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But it misses other issues: - No discussion of "off balance" sheet government obligations, like pensions and entitlements. These don't count as "debt", as th

But it misses other issues: - No discussion of "off balance" sheet government obligations, like pensions and entitlements. These don't count as "debt", as they aren't bonds, but they are long-term cash flow obligations that reduce resources available for debt service - Likewise, no discussion of public sector compensation in excess of a position's productivity - No discussion of economic growth rates, which expand the amount of debt a country can sustain - No discussion of the role of low euro rates in private sector debt expansion. Markets presumed governments could and would bail out their banks, and thus didn't scrutinize bank assets for recovery values. (The graphic ignores financial sector debt, but that's debt _of_ the banks, not debt _to_ the banks.) The conflation of bank and government debt is a running theme in the euro crisis, see Sarkozy's remark that though the ECB wouldn't lend to governments it would lend to banks, and the banks would lend to governments, problem solved. The graphic thus understates the sovereign obligations. By ignoring growth, it ignores the key variable driving differences in perceived debt sustainability. And by ignoring market preconceptions of government backstops for banks, it misses the role of the euro in those private sector debt levels. The clue is this: why doesn't the graphic explain sovereign difficulties borrowing, evident in their rising yields? Bond buyers are saying that _governments_ won't be able to sustain their debts. That might reflect an opinion that governments will borrow unsustainably to bail out their banks. But then the solution would be to let the banks collapse and remove that possibility. But the governments can't do that because their economies are dependent on excess bank leverage for the growth they do have, and for the one source of financing they do have. So if we agree the wicked bankers did it, we're saying that governments have been using excess bank leverage to hide the lack of fundamental growth, and extent of structural problems. The truth is that the problem is excess leverage and spending in both public and private sectors. P.S. It's the same story in the US, lagging by a few years and mitigated by our ability to print money.

oelewapperke 15y ago
'No discussion of "off balance" sheet government obligations, like pensions and entitlements.' That's because these have an NPV of 3-4 times the GDP but don't actually influence the situation yet. In America a similar situation exists, but less bad. And frankly, the shear size of these obligations plainly means that there is no western european country that actually intends to pay their people pensions. In western countries, "The working man" pays taxes to the government, thinking they are in fact a loan that will be repaid when said man crosses the age of 65. The government has no intention of repaying these people. So people, live with it : you won't have any pension after 65. You might as well lend 1000 dollars per month to a homeless guy who swears he'll pay 10x as much back to you. In fact, that would actually help the economy, unlike paying the same amount in tax. Given that they aren't planning to actually pay this money, you could easily make the point that the NPV cost of the pensions is zero. 'Likewise, no discussion of public sector compensation in excess of a position's productivity' All public sector productivity is, at the very best, zero. At worst, massively negative. This is an evident and well known economic fact. Government is a cost, that is extracted under threat. Whether this means to you "without government (and taxes) you'll get killed in the street" or "phone/roads/education/... service won't exist without govt + taxes" is up to you, but government is always a negative influence on the economy. Therefore, every government employee has a net-negative effect on the economy as a whole. So what is your suggestion ? Make people pay to be government employees ? The romans actually did that, which means there's a boatload of funny situations this causes. I doubt it was very funny for roman citizens though. "No discussion of economic growth rates, which expand the amount of debt a country can sustain" Real economic growth rates have been zero or near zero in most places for half a decennium now. Total amount lent, however, has not. In the end it's simple : people, in general, have been spending more than they earn. A LOT more. Like a factor 10. What banks do is that through leverage they allow these factors to increase, but the more increased the leverage factor, the more fragile the system. It is near, but still below, the breaking point.

oelewapperke 15y ago

'No discussion of "off balance" sheet government obligations, like pensions and entitlements.' That's because these have an NPV of 3-4 times the GDP but don't actually influence the situation yet. In America a similar situation exists, but less bad. And frankly, the shear size of these obligations plainly means that there is no western european country that actually intends to pay their people pensions. In western countries, "The working man" pays taxes to the government, thinking they are in fact a loan that will be repaid when said man crosses the age of 65. The government has no intention of repaying these people. So people, live with it : you won't have any pension after 65. You might as well lend 1000 dollars per month to a homeless guy who swears he'll pay 10x as much back to you. In fact, that would actually help the economy, unlike paying the same amount in tax. Given that they aren't planning to actually pay this money, you could easily make the point that the NPV cost of the pensions is zero. 'Likewise, no discussion of public sector compensation in excess of a position's productivity' All public sector productivity is, at the very best, zero. At worst, massively negative. This is an evident and well known economic fact. Government is a cost, that is extracted under threat. Whether this means to you "without government (and taxes) you'll get killed in the street" or "phone/roads/education/... service won't exist without govt + taxes" is up to you, but government is always a negative influence on the economy. Therefore, every government employee has a net-negative effect on the economy as a whole. So what is your suggestion ? Make people pay to be government employees ? The romans actually did that, which means there's a boatload of funny situations this causes. I doubt it was very funny for roman citizens though. "No discussion of economic growth rates, which expand the amount of debt a country can sustain" Real economic growth rates have been zero or near zero in most places for half a decennium now. Total amount lent, however, has not. In the end it's simple : people, in general, have been spending more than they earn. A LOT more. Like a factor 10. What banks do is that through leverage they allow these factors to increase, but the more increased the leverage factor, the more fragile the system. It is near, but still below, the breaking point.