Friday, February 02, 2007

Mish: Central Bankers Cry Wolf

Mike Shedlock in his post today (Feb. 2, 2007) says that all this new borrowing is not having any appreciable effects:

As outlined in Mr. Practical on the Yen, Carry Trade, and Credit Expansion I suspect the trigger will either exhaustion or somewhere the eyes are not currently focused.

I am not sure what will pop this global credit bubble, but I suspect it will not be higher US interest rates or a rising Yen. More that likely it will be either pure exhaustion, something totally off everyone's radar, or simply the reverse of some scenario that everyone expects.

In 1980 it took $1 of new debt to create $1 of GDP; in 2000 it took $4 and today it takes $7. All of that extra credit is serving no productive means. It is pure speculation and it will be unwound. Nonetheless the sheep are still grazing.

1 comment:

Anonymous said...

Hi Fred:
Thanks for the recommendations to your readers to my stories. The consumer will eventually run out of borrowing capacity, but who knows when? Only sure thing is it will be ugly for everyone with unaffordable debt.
keep up the good work--
charles smith