{"id":9965,"date":"2015-07-12T17:37:20","date_gmt":"2015-07-12T22:37:20","guid":{"rendered":"http:\/\/olduvai.ca\/?p=9965"},"modified":"2015-07-12T17:37:20","modified_gmt":"2015-07-12T22:37:20","slug":"is-greece-a-template-for-u-s-state-local-government-debt-crises","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=9965","title":{"rendered":"Is Greece a Template for U.S. State & Local Government Debt Crises?"},"content":{"rendered":"

Is Greece a Template for U.S. State & Local Government Debt Crises?<\/a><\/h3>\n

The template of over-indebtedness as a response to soaring obligations is scale-invariant, and it always ends the same way: default.<\/i><\/p>\n

When you can’t pay your bills, you can either cut expenses, borrow money or if you’re extraordinarily privileged, print money.<\/b>\u00a0If you borrow money without cutting expenses, the interest on the borrowed money piles up and you can’t pay that, either. Then not only do you have a spending crisis, you have a debt crisis, and so do those who lent you the money.<\/p>\n

Because the funny thing about borrowed money is it’s a debt to you but an asset to the lender.<\/b><\/p>\n

Not only is your debt listed as an asset on the lender’s books–it’s\u00a0collateral<\/i>\u00a0that supports whatever financial leverage the lender might engage in.<\/p>\n

If you default on the debt, not only is the lender’s assets impaired–all his leveraged bets built on the collateral of your debt are suddenly impaired, too.<\/p>\n

The preferred solution nowadays to a spending\/debt crisis is to\u00a0borrow your way out of the crisis<\/i>:<\/b>\u00a0if you can’t pay the interest and debt that’s due, just borrow more to cover the interest payments and roll the old debt into new loans.<\/p>\n

In a variation that we can call\u00a0The Japanese Solution<\/i>, the lender decides not to list your defaulted loan as impaired–he places your loan in a special\u00a0zombie debt<\/i>column–it’s neither a performing loan nor a defaulted loan; it is a zombie loan.<\/p>\n

The other solution (again from Japan) is to roll the defaulted debt into new loans at near-zero rates of interest that allow the borrower to pay a nominal sum every month, just to maintain the illusion of solvency. If you owe the bank $10 million, the bank loans you $11 million at .01% rate of interest and you promise to pay $100 a month.<\/p>\n

There–problem solved!<\/b>\u00a0The loan is now performing because the borrower is once again making payments. But is either the borrower or lender actually solvent? Of course not.<\/p>\n

 <\/p>\n

…click on the above link to read the rest of the article…<\/p>\n","protected":false},"excerpt":{"rendered":"

Is Greece a Template for U.S. State & Local Government Debt Crises? The template of over-indebtedness as a response to soaring obligations is scale-invariant, and it always ends the same way: default. When you can’t pay your bills, you can either cut expenses, borrow money or if you’re extraordinarily privileged, print money.\u00a0If you borrow money […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[7218,127,4889,195,4106,200,279,1167,480,536,4924,834],"class_list":["post-9965","post","type-post","status-publish","format-standard","hentry","category-economics","tag-asset","tag-charles-hugh-smith","tag-collateral","tag-debt","tag-debt-crisis","tag-default","tag-eu","tag-greece","tag-lending","tag-money","tag-oftwominds","tag-us"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/9965","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=9965"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/9965\/revisions"}],"predecessor-version":[{"id":9966,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/9965\/revisions\/9966"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=9965"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=9965"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=9965"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}