Comments on: Thinking About Debt Deflation http://alephblog.com/2009/02/12/thinking-about-debt-deflation/ Helping Institutions and Ordinary People Invest Better by Focusing on Risk Control Sun, 12 Feb 2012 22:02:53 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Erichttp://alephblog.com/2009/02/12/thinking-about-debt-deflation/comment-page-1/#comment-20942 Eric Fri, 13 Feb 2009 18:16:19 +0000 http://alephblog.com/?p=1439#comment-20942 I would love to see an analysis/response to Marc Chandler's piece ("Cutting Consumption Is Not the Answer") over on RealMoney this morning. I would love to see an analysis/response to Marc Chandler’s piece (“Cutting Consumption Is Not the Answer”) over on RealMoney this morning.

]]> By: Terryhttp://alephblog.com/2009/02/12/thinking-about-debt-deflation/comment-page-1/#comment-20941 Terry Fri, 13 Feb 2009 15:15:13 +0000 http://alephblog.com/?p=1439#comment-20941 Hey, just hope you're feeling better! We ALLL need you. Hey, just hope you’re feeling better!

We ALLL need you.

]]> By: James DeLonghttp://alephblog.com/2009/02/12/thinking-about-debt-deflation/comment-page-1/#comment-20933 James DeLong Thu, 12 Feb 2009 16:03:15 +0000 http://alephblog.com/?p=1439#comment-20933 DEBT: The GaveKal people in Hong Kong (Anatole Kaletsky's outfit) make the point that much of the increase in debt was due to the complexity of financial instruments, and did not add to the burden on the "real" economy. That is, at one time a $100K debt on a house owed by Owner A to Bank B created $100K of debt in the economy. Now, that debt is passed on to C, D, E, creating another $100K in debt at each step. If I understand GK correctly, they think this has two consequences: (1) Much of the debt can get wiped out as the financial sector nets things out; (2) A decline in the value of the real asset has a leveraging effect on debt reduction -- that is a $100K loss in value can wipe out $500K in debt on the national books. The bottom line is that the concern over the increase in leverage may be overdone. Your thoughts? DEBT: The GaveKal people in Hong Kong (Anatole Kaletsky’s outfit) make the point that much of the increase in debt was due to the complexity of financial instruments, and did not add to the burden on the “real” economy.
That is, at one time a $100K debt on a house owed by Owner A to Bank B created $100K of debt in the economy. Now, that debt is passed on to C, D, E, creating another $100K in debt at each step. If I understand GK correctly, they think this has two consequences:
(1) Much of the debt can get wiped out as the financial sector nets things out;
(2) A decline in the value of the real asset has a leveraging effect on debt reduction — that is a $100K loss in value can wipe out $500K in debt on the national books.
The bottom line is that the concern over the increase in leverage may be overdone.
Your thoughts?

]]>