Gregor,
let me chime in with an observation on "levels" of debt.
It's difficult to gauge what should be the "right" form of debt. Simply because a developed market economy has many more different ways to store and accumulate wealth than simple "savings" products.
If I buy stocks, mutual funds etc- this isn't normally calculated as savings - but it'S certainly not consumption either. So I'd say, it's different to compare debt/GDP ratios of Bangla Desh and the US.
Another matter is debt of businesses. Usually - there's an economic incentive to accumulate debt, if your corporate taxes are high. The U.S. has among the highest corporate taxes in the world. But if you issue debt or some special kind of preferred shares (trust preferreds) then your interest payments are tax deductible. The leveraging up to purchase CMO/CDO/CLO paper and other asset based lending transactions by onshore U.S. incorporated institutional investors can be viewed alongside a similar motivation - i.e. tax efficiency. In a jurisdiction with low or zero corporate tax rates, one should expect debt levels to be lower as well.
Of course, higher debt levels mean more risk and with banks using their balance sheet to invest into asset backed paper, this of course means market risk - especially in a "mark to market" environment.
Interestingly, far away from financials, technology companies learnt their lesson of the risk consequences of debt during the technology meltdown of 2000/2001. As a result of this learning process, many tech companies today have very low debt levels.
Household debt is a different matter. The only explanation apart from financial illiteracy is "wealth effects on consumption". Imagine someone with an "asset based lifestyle", whose major income is capital gains - he holds position longer (1 year) to qualify for the "long term" rates (15%). If his portfolio worth increases, he might do himself a favour once in a while - totally unrelated to his salary from his main, daytime job.
Of course this reasoning is from the easy, convenient position of an ex-post facto rationalization. There must be more "motives" and sensible explanations why debt levels in the U.S. are higher than elsewhere..
rgrds
CROSSY |
