Comments on: It’s the debt, stupid http://www.creditwritedowns.com/2009/09/its-the-debt-stupid.html Finance, Economics and Markets Thu, 09 Feb 2012 21:30:46 +0000 hourly 1 By: The recession is over but the depression has just begun | The Big Picture http://www.creditwritedowns.com/2009/09/its-the-debt-stupid.html#comment-7588 The recession is over but the depression has just begun | The Big Picture Fri, 18 Dec 2009 20:50:06 +0000 http://www.creditwritedowns.com/2009/09/its-the-debt-stupid.html#comment-7588 [...] Back in my first post at Credit Writedowns in March 2008, I said that the U.S. was already in a recession, the only question being how deep and how long. The issue was and still is overconsumption i.e. levels of consumption supported only by increase in debt levels and not by future earnings. This is the core of our problem – debt. [...] [...] Back in my first post at Credit Writedowns in March 2008, I said that the U.S. was already in a recession, the only question being how deep and how long. The issue was and still is overconsumption i.e. levels of consumption supported only by increase in debt levels and not by future earnings. This is the core of our problem – debt. [...]

]]> By: The recession is over but the depression has just begun « naked capitalism http://www.creditwritedowns.com/2009/09/its-the-debt-stupid.html#comment-6618 The recession is over but the depression has just begun « naked capitalism Fri, 02 Oct 2009 02:15:46 +0000 http://www.creditwritedowns.com/2009/09/its-the-debt-stupid.html#comment-6618 [...] Back in my very first post in March of 2008, I said that the U.S. was already in a recession, the only question being how deep and how long – a question I answered in the next post saying “we are definitely in recession. And according to Gary Shilling, this recession is going to be a big one. Worse than 2001, 1990-91 or the double dip recession of 1980-82.” This has certainly turned out to be true.  The issue was and still is overconsumption i.e. levels of consumption supported only by increase in debt levels and not by future earnings. This is the core of our problem – debt. [...] [...] Back in my very first post in March of 2008, I said that the U.S. was already in a recession, the only question being how deep and how long – a question I answered in the next post saying “we are definitely in recession. And according to Gary Shilling, this recession is going to be a big one. Worse than 2001, 1990-91 or the double dip recession of 1980-82.” This has certainly turned out to be true.  The issue was and still is overconsumption i.e. levels of consumption supported only by increase in debt levels and not by future earnings. This is the core of our problem – debt. [...]

]]> By: Ramanan http://www.creditwritedowns.com/2009/09/its-the-debt-stupid.html#comment-57192 Ramanan Thu, 24 Sep 2009 11:20:00 +0000 http://www.creditwritedowns.com/2009/09/its-the-debt-stupid.html#comment-57192 Hey Ed, Yes you are thinking in the right direction. Such an approach is already in place. You can try to find the work of Wynne Godley and Marc Lavoie and many others at the Levy Institute. There is also a book on this by Godley and Lavoie http://www.amazon.com/Monetary-Economics-Integrated-Approach-Production/dp/0230500552 – Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth Wynne Godley’s approach is stock-flow consistent as well. Its so surprisingly rediculous that the work of a genius has been neglected by Economists. Hey Ed,

Yes you are thinking in the right direction. Such an approach is already in place. You can try to find the work of Wynne Godley and Marc Lavoie and many others at the Levy Institute. There is also a book on this by Godley and Lavoie http://www.amazon.com/Monetary-Economics-Integrated-Approach-Production/dp/0230500552 – Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth

Wynne Godley’s approach is stock-flow consistent as well. Its so surprisingly rediculous that the work of a genius has been neglected by Economists.

]]> By: hbl http://www.creditwritedowns.com/2009/09/its-the-debt-stupid.html#comment-57185 hbl Wed, 23 Sep 2009 20:08:00 +0000 http://www.creditwritedowns.com/2009/09/its-the-debt-stupid.html#comment-57185 I can't remember whether yours was among the blogs that linked to this in the past but I don't see it now searching your site, and it is very relevant: “No One Saw This Coming”: Understanding Financial Crisis Through Accounting Models http://mpra.ub.uni-muenchen.de/15892/ I can’t remember whether yours was among the blogs that linked to this in the past but I don’t see it now searching your site, and it is very relevant:

“No One Saw This Coming”: Understanding Financial Crisis Through Accounting Models
http://mpra.ub.uni-muenchen.de/15892/

]]> By: Goldilocksisableachblond http://www.creditwritedowns.com/2009/09/its-the-debt-stupid.html#comment-57184 Goldilocksisableachblond Wed, 23 Sep 2009 18:21:00 +0000 http://www.creditwritedowns.com/2009/09/its-the-debt-stupid.html#comment-57184 " ....that the U.S. has been living in a period fuelled more by increases in debt and a concomitant increase in asset prices than in a world of sustainable growth." If the increase in asset prices were 'real' , it would probably be ok to disregard debt in calculating GDP. For an individual , for example , as long as net worth continues to go up , ability to service debt ... via home equity extraction , for example ... is not constrained , or constraining ( on productive activity ). The problem is , asset value increases have NOT been 'real' , but rather , bubbles, which deflate eventually to rational values , possibly even overshooting on the downside. The debt , however , remains in all its prior glory , and , without the elevated asset values , debt servicing ability goes "poof". To sort out the effects of debt on GDP calculations , one needs to determine some 'normalized' value for assets , to see what true net worth is. Long-term price/rent or price/income ratios are ways to look at housing values , for example. I think Steve Keen has a good handle on this . His blog is at : http://www.debtdeflation.com/blogs/2009/09/19/it%e2%80%99s-hard-being-a-bear-part-five-rescued/ I agree that , presently , "It's the debt , stupid" pretty well sums it up. For the last several decades we've been 'advancing' GDP growth , in a cash-for-clunkers manner , by borrowing it from the future. In the post-WWII decades , by contrast , we actually 'lent' GDP growth to the future , since debt/GDP ratios declined during that time. You'd think our leaders would look at the policy differences in those two eras for clues on how to clean up our act . There' not much evidence that's happening , however , Obama's campaign rhetoric notwithstanding. ” ….that the U.S. has been living in a period fuelled more by increases in debt and a concomitant increase in asset prices than in a world of sustainable growth.”

If the increase in asset prices were ‘real’ , it would probably be ok to disregard debt in calculating GDP. For an individual , for example , as long as net worth continues to go up , ability to service debt … via home equity extraction , for example … is not constrained , or constraining ( on productive activity ).

The problem is , asset value increases have NOT been ‘real’ , but rather , bubbles, which deflate eventually to rational values , possibly even overshooting on the downside. The debt , however , remains in all its prior glory , and , without the elevated asset values , debt servicing ability goes “poof”.

To sort out the effects of debt on GDP calculations , one needs to determine some ‘normalized’ value for assets , to see what true net worth is. Long-term price/rent or price/income ratios are ways to look at housing values , for example.

I think Steve Keen has a good handle on this . His blog is at :

http://www.debtdeflation.com/blogs/2009/09/19/it%e2%80%99s-hard-being-a-bear-part-five-rescued/

I agree that , presently , “It’s the debt , stupid” pretty well sums it up. For the last several decades we’ve been ‘advancing’ GDP growth , in a cash-for-clunkers manner , by borrowing it from the future. In the post-WWII decades , by contrast , we actually ‘lent’ GDP growth to the future , since debt/GDP ratios declined during that time.

You’d think our leaders would look at the policy differences in those two eras for clues on how to clean up our act . There’ not much evidence that’s happening , however , Obama’s campaign rhetoric notwithstanding.

]]> By: Anonymous http://www.creditwritedowns.com/2009/09/its-the-debt-stupid.html#comment-57183 Anonymous Wed, 23 Sep 2009 16:51:00 +0000 http://www.creditwritedowns.com/2009/09/its-the-debt-stupid.html#comment-57183 Spot on, as the heavily indebted Brits might say. And thanks for the related link to the Lounsbury writeup on the Depression of the 2000s on a debt-adjusted basis. Spot on, as the heavily indebted Brits might say. And thanks for the related link to the Lounsbury writeup on the Depression of the 2000s on a debt-adjusted basis.

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