Oh, Shit!

Stuff you may not want to know, but here it is anyway. From the FT part of a take by their chief economist:

Consider the burdens weighing down on these countries. Between 1980 and 2007, the ratio of US gross financial debt to gross domestic product – a measure of the sector’s leverage – jumped from 21 per cent to 116 per cent. Today, as a result, the arteries are clogged with bad debt.

Moreover, while the US government (and those of other western countries) are committed to saving the core banking system, the non-bank financial system, including the hedge-fund sector, looks set to implode as financing dries up, with inevitable forced sales of financial assets and further insolvencies.

This is the reality behind the euphemism, “deleveraging”. This occurs via mass bankruptcy, unless bad private debt is shifted on to the public sector’s balance sheet. “Debt destruction” is a better name.