Originally Posted by
SailorRob
Dalio
Spending more than one earns and financing it with debt, which we have been doing for a long time, is easy, pleasurable, and not sustainable. It’s not sustainable because increasing debt assets and liabilities faster than income eventually makes it impossible to simultaneously pay lender-creditors a high enough real (i.e., inflation-adjusted) interest rate to have them hold the debt assets without having that real interest rate too high for the borrower-debtors to be able to service their debts.
When debt assets and liabilities reach the point that the amount of debt sold is greater than the amount of debt that buyers want to buy, central banks are faced with a choice: they either have to let interest rates rise to balance the supply and demand, which is crushing to debtors and the economy, or they have to print money and buy the debt, which is inflationary and encourages holders of the debt to sell the debt, which makes this debt imbalance worse. In either case that creates a debt crisis that is like the runs on the banks that we have been seeing, but with government bonds being what is sold and the run on the bank being a run on the central bank. That is how all reserve currencies and big debt cycles have ended. From what I see, which I will cover in another post, we are approaching that tipping point in which the amount of debt sold by the government will be greater than the demand for it, which could lead to the central bank having to print money and buy bonds and a sale of government bonds that would put the central bank in that untenable position I just described.