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I attended a lecture on the Credit Crunch last week. Among the bullet-point conclusions, the speaker included
The unwinding of Anglo-Saxon debt will slow economic growth for years.
He explained, without prompting, that the choice of the term 'Anglo Saxon debt' was because it is specifically the English-speaking Western™ countries (UK, US, Canada, Australia, NZ) that have had the biggest debt binges. And why should the unwinding of the debt slow down growth? Because as you say
Financiers, now unchecked by regulation or restrictions on leverage, can monetize many kinds of future revenue streams today, generating instant profits they and their clients can capture.
Monetizing future revenue streams means that several years' worth of future economic growth has already been realised as profits of the financial sector in the past 10 years (explaining the GDP - that is, income - boost coming from the financial sector). A few years of economic growth will be spent just making good on the liabilities incurred in the process by the productive part of the economy.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Mon Sep 15th, 2008 at 07:16:16 AM EST

A few years of economic growth will be spent just making good on the liabilities incurred in the process by the productive part of the economy.

Which means that even if we work well we'll feel poor - again, according to macro-statistics. It was already that way to a large extent for a majority of the population even though the macro statistics were looking good; now that things will be bad on aggregate, the question now will be the sharing of the pain during these bad times.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Sep 15th, 2008 at 07:19:48 AM EST
[ Parent ]
Unless those liabilities are nullified by legislative act - which implies a nationalisation of the 'assets' side, that is, the credit institutions.

Don't hold your breath.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Mon Sep 15th, 2008 at 07:21:25 AM EST
[ Parent ]

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