Monday, January 26, 2009

Brink of Debt Disaster

Here is a great quantitative description of the sheer massive size and irresistable weight of debt we are facing. Communicating the enormity of the problem is the first and crucial step in telling people about a modern Jubilee Year. Until someone realizes that our debt cannot be paid off, their programmed minds will resist the radicalness of the Jubilee Year. Once someone realizes the magnitude of the debt problem, Jubilee becomes perfectly common sensical.

The United States and the United Kingdom stand on the brink of the largest debt crisis in history.

While both governments experiment with quantitative easing, bad banks to absorb non-performing loans, and state guarantees to restart bank lending, the only real way out is some combination of widespread corporate default, debt write-downs and inflation to reduce the burden of debt to more manageable levels. Everything else is window-dressing.

From the 1970s onward, the economy has undergone two profound structural shifts. First, the economy as a whole has become much more indebted. Output rose eight times between 1975 and 2007. But the total volume of debt rose a staggering 20 times, more than twice as fast. The total debt-to-GDP ratio surged from 155 percent to 355 percent. Second, almost all this extra debt has come from the private sector [as the following chart shows].

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