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The financial problems originated with excess debt, but debts that are so large that they cannot be paid back - will not be paid back. Inflating assets via QE

The financial problems originated with excess debt, but debts that are so large that they cannot be paid back - will not be paid back. Inflating assets via QE doesn't really address the real underlying problem. The only long-term solution I have seen is Debt for Equity swaps. It won't work everywhere, but it does help. For example, when the Banks were technically insolvent then the opportunity should have been taken to forcibly re-arrange their financial underpinnings rather than shoring up the existing rickety structures by using taxpayer monies to in effect bail out the rich. https://en.wikipedia.org/wiki/Debt_restructuring#Bondholder_haircuts https://en.wikipedia.org/wiki/Debt_restructuring#Bondholder_...

bogomipz 10y ago
Indeed. China who's massive economy growth of the last 20 years is using "debt for equity" swaps for SOEs(state owned enterprises) and it looking at possibly extending this beyond SOEs. It's hard for me to wrap my head around this for a state owned enterprise and not think its a shell game played with balance sheets. This is a good read recent read: https://www.stratfor.com/analysis/gambling-chinese-debt https://www.stratfor.com/analysis/gambling-chinese-debt
- leitasat 10y ago
  Right, I bet it's essentially a stealing of SOEs.
hga 10y ago
The only long-term solution I have seen is Debt for Equity swaps. It won't work everywhere, but it does help. Note the US Federal government owns so much land in the Western part of the country and Alaska that that alone might allow it to get its fiscal house in order, and could certainly help. I mean, isn't it everyone's dream to have title to a plot of Alaskan tundra ^_^? Obviously it would be very hard to make this work, and impossible for our current ruling class, but the raw numbers just might work out. Otherwise you're right, it simply won't be paid back. But who knows how long we'll be viewed as a "least worst" place to park your liquid assets?
- carsongross 10y ago
  Government debt, while large, is not the core issue. Private debt is the issue. Steve Keen has been hammering this for years: https://www.youtube.com/watch?v=CLplU4WdX9A https://www.youtube.com/watch?v=CLplU4WdX9A https://www.youtube.com/watch?v=ocQWs8EteqI https://www.youtube.com/watch?v=ocQWs8EteqI http://www.debtdeflation.com/blogs/ http://www.debtdeflation.com/blogs/
  - api 10y ago
    IMHO the worst form of private debt in our present economy is personal private debt. We are in a severely demand constrained economy, and personal private debt is really what's weighing the economy down and soaking up consumer demand. Also unlike corporations individuals cannot do debt/equity swaps or raise money by issuing shares in themselves, so personal private debt is harder to renegotiate or reorganize into a more manageable form. Corporate private debt is maybe the next worst, but as I said corporations have many more tools for dealing with it especially if they are otherwise healthy. There's a huge market out there for equity in healthy and especially growing companies. I have heard the interesting view that government debt and private debt are not even the same thing. When you think about it: the government prints its own money (or authorizes the entity that does, e.g. the Fed). How can you truly owe a debt in your own sovereign (fiat) currency? How is debt still a meaningful concept there? It seems to me (and IANAE) that government debt is more like equity in the nation. Owning a bond is like owning stock in the USA, but with the caveat that you are forced to resell this stock at its maturity date. Maybe something closer to a weird kind of convertible note.
    - carsongross 10y ago
      How is debt still a meaningful concept there? I still think debt is a meaningful concept there, in that that that debt is going to be relied on by the holders to provide an income in the future that they are thinking of in terms of a reasonable increase in the general money supply and inflation. It's not a black and white situation as with personal debt and I'm certainly more sympathetic than I used to be to the idea that excess sovereign debt isn't a serious issue (as long as the sovereign controls the underlying currency, looking at you Greece). On the other hand, I think the same analysis tells us that the sovereign should just print the money and distribute it (via, say, a citizens dividend or Keen's modern debt jubilee) rather than rely on the banks debt-creation mechanism.
lintiness 10y ago
banks issued equity and preferred equity to the tune of many many tens of billions during the crisis. revisionist class warfare stuff i strange (as a first hand participant): the bailout of wall street banks was critical for the economic well-being of EVERYBODY not just "the rich", and it's the main reason obama and democrats (who wanted it as opposed to the republicans who didn't) swept the elections.
- forgetsusername 10y ago
  Not to mention that equity holders in both Lehman and Bear Stearns were wiped out.
forgetsusername 10y ago
>The financial problems originated with excess debt, but debts that are so large that they cannot be paid back - will not be paid back. So in other words, you believe that financial problems are caused by too many assets? Because that's how a balance sheet works.
- cloakandswagger 10y ago
  Nice attempt at applying your Econ 101 knowledge, but a balance sheet where the "assets" are made up of meaningless fiat created by debt instruments does not work like that.
  - forgetsusername 10y ago
    >are made up of meaningless fiat created by debt instruments does not work like that Then the debt is equally meaningless. Maybe you should try applying financial principles, rather than reading Zero Hedge.
  - deleted 10y ago
    [deleted]

bogomipz 10y ago

Indeed. China who's massive economy growth of the last 20 years is using "debt for equity" swaps for SOEs(state owned enterprises) and it looking at possibly extending this beyond SOEs. It's hard for me to wrap my head around this for a state owned enterprise and not think its a shell game played with balance sheets. This is a good read recent read: https://www.stratfor.com/analysis/gambling-chinese-debt https://www.stratfor.com/analysis/gambling-chinese-debt

leitasat 10y ago
Right, I bet it's essentially a stealing of SOEs.

hga 10y ago

The only long-term solution I have seen is Debt for Equity swaps. It won't work everywhere, but it does help. Note the US Federal government owns so much land in the Western part of the country and Alaska that that alone might allow it to get its fiscal house in order, and could certainly help. I mean, isn't it everyone's dream to have title to a plot of Alaskan tundra ^_^? Obviously it would be very hard to make this work, and impossible for our current ruling class, but the raw numbers just might work out. Otherwise you're right, it simply won't be paid back. But who knows how long we'll be viewed as a "least worst" place to park your liquid assets?

carsongross 10y ago
Government debt, while large, is not the core issue. Private debt is the issue. Steve Keen has been hammering this for years: https://www.youtube.com/watch?v=CLplU4WdX9A https://www.youtube.com/watch?v=CLplU4WdX9A https://www.youtube.com/watch?v=ocQWs8EteqI https://www.youtube.com/watch?v=ocQWs8EteqI http://www.debtdeflation.com/blogs/ http://www.debtdeflation.com/blogs/
- api 10y ago
  IMHO the worst form of private debt in our present economy is personal private debt. We are in a severely demand constrained economy, and personal private debt is really what's weighing the economy down and soaking up consumer demand. Also unlike corporations individuals cannot do debt/equity swaps or raise money by issuing shares in themselves, so personal private debt is harder to renegotiate or reorganize into a more manageable form. Corporate private debt is maybe the next worst, but as I said corporations have many more tools for dealing with it especially if they are otherwise healthy. There's a huge market out there for equity in healthy and especially growing companies. I have heard the interesting view that government debt and private debt are not even the same thing. When you think about it: the government prints its own money (or authorizes the entity that does, e.g. the Fed). How can you truly owe a debt in your own sovereign (fiat) currency? How is debt still a meaningful concept there? It seems to me (and IANAE) that government debt is more like equity in the nation. Owning a bond is like owning stock in the USA, but with the caveat that you are forced to resell this stock at its maturity date. Maybe something closer to a weird kind of convertible note.
  - carsongross 10y ago
    How is debt still a meaningful concept there? I still think debt is a meaningful concept there, in that that that debt is going to be relied on by the holders to provide an income in the future that they are thinking of in terms of a reasonable increase in the general money supply and inflation. It's not a black and white situation as with personal debt and I'm certainly more sympathetic than I used to be to the idea that excess sovereign debt isn't a serious issue (as long as the sovereign controls the underlying currency, looking at you Greece). On the other hand, I think the same analysis tells us that the sovereign should just print the money and distribute it (via, say, a citizens dividend or Keen's modern debt jubilee) rather than rely on the banks debt-creation mechanism.

lintiness 10y ago

banks issued equity and preferred equity to the tune of many many tens of billions during the crisis. revisionist class warfare stuff i strange (as a first hand participant): the bailout of wall street banks was critical for the economic well-being of EVERYBODY not just "the rich", and it's the main reason obama and democrats (who wanted it as opposed to the republicans who didn't) swept the elections.

forgetsusername 10y ago
Not to mention that equity holders in both Lehman and Bear Stearns were wiped out.

forgetsusername 10y ago

>The financial problems originated with excess debt, but debts that are so large that they cannot be paid back - will not be paid back. So in other words, you believe that financial problems are caused by too many assets? Because that's how a balance sheet works.

cloakandswagger 10y ago
Nice attempt at applying your Econ 101 knowledge, but a balance sheet where the "assets" are made up of meaningless fiat created by debt instruments does not work like that.
- forgetsusername 10y ago
  >are made up of meaningless fiat created by debt instruments does not work like that Then the debt is equally meaningless. Maybe you should try applying financial principles, rather than reading Zero Hedge.
- deleted 10y ago
  [deleted]