Tuesday, February 2, 2010

Gotta say it

I want to thank again the blogger I couldn't find a second time, who put one and one together for me and got this series of posts started. I still can't find him. But I did find a post by Amol Agrawal from August 22 '08.

Agrawal also has a current post that fits the theme of my recent work. He presents a recent speech by Andrew Haldane, Executive Director for Financial Stability at the Bank of England. The BoE's financial stability man is concerned about debt.

Me, too.

The "accumulation of debt" is one of "the root causes of the crisis," Haldane says.


"There is a debt Laffer curve," Haldane says.

Sound familiar? ...I said it better, I think.

"The lasting legacy of this crisis is too much debt held by too many sectors against too little capital."

Too much debt (everywhere) compared to (something). "Capital" is a little too vaguely defined for my taste. Haldane wants to "augment capital ratios" -- increase bank stock, basically, relative to bank assets. Haldane is looking at the problem like a banker.

I look at the problem like a citizen. I look at bank "assets" -- all those risky loans; all of the debt, in fact -- compared to the amount of money circulating in the economy. I compare debt to the amount of money we can use to pay off debt.

Haldane knows tons more than I do, I have no doubt. But you don't have to be a banker to know that debt's a problem. And you don't have to be a banker to know that cutting debt cuts the risk associated with debt. And you don't have to be a banker to know you cannot reduce debt by using more debt to pay off debt.

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