Big Debt Crises

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1. gwbas1cJul 2026
   Ray Dalio explains this history in his books "How Countries Go Broke" and "Big Debt Crises".

   His theory is that governments have a debt cycle, and printing money is just one point in that cycle.

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2. than3Jun 2023
   No it doesn't, every single study recently done which I have seen has been cherry picking its data with an intention to make it look like its not inflation doing this but corporate greed. This unfortunately is par for the course with any economics; its a how can we both be right, while me being right in a way that I can justify what I want to do if I'm the economist without actually being right and damn the world. Its not inflation its greedy corporations, nevermind that they've printed significantly more money than we have and buying their own bonds control yield.

   Here's a shocker, this happens every single time in history where the government doesn't want people to know its inflation or where it allowed debasing the currency. By how much, you obviously don't know.

   Additionally, and I'm going to say this slowly. Inflation is a lagging indicator, and the metrics you are using were changed to make it look like it was better than it actually is and the Fed didn't hike rates as high as they should have when they could; also Basel III makes banks less responsive to changes in interest rates so you get a magnificent perfect storm, you've already seen some bank failures. Next will effectively be nationalization but under another name because all the other banks went out of business that could absorb the losses.

   You say look at corporate profits, in inflation of course profits are going to go up, just like taxes will go up, initially. Inflation doesn't hit the entire economy all at once. It starts at the first level producers, and then makes its way up in cascading price changes. Companies who's impacts aren't as reliant on physical goods are the last to increase and those who want to stay in business must raise the prices accordingly its simple mechanics, and companies who offer products with narrow proft margins must do this pre-emptively. Initially it shows profits, and then it levels out as inflation slows, or increases as inflation increases. Its out of your hands because the fed has the money printer and has been printing ever increasing amounts of money since 2010 to give the illusion our economy was doing well (under the name Quantitative Easing).

   This is all very very basic. Ray Dalio wrote a series called Big Debt Crises, I suggest you look at the case studies for hyper-inflation events. We are on-track except the Fed made a monetary policy f'up and didn't pull a Volcker while also creating new problems with Basel.

   Initially after the pandemic we had demand pull because our supply chains broke down, and now we are starting to see cost-push inflation, and the bubble on the ledger waiting to unwind is several trillion. We haven't seen nothing yet, and you are supporting actions that will lead to shortages, which leads to food insecurity which leads to unrest and death from starvation.

   Absolutely amazing, and that' not even touching on the problems with central planning of which there are many.

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3. than3May 2023
   I agree the corruption of language is an ongoing problem, and its often done to mislead and is easy to come to incorrect conclusions, which makes communicating about these things tangibly all the more difficult.

   As for the ratcheting mechanism you speak of, that is simply tax revenue, but it only ratchets when taxes are collected, and if you have tax loopholes where you don't pay taxes it doesn't necessarily ratchet (i.e. inheritance, income, etc). In terms of math, a percentage of a percentage never actually gets to 0, it approaches a limit over time, so there is always a certain degree of expansion, and that expansion is often offset by population growth. Hitting the limits of growth (for the planet) adds additional complications.

   From what you've said, I think you don't really understand how deflation occurs aside from the theory which there's a lot of crap out there, so that's understandable.

   Anytime the debt % of GDP exceeds a certain point, a bubble is created, and when rates tighten coupled with the bubble pressures you get deflation. There is often a period of reflation afterwards, if the issues that sustained the downward pressure are corrected but sometimes they aren't. Japan for example has been in a self-sustaining deflationary cycle for decades, and has only kept it under control through foreign investment and debasing their currency via yield control (effectively negative rates against their future).

   There's a book series of case studies called Big Debt Crises by Bridgewater, it thoroughly covers inflationary, deflationary, and hyper-inflationary debt crises, it covers the specific mechanics and has accurate charts for the periods of these crises, where they actually happened. I think you'd cut through a lot of the misunderstanding from reading it.

   The lever to print money to buy stressed assets only works up to a point (debt as a percentage of GDP), then it typically breaks down as the store of value loses credibility and value in the eyes of those holding it (usually sometime after reaching a 3:1 ratio which is where effects start to become noticeable to the average person).

   The Great Depression was a deflationary depression, and it was caused by a bubble that was created, where debt reached 125% of GDP at its peak. A minor 250bp rate tightening (because leverage ratios were smaller back then), triggered the deflation. Initially it was bad, but they managed (in the reflation stage) largely by unpegging the currency from gold, buying stressed assets with domestic debt, and negative interest rates over many years. The banks loaning assets were also tightly controlled at that time.

   Currently banks are not very controlled, the depository requirements have been removed (see FDIC website, its at 0%), technically its no longer fractional reserve, and the reporting indicates they are loaning more debt into existence than they have assets (for the past several years).

   When they fail (when the bubble pops), the government makes the survivors whole and divvies up the assets to the survivors. Assuming of course there are survivor banks. They are too big to fail, and while the Fed is supposed to be the only money printer, the large banking institutions are so centralized that they've effectively usurped this indirectly.

   The shortfall in returns and production is always paid in inflation. There's a part of that curve where this is manageable, once you exceed that part (as a % of GDP), you get into those self-sustaining cycles similar to Weimar or Argentina, or deflation, or a little of both from a whipsaw.

   Actions are taken based on lagging indicators; so effectively this becomes just another form of the economic calculation problem (which remains unsolved), where the knifes edge gets closer and closer until you miscalculate (because futuresight doesn't exist).

   I thought it was an interesting observation that a problem normally only found non-market socialism systems can be seen in unbacked fiat based monetary systems.

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4. than3May 2023
   This line of thinking is just flat out wrong, and uneducated.

   Price discovery is critical to any system, and money is the shared store of value of those that hold it so long as it retains that store of value.

   Producers set prices to make a profit, if they can't do that they stop producing. Factor markets, same things happen, as an employee you don't do $1000 of work in exchange for $1 in purchasing power by the time you get paid.

   When government debases currency, unproductive efforts unwind into losses at the individual level, and inflation at the macro level. You can't print money out of air and use it to pay for things without issues that result in cascade collapses over time. The more you do it, the bigger the bubble, deflation, and crash/collapse from a combination of interest rates (that need to raise to fight inflation) and bubble pressure.

   If it continues, eventually credibility is lost, and the currency is abandoned. This usually happens sometime after a 3:1 debt to GDP ratio, though it can be much higher, anything after 3:1 is where the smaller effects become noticeable.

   I'd suggest you educate yourself a bit more on this. I'd recommend Debt, the first 5,000 years by David Graeber as a starting point, and then Big Debt Crises by Bridgewater/Ray Dalio for case studies of how these things actually play out.

   If pricing becomes irrational, you run into economic calculation problem, breakdown, shortages ensue, then death (its been tried in non-market socialist systems).

   There's a good reason central banks were not allowed during our countries early years. Quite simply, its well known in a historic context that money printing can end civilizations.

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5. than3May 2023
   > Money is created when debt is issued and it is destroyed as the debts are repaid.

   fourier, fundamentally the quoted statement is wrong except in a very narrow niche. Its a overgeneralization that ignores core principles.

   There's no real way to clarify this in the span of a single post, there's a lot of fundamental material you need to be aware of.

   I'd instead refer you to a very solid book by David Graeber called Debt, The first 5,000 years; and then The Wealth of Nations & The Wealth and Poverty of Nations, for a more broad economic understanding (when things actually worked).

   Following those two, Bridgewater's Report (Ray Dalio) Big Debt Crises will give you sufficient background to understand what they are talking about and realize its just a narrow niche that ignores the forest for the trees. There are people that believe you can borrow from the future indefinitely with debt, and the price never comes due; Modern Monetary Theory is one such dogmatic approach and it ignores important distinctions about who decides what in trade, and also unfortunately many places reuse language in a completely different unrelated context which itself is misleading and corruptive.

   Start with the question, "What is money, what is it used for, and what requirements does it have to have, to be money".

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6. than3May 2023
   Now it lets me respond... anyway, I ran into a character cap earlier on my edit or the time ran out.

   Regarding your Assets minus liabilities that's not strictly true. Its my understanding that bond assets are considered statically valued and not at market value when they have elected to hold it to maturity, I'm sure those aren't the only asset classes with alternate valuations/reporting.

   See my edit in my last post addressing double-entry accounting, and how its not relevant to the discussion since the fraud and counterparty risk I'm talking about occurs outside the boundaries of double-entry accounting.

   You seem to have mistaken the context.

   Issued debt is not counted as reserve, its considered leverage and a liability, as a result you cannot issue more debt to increase your reserve. The ratio of reserve to issued debt must be below or equal to the set rate.

   When you count debt as reserve unintentionally you have exponential debt being issued exceeding the ratio which ultimately collapses in the form of a Ponzi as environment and conditions change. Any ponzi eventually has a deleveraging, this often occurs when clearing any company whose assets have been collateralized potentially multiple times. The payout has already been made at origination, the value of the loan asset with backed secured collateral suddenly becomes 1/X depending on the number of X times it was loaned against; in reality it always was but the bankers didn't know it. The same asset is claimed in its entirety among X number of loan originators in clearing bankruptcy/receivership.

   At the individual level people who invest in a Ponzi take losses. Risk of investing.

   At the primary bank level, this is a systemic risk, bailout provided by FDIC/Fed is unwound as all aggregate fraud is unwound over time as inflation for troubled assets. Creating these plausible unforeseeable situations is incentivized.

   It creates perverse incentives which is why bailout has been a recurring issue at least once every decade since the 70s. Concentrated banking means so big it will certainly fail.

   When that inevitably happens, everyone holding USD or working for USD pays without their consent or knowledge via inflation. That is upsetting especially when it is easily foreseeable.

   I'm not upset that it isn't gold backed. I simply do not believe it is a good idea to enable foreseeable fraud that will go undetected until its too late and encourage it to keep happening.

   The risk by far outweighs any potential benefit. I'm all to aware what happens when hyper-inflation occurs. Ray Dalio wrote some nice case studies on those if you haven't already reviewed ("Bridegwater/Ray Dalio - Big Debt Crises").

   In my opinion, most modern finance and economics training which I've seen is absolute garbage and encourages you to look at everything in isolation, or a very narrow context without providing fundamentals or limitations of the models they encourage. I've studied them, they just aren't very useful.

   How can both parties be right while being completely wrong pretty much sums up isolation in complex interconnected systems. Many of the basic assumptions that are held true fail under some pretty simple situations involving corruption, control, coercion, and deceit.

   If you can find vintage books on the subject they are much better and absolute gold mines (circa 1950s-1967) in comparison.

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