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« Previous Entry | Main | Next Entry » How could a U.S. domestic problem become a global liquidity crisis? Name:
William van Wesemael
Question/Comment: How could a U.S. domestic problem (the housing bubble) become a global liquidity crisis between banks putting all banks and consequently the economies worldwide in trouble? What needs to be done to prevent a global economic meltdown? Paul Solman: It's not just a U.S. housing bubble, I don't think. Nor is it even just a WORLDWIDE housing bubble. It's something more: a worldwide debt bubble that's arguably been inflating for roughly 30 years. Look at the ratio in the U.S. of debt (household, corporate and government) to GDP - economic output per year. The data is imprecise, but roughly speaking, it seems to have doubled or more: from something like 150 percent to more than 300 percent. That would mean, for every dollar of wealth we generate each year, we owe $3. Worldwide, the numbers may be even worse. In 2000, historian James Clayton wrote a book called "The Global Debt Bomb." In the six years thereafter, the size of the problem appears to have, if you'll pardon the word, exploded. We in America have been told, for so many years now, that we've been living beyond our means, it's long been a cliche. Funny thing about cliches: they're true. By this analysis, the U.S. housing bubble was simply the latest manifestation of a world economy living on the come, borrowing and lending on the assumption that all collateral would be worth ever more, all borrowers would be ever richer, and thus able to service their loans. At some point, that figures to end. The point seems to be now. As to what needs to be done - hey, if I had a good answer, you'd be the first to know. Maybe just suffer the contraction is all and live life more modestly. -- Posted October 9, 2008 | Comments (4) | Permalink
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But who, what initiated this debt bomb. If we don't understand that it will happen again.
I appreciated greatly your excellent presentation explaining credit default swaps on the News Hour with Jim Lehrer; thank you.
All those who borrowed and all those who lent.
-PS
Don't forget the elected officials in Washington who have a great stake in making people believe:
- Our country is doing well when we send billions of dollars overseas each year
- That they will solve our job problems by training our workforce when they have failed miserably in the past even with basic education, are beholden to an incompetent education establishment, refuse to support teachers or demand respect in the classroom, have lost billions on bogus job training programs and then dumped the costs of these programs on the attendees.
- In the strenght of the US worker when they know but hide that a huge percentage of new workers are under-educated and then continue to allow illegal immigrants to take the jobs that these under-educated workers are able to, arguing that American workers don't want them, whne the truth is that American workers with families can't live on the salaries that can be paid to illegal immigrants because we allow illegal immigration.