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An interesting perspective on (not) deleveraging [ClearOnMoney]
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An interesting perspective on (not) deleveraging

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An interesting perspective on (not) deleveraging

11 Jul 2012 by Jim Fickett.

It has been widely noted that some private sector reduction in debt has occurred in the last few years, but that governments have increased their debt. Jamil Baz of Man Group puts the overall debt picture in perspective:

It is sometimes possible to believe that suffering is worthwhile, a way of paying for past sins. In this light, the age of austerity in which we supposedly live has a sort of redemptive quality. …

However, after five years, we are in a worse place than when we started. One would have thought that the recent deleveraging caused debt ratios to collapse. Yet …

Strikingly, in each of Canada, Germany, Greece, France, Ireland, Italy, Japan, Spain, Portugal, the UK and the US, the ratio of total (public and private) debt to gross domestic product is now higher than it was in 2007. …

[We predict that], as deleveraging has not even started yet, the crisis of the world economy has not begun either. All the perceived unpleasantness of the past few years is merely a warm-up act for the greater crisis still to come.

I suspect this is correct. When the private sector has unsustainable debt you get defaults and recessions, or even depressions. But when a government has unsustainable debt you get authoritarian chaos.