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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (9865)	7/27/2004 12:49:56 AM
From: puget206	Read Replies (1) \| Respond to of 116555

The proposition in italics reminds me of the adage about the wheelbarrow being stolen since it had some useful value, while the money in the wheelbarrow was left behind.

To: mishedlo who wrote (9865)	7/27/2004 8:27:23 AM
From: russwinter	Respond to of 116555

<The debt is only sustainable to the extent that people are willing to take on more > People will take on more as long as there is food at the trough. Part of this is the economic principle of "loading" (Kindleberger), which states that the individual will do about anything, including acting irrationally (take on more debt) to maintain his lifestyle and standard of living. <The debt is only sustainable to the extent lenders are willing to lend more.> They will lend more as long as bad debts can be papered over with even more lending, easy to do when cost of money is well below the real inflation rate. Rob Peter to pay Paul principle tends to last longer than either of us can bet against it. <Debt is only sustainable to the extent that people have jobs in which to pay back something.> Only in part true, as I think the keys are the asset bubbles, that drive the psychology of the borrowing and speculation. In otherwords in a distorted system like this one, assets trump income. They just service the shortfalls, with more easy money borrowing. When the bubbles burst, which they will, often quite by accident, then the debt bubble pops. I'm toying a lot with how this will look and feel. In reading about the history (Kindleberger again) of other bubbles, it just happens. Often the event driving it is sometimes hard to identify. Usually it's some big (or small) institutional failure, which finally leads to a lending hiatus or gap.