Wednesday, August 11, 2010

The Pattern of Debt

This pattern of debt is the opposite of what you might expect. At the level of individual consumers, people tend to borrow when they are young because they are hoping for higher incomes in the future. As they reach middle age they start to pay off their debts and save for retirement. By extension, rich countries with their greying populations should be saving whereas younger, fast-growing developing countries should be borrowing heavily. But in fact it is the other way round.
FROM: A Special Report on Debt: In a Hole, The Economist, 24 June 2010.

Why? Rich countries with their graying populations should be saving, but they are borrowing heavily? Maybe it's just a bad analogy or something.

Or maybe this misbehavior is the result of policy -- policy that restricts the quantity of money and encourages the reliance on credit, and fails to encourage the accelerated repayment of debt. That would be my guess.


The Economists presents a multi-post article explaining that the growth of debt was unsustainable.

Now that life has shown the growth of debt to be unsustainable, the article attempts to show, not why it was unsustainable, but simply that it was unsustainable. As if paving the way for future articles that will claim it was nobody's fault.

I think, if you know why it was unsustainable, you write an article explaining why it was unsustainable. If you don't, you write the article explaining that it was unsustainable. I think, at The Economist they don't know why it was unsustainable.

This is a problem. If we don't know why it was unsustainable, it will happen again.

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