7 ms·

What is fascinating is just how much of the US economy is debt financed. Some of the biggest industries - education, real estate, banking, construction, retail

What is fascinating is just how much of the US economy is debt financed. Some of the biggest industries - education, real estate, banking, construction, retail (via credit cards) etc. are all basically financed by huge amounts of debt taken on by either the government or individual citizens. So in effect, the current economy is built on the future economy's ability to pay for itself. It seems to me if this trend isn't reversed, the "Great Recession" is bound to keep happening simply because people can only borrow so much.

001sky 14y ago
simply because people can only borrow so much -- Borrow = future obligation to [repay] = future obligation to [Work] This is why it all makes sense...that is, if you are in a position to profit from the labour of the debtors. Who are these people? (1) Gov't - receives N% of income the debtors are forced to earn to repay the debts; and (2) the Lenders, who receive repayment of the Interest (profit) and principal (capital). In the case of student loans[1] , the profits of (2) are guarnteed by (1). So, its all makes sense. depending on your definition of "sense". =D ______________ [1]Edit/Note: and housing mortages share the same logic. The GSAs have implicit government guarantees. http://en.wikipedia.org/wiki/Fannie_Mae http://en.wikipedia.org/wiki/Fannie_Mae . This is why debt-financed asset price inflation is a characteristic of both [housing] and [university degrees], when considered as "asset classes". The massive GSA's at the heart of the housing crisis were put in place to guarantee mortgage debts, precisely so they could be securitized, sold, and traded as liquid financial instruments.
rayiner 14y ago
It's the result of stability and growth. The country is so stable that people feel comfortable making the long-term commitments that accompany debt. At the same time, debt enables faster growth so long as there is room to grow. If you think there is a market for trucks, it makes much more sense to take a loan to build a truck factory, then pay it off with the sales into this new market, than it does to just save up money until you can build the truck with cash. It's when you run into instability (war) or limitations on growth that you have to start deleveraging.
- 001sky 14y ago
  This would be a great theory, if the facts in anyway supported it. The counter-examples in the data are not hidden, however: US government @ $1T per year in defecit. Fed in third phase of QE (money printing). These policies are meant to prevent debt write-offs (reductions in par value). And are a giant subsidy to lenders at the expense of debtors and taxpayers. Business risk currently has only orthogonal corrleation with debt pricing (or, by extension, pricing any part of the capital structure...including equity). See for example: http://dealbreaker.com/2012/08/lets-spot-a-high-yield-bubble/ http://dealbreaker.com/2012/08/lets-spot-a-high-yield-bubble... tl;dr http://cdn.dealbreaker.com/uploads/2012/08/MattKing2-620x439.png http://cdn.dealbreaker.com/uploads/2012/08/MattKing2-620x439...

001sky 14y ago

simply because people can only borrow so much -- Borrow = future obligation to [repay] = future obligation to [Work] This is why it all makes sense...that is, if you are in a position to profit from the labour of the debtors. Who are these people? (1) Gov't - receives N% of income the debtors are forced to earn to repay the debts; and (2) the Lenders, who receive repayment of the Interest (profit) and principal (capital). In the case of student loans[1] , the profits of (2) are guarnteed by (1). So, its all makes sense. depending on your definition of "sense". =D ______________ [1]Edit/Note: and housing mortages share the same logic. The GSAs have implicit government guarantees. http://en.wikipedia.org/wiki/Fannie_Mae http://en.wikipedia.org/wiki/Fannie_Mae . This is why debt-financed asset price inflation is a characteristic of both [housing] and [university degrees], when considered as "asset classes". The massive GSA's at the heart of the housing crisis were put in place to guarantee mortgage debts, precisely so they could be securitized, sold, and traded as liquid financial instruments.

rayiner 14y ago

It's the result of stability and growth. The country is so stable that people feel comfortable making the long-term commitments that accompany debt. At the same time, debt enables faster growth so long as there is room to grow. If you think there is a market for trucks, it makes much more sense to take a loan to build a truck factory, then pay it off with the sales into this new market, than it does to just save up money until you can build the truck with cash. It's when you run into instability (war) or limitations on growth that you have to start deleveraging.

001sky 14y ago
This would be a great theory, if the facts in anyway supported it. The counter-examples in the data are not hidden, however: US government @ $1T per year in defecit. Fed in third phase of QE (money printing). These policies are meant to prevent debt write-offs (reductions in par value). And are a giant subsidy to lenders at the expense of debtors and taxpayers. Business risk currently has only orthogonal corrleation with debt pricing (or, by extension, pricing any part of the capital structure...including equity). See for example: http://dealbreaker.com/2012/08/lets-spot-a-high-yield-bubble/ http://dealbreaker.com/2012/08/lets-spot-a-high-yield-bubble... tl;dr http://cdn.dealbreaker.com/uploads/2012/08/MattKing2-620x439.png http://cdn.dealbreaker.com/uploads/2012/08/MattKing2-620x439...