Sunday, August 22, 2010

How Leveraged Are We?

CHART OF THE DAY: The 60-Year-Old World Credit Bubble That Could Be Deflating Right Now - Business Insider
Christopher Laird explains this chart as follows:

The point of emphasizing it's from the end of WW2 is that we are not talking merely about a banking crisis, or whatever. We are talking about the deleveraging of the greatest economic/finance bubble in history. Once the level of leverage reached 60 to 1, it becomes impossible to stay ahead of the deleveraging, even for central banks. The implications are staggering. Every major economy in the world is involved. The outcomes of deleveraging this monster bubble, represented by the green oval, will be what I term Credit Crisis II. At 60 to 1 leverage, a loss of 1 to 2% wipes out the capital.

In other words, the system keeps paying for their bills with more and more credit. There is an endgame to this behavior, and eventually the debt collector will come. The worse the debt, the more the pain.

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