‘Obvious Things’ And Credit, The Four-Letter Word
"Obvious things can still matter," Morgan Stanley's Andrew Sheets reckoned, in a well-written note dated August 15.
It's true. The tricky part, though, is reestablishing the line between truth and lies. After all, if that line is too blurry, the word "obvious" has no meaning. It's "obvious" that the Earth is round. Just not to flat-earthers. But I digress. Already. As is my wont.
For his part, Sheets was making a simple point about debtors and creditors in a world defined by the lowest interes
Thank you for sharing that quote. I agree that hope about the future is a good thing, just from a mental health perspective, but obviously hope about the future has led to enormous economic growth. That’s assuming the things we consider to be assets are truly as valuable as we claim they are. This is where the debt quandary throws me. If Jeff Bezos is a Billionaire because the value of his company’s stock is decided to be where it is based on market participation, than he is allowed to accumulate mountains of debt because obviously right now he can afford to pay back that debt. But what if say, Congress decided that his monopoly was too much for the good of small business, and broke up his empire? It would be assumed that his assets would crumble as they were broken into smaller pieces open for consumption by smaller businesses. Now is he able to afford that debt? Did creditors place too much faith in his future? Put another way, my grandparents never saved a penny for retirement when they could. They believed they would always be able to find ways to generate income for themselves. They bought and borrowed away because they hopelessly believed in their future ability to earn. Health problems kicked in, income disappeared, and they went bankrupt. How do you gauge when you have too much faith in the future and is anyone actually trying to evaluate what that might look like right now?
While I agree with the basic sentiments of this excellent post and the idea of credit being a by-product of a positive vision for the future, there are limits. Growth pays for credit obligations. Money borrowed just to finance today’s meal is not likely to be paid back. There is no future income source inherent in such a transaction. Since future growth is so critical for the successful operation of credit-based economies, the main threat turns out to be resources. Malthus was proved wrong about the coming scarcity of resources in his day — but only in the timing. Today as a third of the world doesn’t have secure access to potable water or sufficient food, our most readily available energy sources are bad for the planet, and many of our most critical resource alternatives are difficult to obtain, growth will surely begin to stress the earth’s ability to supply basic food and water, needed energy, and disposable goods. Malthus’s basic conclusion still lurks in our path to prosperity now more than ever.
Myself and probably many, many others did not realize what a revolutionary Nixon was. It was a second American rebellion against the British thirst for gold.
Hamilton understood credit. Our central banks have been learning by the seat of their pants as we all are.
We do suffer under a Calvinist view of debt as somehow being a symptom of weakness and sloth. I still can recall reading or being read “The Ant and the Grasshopper” when I was an impressionable pre-schooler. Adding in in the horrors of the Great Depression, it’s easy to understand why this ethos continues to this day.
All that said, in the US debt and default is only frowned upon when an individual or government “lives beyond one’s means.” It is fine when a company or entrepreneur defaults.
(..to revel in being dumb together) Sounds like part of the definition of nation.
Debt is always a two edged sword. Used wisely it is positive. Proceeds spent poorly end up troubling both the borrower and the lender.
With global population expected to grow from just shy of 8B today to just shy of 11B by 2100, we will have “built in”economic growth opportunities, assuming we can provide enough clean water, air, food, electricity, internet (haha) etc. This is where the cognitive abilities of mankind really shine and if you believe that we can solve these issues, the future looks positive. Scientists and other smart people are already working on all of these problems , so, as an optimist, I have no reason to think we can’t provide the basic needs for all 11B.
The US can continue to take a disproportionate share of the global pie by using immigration inflows to grow our domestic economy.