b-school, Business, Economics, Economy, Macroeconomy

The new cycle of capital recovery (who’s financing your debt now?)

Following with the article Financial weapons of mass destruction unleashed in the US (the party is over) that I recently wrote, it seems like the liquidity storm is enjoying some calm. Not a bad thing when liquidity is the tip of the solvency iceberg, and when investors need a break in the increasingly bearish market.

Yes, it all began with an excess of funds that permitted spending in excess. And from that excess, excessive and ultra sophisticated imaginative investing products were made. The trouble is that they were so complicated that the risk wasn’t understood enough, or simply ignored. Now the risk has resurfaced again and debt ratings are on its way down.

In that scenario we had several options: to cut the excessive spending or to find new lenders. Looks like we’ve encountered some new ones.

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The first are the public lenders, also known as monetary authorities. By increasing the monetary mass, and providing low-term credit to low rates, we have financed ourselves. Not a bad thing to do if we were a socialist economy, which we are not. But time will say if we have many other options. I fear we don’t.

Wait, there’s still another option. The ones that actually created the liquidity bubble are coming to our rescue. After all they are the ones benefiting from selling 100$ barrels of dark oil. And now they can come to rescue our banks, our real state using sovereign funds. Suspiciously these new lenders remind me a lot of the old ones…

Both refuel the shrinking bubble in the hope of inflating it again, but in the meantime the true inflation is rising and growth going down the slope. Either we finance ourselves or we trust in opaque investment artefacts coming from non-democratic countries.

But this time, if we are being refinanced, it will be either at higher rates or lower prices, there’s no way to ignore the risk.  Are we really aware of the costs of refinancing? Are we facing the real issue here? Reality tends to be stubborn.

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10 thoughts on “The new cycle of capital recovery (who’s financing your debt now?)

  1. Pingback: Bad Debt » Blog Archive » The new cycle of capital recovery (who’s financing your debt now?)

  2. Pingback: Freddie Mac and Fannie Mae (Houston we’ve got a problem) « Gabriel’s scarcity rent - it’s management stupid!

  3. By increasing the monetary mass, and providing low-term credit to low rates, we have financed ourselves. Not a bad thing to do if we were a socialist economy . . .

    My friend: We are a socialist economy but no one in government, or business, will tell you thus.

    Oil rich countries, which are paid using F. R. N.s, are doing their job by digging the U. S. out of debt by spending their petrodollars in the U. S. for debt re-financing.

  4. Indeed. You’re right. I had some tables about the weight of the state in the US economy and they were astonishing… still refinancing is a dangerous game 🙂

    Best regards

    gabriel

  5. Re-financing is one aspect of the system that is necessary to keep credit cycling throughout the world.

    It is un-fortunate that the Federal Reserve Bank does not raise rates instead of lowering rates. I presume since Federal Reserve Notes have re-bounded against peer currencies the Fed. believes lowering rates will not disrupt trading in the “dollar” any more that what has been observed over the past year.

    I appreciate your time.

  6. I can say I’m agree with you.Many people say when refinances plan started they thought :”only the the rich ones and organisations which will benefit from it”.So the case will stay as it’s right now .

  7. Amy Lewis says:

    Hi,
    I am Amy Lewis and a financial writer. I have checked your blog scarcityrent.com and found some quite interesting articles on finance with lots of information. I would be highly obliged if you allow me to do relevant informative guests post in your site. I’ll very glad to be your guests writer and informative content for your blog.

  8. You are right,i agree with you.Refinance is a risky one,only the the rich ones and organisations which will benefit from it. Good blog.
    Thanks for sharing
    Have a nice day.

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