More on Debt

There’s a good post by Daniel Alpert that you may notice supports several themes I’ve discussed around here. This quote jumped out at me:

Debt deflation is debt deflation, wherever the debt resides. Growth suffers either way. Adding the excess supply and productive capacity of the 3.5 billion people in the emerging markets overwhelmed aggregate global demand even before the developed world over-leveraged itself.

that is whether in household debt (the U. S.), public debt (Europe), or corporations (Japan).

Here’s another snippet:

We have long been unable – despite valiant efforts to make our currency unattractive (ZIRP, QE, etc.) – to devalue the dollar in order to re-inflate the economy. Our trading partners simply won’t let us in an environment of excess supply – everyone can’t devalue at once – and the curse of being the world’s reserve currency is that the dollar is also the flight currency in times of weakness. Protectionist measures – once again being grasped at by otherwise well-intentioned but desperate minds – are more frightening to the market than almost any other solution.

In my view the real solution to our problem is to get China and India to open the floodgates of their own domestic demand. There’s lots of stuff that the Chinese and Indians want and the Chinese, in particular, have lots of foreign exchange gathering dust in musty old publicly-owned banks to spend. I think that the Powers That Be are afraid that China and India will pick up their marbles and go home. And do what, exactly? The Chinese and Indians have more at stake than we do in globalization.

Bottom line of the post: fasten your seat belts, we’re in for a bumpy ride.

3 comments… add one
  • steve Link

    I dont see India and China, especially China, changing what has been a winning, from their POV, formula. They have had major growth, but they are still way behind first world countries. I dont see them risking growth and the unrest it is likely to cause, at least in the short run. We will also have to fight with the strong dollar hawks in our own country. I frequently see pundits on CNBC claiming that you have to have a strong dollar to have a recovery.


  • Drew Link

    I think steve is correct, especially wrt Chinese unrest. They about as like to abandon their policies as they are to stop putting CO2 in the air for the dreaded global warming…..

    I think the first bumps have been felt……

  • Icepick Link

    Why push for a weaker dollar? EVERYONE is pushing for a weaker currency, and I don’t see how we can get ahead of most other nations in out rush to the bottom.

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