Comments on: Where is debt headed now?

By: Reinhard

Reinhard — Tue, 12 Apr 2011 04:10:56 +0000

So globally there seems to be more and more debt. What would happen if Governments ganged together and said “sorry” you can all go to hell to the “Puppet Masters”, I mean where the hell does all this money come from apart from China? Is there a “money crop” somewhere that only the “Masters” have access to, sorry for my ignorance, but this simply does not add up if the answer is zero.

By: Stilgherrian · Return of the Hallucinating Goldfish: Help!

Stilgherrian · Return of the Hallucinating Goldfish: Help! — Fri, 29 Oct 2010 23:32:12 +0000

[...] was triggered by a discussion about Australia’s debt-to-GDP ratio, which stands at 6%. Here’s a picture from March 2010, showing that even with the recent rise in debt to deal with the global financial crisis our [...]

By: Recognise this?

Recognise this? — Fri, 20 Aug 2010 05:59:27 +0000

[...] Here is the post referred to in the video. [...]

By: Infrastructure Bonds

Infrastructure Bonds — Tue, 17 Aug 2010 10:22:23 +0000

[...] What if the borrowers are in the private sector? Well, that would be worse still! Back in March I updated my chart showing private and government sector debt. The debt level we should all be worried about in Australia is private sector debt, which is far [...]

By: Are Australia's banks about to collapse? | Stubborn Mule

Are Australia's banks about to collapse? | Stubborn Mule — Fri, 28 May 2010 01:47:27 +0000

[...] central concerns is the size of private sector debt in Australia. This is a legitimate concern and should receive more focus than misguided fears about Australian government debt. However, I am far less pessimistic than Keen about the outlook for Australian property [...]

By: Marco

Marco — Mon, 29 Mar 2010 08:46:16 +0000

On second thoughts, there is something inaccurate in my first post:

“And, to gain some perspective, the 4 Pillars issued some 90% of the mortgages included in that curve”.

That’s not so: the 4 Pillars were responsible for about 90% of the mortgages issued LAST year. Before that, they issued smaller percentages. Overall, I would guesstimate their holdings somewhere between 60% and 90% of the total.

By: Marco

Marco — Mon, 29 Mar 2010 08:04:28 +0000

@ JamesGlover,

I’m not sure I follow your reasoning, for which I apologize: home buyers with a mortgage have a debt with the banks that issued the mortgage. For home buyers, the debt is a liability. The aggregate amount of debt is shown in the “household” curve of the chart.

For the banks that issued the mortgages, these mortgages become assets. Thus, the “household” curve denotes the aggregate amount of assets.

Clearly, banks don’t need to hold those assets: they can sell mortgage backed securities. But this is another story.

If I am missing your point (as I am ready to admit that is likely) please, let me know.

By: JamesGlover

JamesGlover — Sun, 28 Mar 2010 21:21:08 +0000

On reflection it is a zero-sum game if net debt = debt – cash reserves (savings). Intracompany if I reduce my debt by paying down I have to use up cash reserves or raise equity, effectively swapping debt for equity. That equity comes from reducing someone else’s cash reserves so increases their net debt by same amount or they can raise the cash by increasing their debt which has same effect ad infinitum. It was the debt-equity exchange I wasn’t sure of.

By: JamesGlover

JamesGlover — Sun, 28 Mar 2010 04:54:46 +0000

Is it a zero-sum game? If I define “debt” to mean “liabilities” sure but is it? If not and I am a super-fund I can buy an asset e.g. a bank bill. My debt has not decreased as I use up my cash reserves. The cash reserves of a fund are a liability (?) but are they classed as “debt”. The bank debt has increased of course. The bank might lend this money to a corporate which will increase the corporate’s debt but not decreases the bank’s debt. I am a bit confused on how this works though it looks like it should be straightforward.

In any event it would be interesting to break the non-household debt figure down into government, bank and non-bank commercial.

By: Marco

Marco — Mon, 22 Mar 2010 09:45:09 +0000

Stubborn,

Please, understand that I am writing as a Marxist. As I see things, and against popular perception (even among economists!), one of the central ideas of neoclassical economics is that there are such things as free lunches.

That’s why I find it refreshing when someone mentions “zero-sum games” in economics. As you know, but other readers might ignore, in a zero sum game one player’s loss is the other player’s prize.

Now, I would like to make people aware that the “household” curve in your Australian Government and Household Debt (1976-2010) chart, could also be labeled “financial sector assets (part of)”. This follows from your statements: when you buy your home, you’re borrowing money (which is a liability for you) from Joe’s bank (as assets).

And, to gain some perspective, the 4 Pillars issued some 90% of the mortgages included in that curve. They have a lot of people grabbed by their “cojones”. Is that power or what?

But it is also a weakness: imagine mortgagors started to default… The 4 Pillars may end up with a lot of loose (and bloodied) “cojones” in their hands.