hezseone1h2v
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 Posted: Tue 3:27, 26 Apr 2011 Post subject: Pyramid Schemes and the US Government |
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Federal Reserve reported that as of June 30, 2009 downright U.S. obligation was $52.8 trillion. Total U.S. debt includes government, corporate and client debt. Importantly,[link widoczny dla zalogowanych], however, it does not embody a few trillion in "off compensate sheet" financing, contingent unfunded subsidy maneuvers because corporate and state and regional governments, or unfunded liabilities of the U.S. dominion for such items as Medicare, Social Security and other procedures. Currently GDP stands at $14.2 trillion, so there is around $3.73 in debt for each allied of output in the United States, a level unprecedented in our history.
Normally, obligation levels as a percentage of GDP would be uninteresting and immaterial; whatsoever, the present level of debt is solitary in two ways. First,[link widoczny dla zalogowanych], the asset side of the recompense page purchased by the obligation is falling in price. Second, the money that was borrowed to purchase those assets was constantly fraudulently consumed. Neither the borrower nor the lender truly expected the obligation to be serviced. Rather, every gathering expected the asset cost to heave extinguishing the debt.
This type of loaning preparation was correctly analyzed along the distinguished American economist Hyman Minsky in his paper, "Financial Instability Hypothesis", in which he narrated three phases of obligation financing. The premier is "hedge finance", where the creditor expects a return ashore either headmaster and amuse. The second is "speculative finance" where the lender expects apt obtain amuse above the loan yet maybe not the principal. The third case, where the lender expects neither the principal neither amuse to be returned, is referred to for "ponzi finance". This was typified in the final company cycle along loans published without documentation, no consciousness payout home loans, highly cheap crown rates on advertisement real possession, and the lofty leverage borrowing ratio of personal equity funds. Even ponzi debt works at the peak of asset prices are rising. But once the spume is pricked, the creditor is left with declining things merits that exclude the rollover of their obligations.
Presently, in this worst of entire post-war recessions we are witnessing the breakdown of asset prices that were inflated by the assumption of earlier years. The aftermath of that assumption and its clash on the economy has been thoroughly studied prior to our current company cycle by the economists of yesteryear who marveled by the madness in the collective mindset of personal inhabitants and their picked representatives who produced such bubbles.
The most distinguished of these economists was Irving Fisher (1867-1947), who in 1933 wrote almost this problem of over-indebtedness (Irving Fisher, 1933, Econometrica, "The Debt-Deflation Theory of Great Depressions"). He stated flatly namely over-indebtedness was the distinction between regular affair cycles (recessions), which occur frequently via "over-production, inventory misjudgment, or commodity cost fluctuations" and drastic enterprise cycle fluctuations (depressions).
Based on his analysis of the magnificent depressions of 1837, 1873, and 1929 he contoured a pattern of economic developments that ambition dismount location when the obligation cycle is broken. Seemingly age newspaper, but it is interesting to devote his sequence of accidents to today's economic evolutions as there are confusing similarities.
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