A Prison of Debt on Both Sides of the Atlantic


By Patrick   Follow   Sat, 17 Nov 2012, 1:52pm   608 views   11 comments
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http://www.spiegel.de/international/business/playing-poker-with-trillions-a-prison-of-debt-on-both-sides-of-the-atlantic-a-867404.html

This money bubble continued to inflate for four decades, as central banks were able to create money out of thin air, banks were able to provide seemingly unlimited credit, and consumers and governments were able to go into debt without restraint.

This continued until the biggest credit bubble in history began to burst: first in the United States, because banks had bundled the mortgages of millions of Americans, whose only asset was a house bought on credit, into worthless securities; then around the globe, because banks had foisted these securities onto customers in many countries; and, finally, when these banks began to totter, debt-ridden countries turned private debt into public debt until they too began to totter, and could only borrow money from banks at even higher interest rates than before.

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  1. curious2


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    1   3:47pm Sat 17 Nov 2012   Share   Quote   Permalink   Like   Dislike  
  2. taxee


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    2   10:20am Sun 18 Nov 2012   Share   Quote   Permalink   Like (1)   Dislike  

    If you take away their right to counterfeit your currency and decide where the money goes and live like a king they will stop paying the old folks their pensions and send a bunch of neanderthal goons into the streets. Take your pick.

  3. Patrick


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    3   2:00pm Sun 18 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    I suppose we should expect a reaction like that. Kind of like Syria.

  4. Bellingham Bill


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    4   2:37pm Sun 18 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    If the top 5% -- one out of twenty -- weren't raking in 30% -- one out of three -- of our national income, things would be irretrievably bad here.

    But they are, so the measures we have to take to save the system are rather obvious.

    But "the 1%" will fight this to the bitter end, and their battalions in this battle are large, and well-funded.

    http://research.stlouisfed.org/fred2/series/CP/

    http://billmoyers.com/content/the-powell-memo-a-call-to-arms-for-corporations/

    The sad thing is is that even my beloved nordic countries have allowed mortgage debt to strangle them too. Only Germany is at all sane in this department.

    The only way to solve the housing problem is build so much quality supply such that scarcity rents fall to $0 -- everyone has no problem finding a unit they'd like to live in.

    But so much of our problems here with housing supply is that our cities are segregated disaster zones. I can't step foot in 2/3 of where I live now. LA is like 4/5 shitville. Plus if we build nice stuff to live in, it'd just get trashed in under 5 years.

    Fixing that is a bigger challenge than winning WW2 was I think.

  5. Bellingham Bill


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    5   2:45pm Sun 18 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    Japan is not facing a "disaster" by the way. They just owe a quadrillion yen to themselves. They'd have been better off just taxing what they were spending, but they started running big deficits to soften the shock of their bubble economy popping, and their bubble economy was driven a lot by their bank lowering interest rates to soften the shock of the yen strengthening 40% from ~250 to ~150 after the Plaza Accords.

    Japan's baby boom is a blip compared to ours. Now, if you ask me, we *do* happen to be totally fucked.

    Would you like to know more?

  6. mell


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    6   2:49pm Sun 18 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    Bellingham Bill says

    The sad thing is is that even my beloved nordic countries have allowed mortgage debt to strangle them too. Only Germany is at all sane in this department.

    In Germany you actually save before buying/building hour house with a special vehicle (from birth on if the parents arrange for it). By the time you want to own a house you usually have at least a solid down payment of 30% or more. A lot of wealthy people though continue to rent, there are amazing deals on penthouses and other great apartments all over Europe.

  7. Patrick


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    7   4:15pm Sun 18 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    Bellingham Bill says

    Japan is not facing a "disaster" by the way. They just owe a quadrillion yen to themselves.

    It's not like one person owing money to themselves though. Taxpayers owe all that money to bondholders. Taxpayers may be concentrated in the upper half, but bondholders are concentrated in the 1%.

    Bellingham Bill says

    The only way to solve the housing problem is build so much quality supply such that scarcity rents fall to $0 -- everyone has no problem finding a unit they'd like to live in.

    The structures are not the problem. Land prices are the problem, and you cannot build more land.

    Land prices were driven up by increased mortgage debt, and mortgage debt bailouts, and things like Prop 13 in CA. I still think the Georgist land value tax would solve many or even most of our housing problems. And it's very easy to try out -- just start shifting sales and income taxes to land value taxes. Same dollar amounts collected, just from land values instead of from commerce or work.

  8. upisdown


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    8   4:23pm Sun 18 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    Patrick says

    It's not like one person owing money to themselves though. Taxpayers owe all that money to bondholders. Taxpayers may be concentrated in the upper half, but bondholders are concentrated in the 1%.

    We know a whole lot of boomers that have a substantial portion of their retirement in government debt for the security. Then you get to listen to them rail on and on about the debt. It's entertaining mostly, but the look on their face and the answers that you get when you tell them to unload it is priceless.

  9. mell


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    9   4:37pm Sun 18 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    upisdown says

    Patrick says

    It's not like one person owing money to themselves though. Taxpayers owe all that money to bondholders. Taxpayers may be concentrated in the upper half, but bondholders are concentrated in the 1%.

    We know a whole lot of boomers that have a substantial portion of their retirement in government debt for the security. Then you get to listen to them rail on and on about the debt. It's entertaining mostly, but the look on their face and the answers that you get when you tell them to unload it is priceless.

    That's correct. Correcting the deficit by spending cuts will for sure affect the young but not as much as the boomers and in the long run it is the only way to ensure some prosperity for future generations.

  10. Bellingham Bill


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    10   6:43pm Sun 18 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    Patrick says

    Taxpayers owe all that money to bondholders. Taxpayers may be concentrated in the upper half, but bondholders are concentrated in the 1%.

    not really. Japan's postal savings system is 80% vested in JGBs, as are everyone's pensions. They really owe that money to themselves.
    Patrick says

    The structures are not the problem. Land prices are the problem, and you cannot build more land.

    Still, the only way to reduce housing costs is to increase the supply of housing. This can be done by increasing the density, and/or somehow improving transportation efficiency (in time and cost terms) so that people can live further out (like how Tokyo has about a dozen feeder lines to cheaply bring millions of people in & out of the high-cost center each day).

    Without increasing the supply of housing, land rents will still be high. We could of course LVT that away, but the LVTs would then by high, since what land value really is is just a scarcity rent to allocate who gets tenancy to what.

    LVT would incent builders & owners to reduce their land usage, of course, so over time an LVT regime would result in increasing supply of housing (and commercial footage) in a given area.

  11. Bellingham Bill


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    11   6:47pm Sun 18 Nov 2012   Share   Quote   Permalink   Like (1)   Dislike  

    mell says

    it is the only way to ensure some prosperity for future generations.

    the debt is neither here nor there with "prosperity".

    the economy is 99% bullshit now.

    all that matters is that we produce more hard wealth than we consume.

    to do that we need to eliminate the TRADE deficit and get more people working here towards actual hard (ie durable) wealth creation and not the bullshit make-work and paper-pushing most people do for a living.

    Hint, the trade deficit is 50% with oil exporters and 40% with China-Japan-Germany-Mexico.

    http://www.census.gov/foreign-trade/top/dst/current/deficit.html

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