I encourage you to read this engaging piece at Bloomberg by John Authers and Lauren Leatherby on the enormous increases in debt at all levels—personal, corporate, and governmental—all over the world. Here’s a snippet:
The global economy suffered a difficult decade—a global Great Recession followed by a persistent slump in western Europe, and slow growth and widening inequality in the U.S. It might have been far worse without desperate measures from central banks and China’s debt-fueled spending splurge. But while their intervention averted a painful deleveraging, it created an alarming set of problems.
It’s chockful of charts and graphs. I wish more of the charts actually illustrated comparables, e.g. they measure the performance of U. S. banks in terms of debt to equity but European banks in terms of assets compared to national GDP.
The staggering increases in personal debt have largely been driven by student loans. Educational debt is another good instance of the parable of the broken window. At this point it’s a self-licking lollipop. We desperately need to change what we’re doing. At the very least educational institutions must have more skin in the game.
Here’s a passage I found telling, this time about corporate debt:
Big companies have enjoyed big profits, fattened by widening margins as wages stagnate. That’s allowed them to sustain a huge debt load. But drilling down shows that credit quality, as viewed by ratings companies, has tumbled. According to S&P Global Ratings, the companies rated BBB+, BBB, or BBB- (the three lowest investment grades before they would hit “junk†status and face much higher interest payments) now outnumber all of the companies with some level of A-rated debt. It looks as though companies are “gaming†the ratings companies, borrowing as much as they can get away with.
Yuh think? Why do the ratings companies exist at all at this point? If there’s one thing we should have learned from the Great Recession it’s that the ratings agencies are a scam.
I haven’t checked recently, but as I recall most institutional investors are required to rely on the rating agencies. That was a major problem in 2008 that has yet to be fixed.
The question is why is it a requirement? The ratings agencies have an unreconcilable conflict of interests. I do not believe the requirement serves a public good. Of course the ratings agencies support them.
Yet another example of needing more skin in the game.
“At the very least educational institutions must have more skin in the game.â€
Make the institutions co-signers for 25% of the loan and you will be amazed how selective they become about admissions and controlling tuition expenses. Of course, academics tend to vote……….well….Imthink their gravy train is safe.
Overall credit quality may be down. It would be by definition with increased leverage. But I’m also suspicious of the authors. Companies aren’t rated, their securities are. There is some clever language being used there. Just make the case in a straightforward manner.
Young Americans trapped by student loan debt lean socialist. In my son’s case, Anarchist. If I must work without hope, let them all feel the pain.
The ratings agencies make more money (more customers) when they give out better ratings. What could go wrong with that? Of course that is the fault of the government.
Steve
“The ratings agencies make more money (more customers) when they give out better ratings.â€
I don’t care if they cut reimbursement rates, we’ll just figure out ways to increase billings to make up the difference. steve.
One of the disadvantages of trying to make medicine more market oriented is that it almost always results in more spending, not less. Provider induced demand is a real thing.
Steve
That’s truly pathetic, Steve. That would make your profession more corrupt than the bankers you rail about. Immoral fucks, really. Pardon me if I think it’s a small minority. But you willingly declared yourself. So.
Don be so dense. I said we as a profession. No, it’s not everyone. There is a small group of money grubbers where it is deliberate, but for many people it is an influence they probably don’t recognize. I have helped set up a program in our network to try to cut down on end of life futile care. The current guy we are looking at for some of his care is a good case in point for us. I think that he is more of a true believer than a money grubber, but the fact remains that he still gets paid when he provides futile care. Either way we will probably end up letting him go.
Steve