private sector deleveraging

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pages: 524 words: 143,993

The Shifts and the Shocks: What We've Learned--And Have Still to Learn--From the Financial Crisis by Martin Wolf

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After the crisis, the debtors could no longer increase their debt: indeed, borrowing became negative, as they started to repay. So erstwhile borrowers were forced to lower their spending dramatically, willy-nilly. Meanwhile, creditors found that their wealth and incomes were lower or less certain (or, usually, both) than they had been before the crisis. So they did not want to spend more either. Bringing debt to sustainable levels is a long-term process: in an important study of post-crisis private-sector de-leveraging, the McKinsey Global Institute notes that this has taken between four and six years in previous cases, such as Finland and Sweden in the early 1990s.59 The second reason why the impact of a financial crisis is so prolonged is that the sustained rise in debt and associated spending distorts economies. Asset-price bubbles encourage excessive investment in, for example, housing and commercial property.

But from October 2008, the collective response was, for about a year and a half, purposeful and effective. It could have been still bigger. However, what was done halted the immediate panic and then reversed the downswing that was well under way in late 2008 and early 2009. It succeeded in doing so even though the recession was initially as bad as it had been in 1930. Unfortunately, policymakers failed to sustain the policies required to support private-sector de-leveraging and so avoid a prolonged balance-sheet recession. Largely as a result, the recovery proved weak or even withered away altogether in 2011 and 2012. For this unhappy outcome, the Eurozone crisis was partly responsible. It turned out to be the second act of the global financial crisis. It is, accordingly, the subject of the next chapter. 2 The Crisis in the Eurozone Whatever role the markets have played in catalysing the sovereign debt crisis, it is an indisputable fact that excessive state spending has led to unsustainable levels of debt and deficits that now threaten our economic welfare.

In aggregate, then, the private sector is likely to move towards a surplus, which must be offset elsewhere in the economy, since, by definition, financial surpluses (differences between income and spending) add to zero across the economy as a whole once the foreign sector is included. The sector best suited to run the countervailing deficits in a crisis is the government. The response to the objection that it makes no sense for the public sector to go into debt in order to help the private sector de-leverage, is that the new debts will effectively be borne by different people. This then is a way of replacing bad debts with better ones. A vital element, however, is orderly debt restructuring. The government can help with this by subsidizing or supporting debt-for-equity swaps, particularly in housing finance. Given the way many banks behaved before the crisis, their shareholders should also pay.


pages: 370 words: 102,823

Rethinking Capitalism: Economics and Policy for Sustainable and Inclusive Growth by Michael Jacobs, Mariana Mazzucato

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The pattern that led to the crisis was strikingly similar to that theorised by Minsky’s ‘financial instability hypothesis’.12 During the boom, private actors—especially households and banks, in this case—started piling up debt at an increasing rate. Then, suddenly, after a fall in house prices, the speculative fever was reversed, generating systemic financial distress and pushing most private actors to try to reduce their indebtedness simultaneously. In other words, when the housing bubble burst, the private sector looked to deleverage by spending less, saving more and paying down debt. There was a strong desire to return to a surplus position.13 Figure 2: Sectoral financial balances in the US (% of GDP; 1970–2013) Source: US Department of Commerce The problem, as Keynes explained in his 1936 masterwork The General Theory, is that the spending multiplier also works in reverse.14 That is, a diminution in aggregate spending tends to have an amplified effect on GDP as the initial decline in spending lowers income, which then leads to further decreases in spending, and so on.

‘I look at this through the lens of sectoral financial balances’, Wolf said, continuing: The idea that the huge fiscal deficits of recent years have been the result of decisions taken by the current administration is nonsense. No fiscal policy changes explain the collapse into massive deficit between 2007 and 2009, because there was none of any importance. The collapse is explained by the massive shift of the private sector from financial deficit into surplus . . . The government responds in a largely passive way. But the government’s deficit did more than just passively reflect the private sector’s attempt to deleverage; it actively restored private sector balance sheets by providing the very (financial) assets the private sector was seeking. To appreciate this, look back at Figure 2 and compare the private sector’s financial balance (black line) at the start of the crisis (2007) with what took place post-2007. The upsurge in the private sector’s financial position, the largest in postwar history, was mirrored by an equally stunning downturn in the public sector’s balance.

Thus, government deficits provision some other part of the economy with dollar-denominated assets (Treasuries, in the US) that increase the recipients’ net financial wealth. In the wake of the Great Recession, this provisioning enabled the private sector to quickly23 return to its habitual state of surplus, thereby halting the downward slide in output and employment. This process is crucial, so it is worth discussing it in detail. If the private sector suddenly wants to run a huge surplus (in order to deleverage), there must be a public sector that is able to accommodate this shift by running a large deficit. If, instead, the public sector is not willing to increase its deficit enough, another variable has to adjust, and this variable is output: as Krugman recognises, in the absence of a large public deficit, GDP would have decreased much more. Given that savings are an increasing function of income, the great fall in output would have offset the rise in the willingness to save, preventing the private sector from increasing its net surplus and thus bringing the system at balance, but at a dramatically lower level of income.


pages: 397 words: 112,034

What's Next?: Unconventional Wisdom on the Future of the World Economy by David Hale, Lyric Hughes Hale

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affirmative action, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Berlin Wall, Black Swan, Bretton Woods, capital controls, Cass Sunstein, central bank independence, cognitive bias, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate social responsibility, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, debt deflation, declining real wages, deindustrialization, diversification, energy security, Erik Brynjolfsson, Fall of the Berlin Wall, financial innovation, floating exchange rates, full employment, Gini coefficient, global reserve currency, global village, high net worth, Home mortgage interest deduction, housing crisis, index fund, inflation targeting, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Just-in-time delivery, Kenneth Rogoff, labour market flexibility, labour mobility, Long Term Capital Management, Mahatma Gandhi, Martin Wolf, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, money market fund, money: store of value / unit of account / medium of exchange, mortgage tax deduction, Network effects, new economy, Nicholas Carr, oil shale / tar sands, oil shock, open economy, passive investing, payday loans, peak oil, Ponzi scheme, post-oil, price stability, private sector deleveraging, purchasing power parity, quantitative easing, race to the bottom, regulatory arbitrage, rent-seeking, reserve currency, Richard Thaler, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, sovereign wealth fund, special drawing rights, technology bubble, The Great Moderation, Thomas Kuhn: the structure of scientific revolutions, Tobin tax, too big to fail, total factor productivity, trade liberalization, Washington Consensus, Westphalian system, women in the workforce, yield curve

But again, as in 1990s Japan, the adoption of unprecedented fiscal and monetary policies failed to revivify the corporate, household, and banking sectors in most of the major economies because businesses had not yet achieved their target levels of leverage and therefore insisted on paying down their debts still further. This represents a long-term problem for most of the advanced economies because private-sector deleveraging will require at least another few years and must then be followed by public-sector deleveraging in the form of painful spending cuts and more onerous taxes. The prospect is thus one of subdued growth until perhaps 2020. In the medium term, help will arise from the developing world. China, India, Brazil, and other poor countries are on the verge of attaining enough combined size to counterbalance the sluggishness in the developed world and impart significant positive momentum to global GDP growth, but this effect will not become truly pronounced for several more years.


pages: 497 words: 150,205

European Spring: Why Our Economies and Politics Are in a Mess - and How to Put Them Right by Philippe Legrain

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3D printing, Airbnb, Asian financial crisis, bank run, banking crisis, barriers to entry, Basel III, battle of ideas, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, BRICs, British Empire, business process, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, cleantech, collaborative consumption, collapse of Lehman Brothers, collective bargaining, corporate governance, creative destruction, credit crunch, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, currency peg, debt deflation, Diane Coyle, Downton Abbey, Edward Glaeser, Elon Musk, en.wikipedia.org, energy transition, eurozone crisis, fear of failure, financial deregulation, first-past-the-post, forward guidance, full employment, Gini coefficient, global supply chain, Growth in a Time of Debt, hiring and firing, hydraulic fracturing, Hyman Minsky, Hyperloop, immigration reform, income inequality, interest rate derivative, Intergovernmental Panel on Climate Change (IPCC), Irish property bubble, James Dyson, Jane Jacobs, job satisfaction, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, liquidity trap, margin call, Martin Wolf, mittelstand, moral hazard, mortgage debt, mortgage tax deduction, North Sea oil, Northern Rock, offshore financial centre, oil shale / tar sands, oil shock, open economy, peer-to-peer rental, price stability, private sector deleveraging, pushing on a string, quantitative easing, Richard Florida, rising living standards, risk-adjusted returns, Robert Gordon, savings glut, school vouchers, self-driving car, sharing economy, Silicon Valley, Silicon Valley startup, Skype, smart grid, smart meter, software patent, sovereign wealth fund, Steve Jobs, The Death and Life of Great American Cities, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, Tyler Cowen: Great Stagnation, working-age population, Zipcar

, OECD Economics Department Working Papers, No. 993, 2012. http://dx.doi.org/10.1787/5k918xk8d4zn-en 209 Brad DeLong and Lawrence Summers, "Fiscal Policy in a Depressed Economy", Brookings, 20 March 2012 http://www.brookings.edu/~/media/Files/Programs/ES/BPEA/2012_spring_bpea_papers/2012_spring_BPEA_delongsummers.pdf 210 http://www.ecb.int/press/key/date/2010/html/sp101012.en.html 211 http://blogs.ft.com/martin-wolf-exchange/2012/07/30/accelerating-private-sector-deleveraging/ 212 Global risk-free interest rates, that is. There will still be a premium on top of that for credit risk and other risks. 213 International Monetary Fund, World Economic Outlook, April 2013, Figure 1.4 214 For example, on a supportive visit to Portugal in November 2012, Angela Merkel praised Lisbon for the “courageous way” it had implemented deficit-reduction measures, saying there was “at the moment no reason to renegotiate” the adjustment programme. http://www.ft.com/cms/s/0/fedad66a-2ca2-11e2-9211-00144feabdc0.html 215 The economy shrank by 0.1 per cent in Q2 2011.


pages: 537 words: 144,318

The Invisible Hands: Top Hedge Fund Traders on Bubbles, Crashes, and Real Money by Steven Drobny

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Albert Einstein, Asian financial crisis, asset allocation, asset-backed security, backtesting, banking crisis, Bernie Madoff, Black Swan, Bretton Woods, BRICs, British Empire, business process, capital asset pricing model, capital controls, central bank independence, collateralized debt obligation, commoditize, Commodity Super-Cycle, commodity trading advisor, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, diversification, diversified portfolio, equity premium, family office, fiat currency, fixed income, follow your passion, full employment, George Santayana, Hyman Minsky, implied volatility, index fund, inflation targeting, interest rate swap, inventory management, invisible hand, London Interbank Offered Rate, Long Term Capital Management, market bubble, market fundamentalism, market microstructure, moral hazard, Myron Scholes, North Sea oil, open economy, peak oil, pension reform, Ponzi scheme, prediction markets, price discovery process, price stability, private sector deleveraging, profit motive, purchasing power parity, quantitative easing, random walk, reserve currency, risk tolerance, risk-adjusted returns, risk/return, savings glut, selection bias, Sharpe ratio, short selling, sovereign wealth fund, special drawing rights, statistical arbitrage, stochastic volatility, survivorship bias, The Great Moderation, Thomas Bayes, time value of money, too big to fail, transaction costs, unbiased observer, value at risk, Vanguard fund, yield curve, zero-sum game

Ignoring or discounting the lessons of 2008 is quite simply poor risk management. One of the more significant questions facing all investors is whether a three-decade tail wind for risk assets—due to falling inflation and declining interest rates—could be over, now that the main economic blocks (United States, Europe, Japan) have no inflation and near-zero interest rates. Fiscal deficits, increasing public sector debts, private sector deleveraging, and populist and protectionist politics around the globe all point to increased volatility and a move away from “price stability.” Still, real money accounts have an overwhelming proportion of their portfolio in equity and equity-like investments. The status quo for real money management is no longer tenable. It is not acceptable to obscure losses and volatility behind benchmarks, long-term time horizons, or relative performance numbers.


pages: 1,088 words: 228,743

Expected Returns: An Investor's Guide to Harvesting Market Rewards by Antti Ilmanen

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Andrei Shleifer, asset allocation, asset-backed security, availability heuristic, backtesting, balance sheet recession, bank run, banking crisis, barriers to entry, Bernie Madoff, Black Swan, Bretton Woods, buy low sell high, capital asset pricing model, capital controls, Carmen Reinhart, central bank independence, collateralized debt obligation, commoditize, commodity trading advisor, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, deglobalization, delta neutral, demand response, discounted cash flows, disintermediation, diversification, diversified portfolio, dividend-yielding stocks, equity premium, Eugene Fama: efficient market hypothesis, fiat currency, financial deregulation, financial innovation, financial intermediation, fixed income, Flash crash, framing effect, frictionless, frictionless market, George Akerlof, global reserve currency, Google Earth, high net worth, hindsight bias, Hyman Minsky, implied volatility, income inequality, incomplete markets, index fund, inflation targeting, information asymmetry, interest rate swap, invisible hand, Kenneth Rogoff, laissez-faire capitalism, law of one price, Long Term Capital Management, loss aversion, margin call, market bubble, market clearing, market friction, market fundamentalism, market microstructure, mental accounting, merger arbitrage, mittelstand, moral hazard, Myron Scholes, negative equity, New Journalism, oil shock, p-value, passive investing, Paul Samuelson, performance metric, Ponzi scheme, prediction markets, price anchoring, price stability, principal–agent problem, private sector deleveraging, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, random walk, reserve currency, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, riskless arbitrage, Robert Shiller, Robert Shiller, savings glut, selection bias, Sharpe ratio, short selling, sovereign wealth fund, statistical arbitrage, statistical model, stochastic volatility, survivorship bias, systematic trading, The Great Moderation, The Myth of the Rational Market, too big to fail, transaction costs, tulip mania, value at risk, volatility arbitrage, volatility smile, working-age population, Y2K, yield curve, zero-coupon bond, zero-sum game

By some measures, the U.S. private savings rate turned negative by the mid-2000s. The corporate sector also borrowed more, but the most dramatic leveraging occurred in the financial sector. Here, too, the pendulum was shifting and the turn in the private debt/GDP ratio in 2008–2009 was likely only the beginning of a longer balance sheet healing process. Aggressive public-sector borrowing is partly offsetting private-sector de-leveraging. Figure 27.1. U.S. inflation mountain after World War II. Sources: Bloomberg, Federal Reserve Bank of Philadelphia, Blue Chip Economic Indicators, Consensus Economics, Sharon Kozicki. Figure 27.2. Declining macroeconomic volatility: Falling output volatility and inflation volatility since the 1930s. Sources: Haver Analytics, own calculations. Figure 27.3. Growing leverage of the U.S. private sector.


pages: 543 words: 147,357

Them And Us: Politics, Greed And Inequality - Why We Need A Fair Society by Will Hutton

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Andrei Shleifer, asset-backed security, bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, capital controls, carbon footprint, Carmen Reinhart, Cass Sunstein, centre right, choice architecture, cloud computing, collective bargaining, conceptual framework, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, debt deflation, decarbonisation, Deng Xiaoping, discovery of DNA, discovery of the americas, discrete time, diversification, double helix, Edward Glaeser, financial deregulation, financial innovation, financial intermediation, first-past-the-post, floating exchange rates, Francis Fukuyama: the end of history, Frank Levy and Richard Murnane: The New Division of Labor, full employment, George Akerlof, Gini coefficient, global supply chain, Growth in a Time of Debt, Hyman Minsky, I think there is a world market for maybe five computers, income inequality, inflation targeting, interest rate swap, invisible hand, Isaac Newton, James Dyson, James Watt: steam engine, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, knowledge worker, labour market flexibility, liberal capitalism, light touch regulation, Long Term Capital Management, Louis Pasteur, low-wage service sector, mandelbrot fractal, margin call, market fundamentalism, Martin Wolf, mass immigration, means of production, Mikhail Gorbachev, millennium bug, money market fund, moral hazard, moral panic, mortgage debt, Myron Scholes, Neil Kinnock, new economy, Northern Rock, offshore financial centre, open economy, Plutocrats, plutocrats, price discrimination, private sector deleveraging, purchasing power parity, quantitative easing, race to the bottom, railway mania, random walk, rent-seeking, reserve currency, Richard Thaler, Right to Buy, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, Rory Sutherland, Satyajit Das, shareholder value, short selling, Silicon Valley, Skype, South Sea Bubble, Steve Jobs, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, the scientific method, The Wealth of Nations by Adam Smith, too big to fail, unpaid internship, value at risk, Vilfredo Pareto, Washington Consensus, wealth creators, working poor, zero-sum game, éminence grise

The Lib Dems quickly joined the Conservatives as aggressive deficit cutters. Aside from sixty dissident economists who wrote to the Financial Times in the run-up to the general election, there was little support for caution over rapid shrinking of the budget deficit. But unless Western governments, including Britain’s, spend and borrow at least to compensate for the ongoing stagnation in private demand as overstretched sectors deleverage, the risk is that simultaneous deleveraging by the public and private sectors will force exposed countries into prolonged stagnation, or possibly depression. The debt moralists who insist that Britain must reduce its budget deficit fast are basing their judgements on fair-weather times and fair-weather economics. But we are living through abnormal times that demand abnormal responses.


pages: 424 words: 115,035

How Will Capitalism End? by Wolfgang Streeck

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accounting loophole / creative accounting, Airbnb, basic income, Ben Bernanke: helicopter money, Bretton Woods, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, centre right, Clayton Christensen, collective bargaining, conceptual framework, corporate governance, creative destruction, credit crunch, David Brooks, David Graeber, debt deflation, deglobalization, deindustrialization, en.wikipedia.org, eurozone crisis, failed state, financial deregulation, financial innovation, first-past-the-post, fixed income, full employment, Gini coefficient, global reserve currency, Google Glasses, haute cuisine, income inequality, information asymmetry, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Rogoff, labour market flexibility, labour mobility, late capitalism, liberal capitalism, market bubble, means of production, moral hazard, North Sea oil, offshore financial centre, open borders, pension reform, Plutocrats, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, post-industrial society, private sector deleveraging, profit maximization, profit motive, quantitative easing, reserve currency, rising living standards, Robert Gordon, savings glut, secular stagnation, shareholder value, sharing economy, sovereign wealth fund, The Future of Employment, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transaction costs, Uber for X, upwardly mobile, Vilfredo Pareto, winner-take-all economy, Wolfgang Streeck

This, however, was beyond the capacities of central banks, which: cannot enact the structural economic and financial reforms needed to return economies to the real growth paths authorities and their publics both want and expect. What central-bank accommodation has done during the recovery is to borrow time … But the time has not been well used, as continued low interest rates and unconventional policies have made it easy for the private sector to postpone deleveraging, easy for the government to finance deficits, and easy for the authorities to delay needed reforms in the real economy and in the financial system. After all, cheap money makes it easier to borrow than to save, easier to spend than to tax, easier to remain the same than to change. Apparently, this view was shared even by the Federal Reserve under Bernanke. By the late summer of 2013, it seemed once more to be signalling that the time of easy money was coming to an end.


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Currency Wars: The Making of the Next Gobal Crisis by James Rickards

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Asian financial crisis, bank run, Benoit Mandelbrot, Berlin Wall, Big bang: deregulation of the City of London, Black Swan, borderless world, Bretton Woods, BRICs, British Empire, business climate, capital controls, Carmen Reinhart, Cass Sunstein, collateralized debt obligation, complexity theory, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, Deng Xiaoping, diversification, diversified portfolio, Fall of the Berlin Wall, family office, financial innovation, floating exchange rates, full employment, game design, German hyperinflation, Gini coefficient, global rebalancing, global reserve currency, high net worth, income inequality, interest rate derivative, John Meriwether, Kenneth Rogoff, labour mobility, laissez-faire capitalism, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, money market fund, money: store of value / unit of account / medium of exchange, Myron Scholes, Network effects, New Journalism, Nixon shock, offshore financial centre, oil shock, one-China policy, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, private sector deleveraging, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, Ronald Reagan, sovereign wealth fund, special drawing rights, special economic zone, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, time value of money, too big to fail, value at risk, War on Poverty, Washington Consensus, zero-sum game


The Blockchain Alternative: Rethinking Macroeconomic Policy and Economic Theory by Kariappa Bheemaiah

accounting loophole / creative accounting, Ada Lovelace, Airbnb, algorithmic trading, asset allocation, autonomous vehicles, balance sheet recession, bank run, banks create money, Basel III, basic income, Ben Bernanke: helicopter money, bitcoin, blockchain, Bretton Woods, business process, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, cashless society, cellular automata, central bank independence, Claude Shannon: information theory, cloud computing, cognitive dissonance, collateralized debt obligation, commoditize, complexity theory, constrained optimization, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, cryptocurrency, David Graeber, deskilling, Diane Coyle, discrete time, distributed ledger, diversification, double entry bookkeeping, ethereum blockchain, fiat currency, financial innovation, financial intermediation, Flash crash, floating exchange rates, Fractional reserve banking, full employment, George Akerlof, illegal immigration, income inequality, income per capita, inflation targeting, information asymmetry, interest rate derivative, inventory management, invisible hand, John Maynard Keynes: technological unemployment, John von Neumann, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, knowledge economy, labour market flexibility, large denomination, liquidity trap, London Whale, low skilled workers, M-Pesa, Marc Andreessen, market bubble, market fundamentalism, Mexican peso crisis / tequila crisis, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, natural language processing, Network effects, new economy, Nikolai Kondratiev, offshore financial centre, packet switching, Pareto efficiency, pattern recognition, peer-to-peer lending, Ponzi scheme, precariat, pre–internet, price mechanism, price stability, private sector deleveraging, profit maximization, QR code, quantitative easing, quantitative trading / quantitative finance, Ray Kurzweil, Real Time Gross Settlement, rent control, rent-seeking, Satoshi Nakamoto, Satyajit Das, savings glut, seigniorage, Silicon Valley, Skype, smart contracts, software as a service, software is eating the world, speech recognition, statistical model, Stephen Hawking, supply-chain management, technology bubble, The Chicago School, The Future of Employment, The Great Moderation, the market place, The Nature of the Firm, the payments system, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, trade liberalization, transaction costs, Turing machine, Turing test, universal basic income, Von Neumann architecture, Washington Consensus

Dissecting the branches of this increase in public leverage, however, leads to a dichotomous realization that is reflected across a variety of economies. For example: Between 2008 to 2015, the US household debt to GDP ratio fell from 99.03 to 79.95,14 and private debt to GDP fell from 212.28% of GDP to 194.72 % of GDP.15 At the same time, public debt to GDP went from 92.34% to 125.34%16 for the same time period. Figure 1-2 illustrates this phenomenon. Figure 1-2. Shifting of debt between private and public sectors Source: “Debt and (not much) deleveraging” (2015), McKinsey Global Institute Data from Economic Research branch of the Federal Reserve Bank of St. Louis. Source: https://research.stlouisfed.org/fred2/series/HDTGPDUSQ163N 15 Data from OECD Stats—Financial Indicators. Source : http://stats.oecd.org/index. aspx?queryid=34814 16 Data from OECD Stats—Financial Indicators. Source : https://data.oecd.org/gga/generalgovernment-debt.ht 14 16 Chapter 1 ■ Debt-based Economy: The Intricate Dance of Money and Debt Although the figure shows a general upward trend with regards to public debt growth, the same report goes on to show that evolution of debt and debt overhang is getting increasingly divergent and picking up pace.


pages: 272 words: 19,172