appreciated. When people borrow, can’t pay and won’t, the costs the lender has of those bad payers is passed to the next borrower. In the end anyone borrowing is paying a premium on top of the interest as an insurance against the bad payers.
Let’s look to the system as a whole and use this illustration:
Switzerland is a case in point: It served as a safe haven for money. It was unlikely that everyone would come at once to Switzerland and demand his money. As a result Swiss banks lent the foreigners’ money to its citizens at little interest, since the costs of getting that money was little. Foreigners subsidized the Swiss citizen. Now compare that wit, say, a Brazilian who had borrowed money and was paying his underwear interest. That because capital was very scarce there. There were more guys seeking money than money seeking people, like in Switzerland. Then it made sense to do carry trade. Get cheap Swiss money and lend to a Brazilian. Keep that system working for a few years and look at it. What do we have? Brazilian borrower subsidizing Swiss borrower.
The tricks of the trade are:
Different interest rates in different countries
Large pool of capital in one place, little capital in another.
As long as this is in place the game can go on.
How can debt have no limit? Because limit is relative. As long as there are more people indebted than you are, your personal debt has no limit. You can still borrow more since you are below that limit. Why that? Because the more there are the guys out there sinking themselves into debt, the more they are paying back into the system. The more there is money being paid back, into the system, the more money is available for lending.
Post WWII, capital was employed productively, to rebuild Europe and Japan and to support a growing number of young people growing up and not producing, money was scarce for lending and the debt limit bar was very much lower than it is today.
Today there’s little amount of young people being supported and no where to construct but outside OECD countries. Hence what TJ sees as printing, what we see as bubbles, is just money with nowhere to go but to speculate. Thus debt has no limit |
