Thread by @WholePicture_

"Whether the Great Depression of 1929, the Japanese bubble bursting in 1988, the dot-com crash of 2000, or the Great Recession of 2008 – all were showing symptoms of a debt crisis long before asset prices plummeted."
moneyunshackled.com/2021/01/why-th…

"Short-term debt cycles typically run around 12 years in length on average, with a boom-and-bust pattern of affluence and overspending, followed by austerity and bruised consumers sitting on their cash."

"Long-term debt cycles run far longer, typically around 75 years, or could run the full length of a country’s rise to greatness through to its inevitable decline."

by @RayDalio
If you listen to this graphic, we should now be in "Debt Bubble and Big Wealth Gap", so short bevor the High of the cycle

moneyunshackled.com/wp-content/upl…

"Ray Dalio puts America and the UK as over the hill, America still near the top with their still booming stock market but relying more and more on money printing to get by."

"In the West, our debt cycles tend to be deflationary, which we’re covering in this article – the crisis causes investment assets to lose value and cash to become a safe haven."

"On the flip side, there are inflationary debt crisis, like what happened to Germany after World War 1, where a wheelbarrow of cash was needed to buy a loaf of bread."

"What we think of as money is often not money at all, but credit. You can go into a shop and buy a nice hat with a credit-card.

The shop keeper thinks you have the money, but all you’ve really given is a promise to pay the bank that money later."

"When a debt crisis hits and you can’t afford to pay off that card, the truth becomes clear for all to see. That money never existed – and has now disappeared from the economy."

"Credit used correctly is a good thing, and an essential economic tool for growth.

During the good times, people use more and more credit because it makes sense to, since growth opportunities are abundant."

"It doesn’t matter that they are racking up debts too, as they can be easily managed. And the banks are all-too-happy to lend money to anyone, as there is good profit to be made from doing so."

"Why Debt Moves In Cycles: Self-Reinforcing Movements

During the good times, lending gathers momentum like a runaway train that becomes unstoppable – except for a head-on collision into something solid that knocks it off the tracks."

"Lending supports spending and investment, propping up asset prices and fuelling incomes.

Bigger asset prices and incomes give banks more confidence to lend even more money, as borrowers have better collateral."

"But all the while, debt is building and eventually outpaces incomes. At some point, some event will happen that triggers banks to panic, who reign in their credit lines."

"Projects pause; incomes stagnate; outlooks for asset price growth look bleak; bad debts mount; and banks stop lending."

"This makes the problem worse, and the debt cycle spirals downward into the end-phase."

"The problem with austerity is that it is deflationary and discourages growth at the same time as the debt crisis is already doing both of those things.

It does help reduce debt, but it lowers incomes too, so can be counterproductive."

Debt Cancellations

" ...the lenders lose out and this reinforces a downward spiral of deflation, but the crisis can be so severe that it might be sometimes necessary."

"Slash Interest Rates

Slashing rates makes it easier for people to pay the interest on their debts, at the same time discouraging people from hoarding their money in a bank savings account.

In this way it encourages investment into the economy again."

Slash Interest Rates is the easiest solution, that's why the central banks always cut the interest rates. With this you hurt short therm nobody, the problem gets displaced into the future.

"The central bank just prints more money.

This only works if the country’s debts are in their own currency, but it does encourage growth and spending in the economy which really does help get things moving again."

"But is this storing up a currency problem for a later day?"

"Raise Taxes

Raising taxes may be necessary eventually to pay for the country’s debts. But raising taxes whilst in a crisis is a big mistake.

This makes everyone poorer at a time when you need money to flow freely again.

"

"The tax hike doesn’t even help the less-well-off, as the money is not being invested to help people, but wasted on debt payments."

"Long-Term Debt Cycles

Remember that each short-term debt cycle leaves the country a little more indebted than it was before, and after many short-term cycles the problem adds up to result in a mega crash like the Great Depression in 1929."

"Many of the levers that were pulled by central banks to resolve the last several short-term crises become less effective each time."

"After the 2008 recession, we lowered interest rates to almost zero. Even a decade later, rates have not recovered, so that lever cannot now be pulled again."
But they can become negative

"During good times of growth and demand, productive investment assets like stocks and property are favoured.

During debt crises, these assets stop being as productive, and money runs into cash and precious metals like gold and silver."

"It may be too early to say, but crypto currencies like Bitcoin should logically do well during a debt crisis as well, as they act in many ways like a digital version of gold."

"Are Debt Crises Unavoidable?

Almost. As Ray said, lending is never done perfectly and tends to be done badly.

"

"The short-term rewards of funding faster growth with credit helps governments to justify the rising debt, and it is politically more popular to let people have easy credit than to take it away."

"What politician would impose austerity and tighter restrictions on the voters during good times, before a crash had even happened?"

moneyunshackled.com/2021/01/why-th…