What happens after the ages of easy credit

Easy CreditAccumulating debt is a powerful drug such as alcohol and nicotine, and. In times of economic prosperity in Western consumer countries resorted to loans continuously to further improve their lifestyles. Companies, in turn, used the loans to expand their business. Investors invented with the help of new debt instruments with which to increase their returns. And while the boom continued, massive excess revenue over expenditure led to a happy and carefree life, rather than to difficulties in writing their analysis The Economist. Thus, in many years, rich countries debt increased by much faster than incomes. Thus, not only swell the public deficits and debt but private sector. In the U.S. private sector debt increased from 50 percent of GDP in 1950 to nearly 300%. Unusually high increase in debt due to major changes in public attitudes during the last century. In 19th century defaulting borrowers were sent to prison. Generation that survived the Great Depression, learned frugality. But with the penetration of credit cards in the 60’s of 20th century society requires the “buy now, pay later”. So failure simply becomes a choice of lifestyle, as the blame for it lies with the “irresponsible” creditor and not the irrationality of the debtor.
With consumers mired in debt and companies, with the average credit rating of bonds sinks A 1981 to BBB today, which is one level above the rating of subprime securities (“junk”). Companies that have cash are criticized as slow and outdated. Laws governing issues bankruptcy, as the famous ‘Chapter 11’ in the U.S. do not allow creditors to have recourse to forced withdrawal over troubled companies. This light regime encourages debt of companies such as failure in Silicon Valley is an integral part of normal everyday life. Thus many companies zombies, such as airlines survive. But not all industries more addicted to the financial leverage. Banks keep getting smaller equity and hedge funds that use debt aggressively, creating billionaires. The road to riches is easy – buy assets with borrowed money, then sit back and watch how prices are rising. All this is encouraged actively by the authorities. Whenever a debt crisis threaten the economy, central banks rip off interest rates. So inflate asset prices, led by shares, followed by real estate. The cycle is repeated continuously, each time ending with an even greater debt and even lower interest rates. But in 2007-08 it ends, when investors realize that much of this debt will not recover. As the credit crisis loom, many central banks rip off short-term interest rates to 1% or down. And now comes the time for payback. Consumers and businesses should urgently pay their loans. During the recession much longer than just shifting from private to public sector as governments properly intervene to support banks and the economy. Trust probably will again to pay because the level of growth in the rich world is slowing, which will make these countries in servicing their loans. The rich world with less debt will look very different. Banks are already facing demands for safer capital adequacy ratios. Western consumers face the threat of higher taxes and lower benefits will no longer have the freedom to spend at will, and will have to save more on the background of the higher retirement age. Housing will again have place to live and not a tool for speculation. Some risky business models will be lifted. Life will be more difficult for developers, because now more than half of all new firms rely on debt financing. For politicians are clear. First, they must focus on generating growth. This will be easier in the U.S. where the population is young, unlike Europe or Japan, where the population is aging. Faced with the threat of emigration of the younger generation, Europe needs to undertake structural reforms to transform its economy in a rapidly evolving and flexible.
On the other hand, policy makers must work to restore balance in the global economy. This is particularly important for the rich countries where aging populations will have to save instead increase its balance on your credit card. Teach the rich countries to their addictiveness debt can cause withdrawal symptoms again. The forced increase in annual revenues over expenditures would be painful but very important step in placing the economy on a sustainable path of development.

One Response to What happens after the ages of easy credit

  1. Willie says:

    The forum is a brgither place thanks to your posts. Thanks!

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