Sunday, October 05, 2008

"But People Can't Get Credit"

I'm mighty sick of the rationalization of the bail out based on the concept that "people can't get credit" ergo the whole world will end. The point is moot in that the bail out has already passed, but I still want to go down in the history books as saying,

"The last thing the US needs is more debt. A tightening of credit and LESS debt is exactly what this country needs."

Of course I know what I've just said is blasphemy; telling Americans to work, live within their means and not use debt to buy what they can't afford, but that still doesn't change the fact that Americans are overleveraged.

Alas, why I found this chart in The Economist very interesting;

I've seen government debt as a % of GDP. As well as household debt as a % of GDP. But I never saw "Total Debt" (which includes government, consumer and corporate debt) as a percent of GDP, which is now higher than it was during the Great Depression.

I don't care what the likes of Hank Paulson, Bernanke and whoever else out in Washington thinks, the forces of economics are more powerful than their little plan. And bail out or not, I'm going to gander the economy will still collapse under the weight of this debt.

Oh, and that doesn't even include the weight soon to be added by social security and medicare which is right around the corner.


Anonymous said...

Unfortunately, this graph was in an issue claiming in reference to the bailout that "The economics behind this is sound." Even the Economist is talking out of both sides of its' mouth.

When a supposedly reputable publication like The Economist makes such a dubious statement I take it to be whistling past the graveyard. We are in for some tough times and the winner of the upcoming election will be a one term president because of it.

AWGB said...

That's an important graph to remember. If the log of the growth rate on debt exceeds the log of gdp growth rate . . . you're not going to repay your debt.

Anonymous said...

Even the Economist is talking out of both sides of its' mouth.

The Economist has taken a big left turn in recent years. That might explain things.

Captain Capitalism said...

Yes, I've noticed that too.

Global warming; a foregone conclusion.

They are big time Barack Obama fans.

And just the tone has changed since they got their new editor.

Unknown said...

Wow, that graph is depressing... I still think the whole gravitating toward debt for the average American comes down to this idea of people feeling "entitled," that somehow the world "owes" them something. If we could all just get over that, I think it would do us all a world of good.

Kasia said...

OK Captain. I recently saw an op-ed in the local paper (

I know I'm ignorant of how to evaluate a bank. Early in the op-ed, when the bank president says that they've got a high capital percentage, what does that mean? Is it a reliable indicator of a bank's stability? What else would you look at?

The situation is that my fiance and I have some wedding gift money already that we are looking at where to put. We need liquidity, so a CD is not a good idea, but I have a higher-interest savings account with Emigrant Direct than most banks and credit unions offer. It's still not super high (3%), but hey, it's 3% instead of 1 or 2. Thing is, I know that usually interest rate correlates with rate of risk. I know it's going to be FDIC insured anyway, but is there a way I can look at a bank's stats and get an idea of how stable it is?

Jadagul said...

Any idea if that chart is gross debt or debt net of credit? I imagine it's the latter; and saying that I owe someone a thousand dollars I don't have is a very different matter from saying I owe someone a thousand dollars and someone else owes me a thousand dollars. That's the kind of credit we're talking about; most businesses don't want to pay at the time of each purchase (and would you, if you made millions of purchases a day?). They can't even, in most cases. Instead, they pay say every week or every month; but if you send me a shipment today and I don't pay you until next Wednesday when finance cuts the checks, that's credit. And it's pretty necessary for a modern economy.

When we talk about a credit crunch, we're talking about this.