by Summary:
This article is a continuation of previous comments on financial crises, with two lines of discussion. The first is a bit of a primer, explaining why I and other commentators associate financial crises with a buildup of private debt. The second part discusses the main problem with associating crises with private debt buildups: growth in debt stocks is by itself not enough to trigger a crisis. The catch is a variant of the efficient markets hypothesis: if we could easily forecast crises, it would be easy to outperform markets. However, other market participants are trying to do the same thing.… Private sector financial crises are associated with private debt buildup. Unfortunately, we cannot expect simple rules based on debt growth to be able to accurately predict such crises. Bond
Topics:
Mike Norman considers the following as important: Debt, Finance, financial crises, financial instruments, financial markets, private debt
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This article is a continuation of previous comments on financial crises, with two lines of discussion. The first is a bit of a primer, explaining why I and other commentators associate financial crises with a buildup of private debt. The second part discusses the main problem with associating crises with private debt buildups: growth in debt stocks is by itself not enough to trigger a crisis. The catch is a variant of the efficient markets hypothesis: if we could easily forecast crises, it would be easy to outperform markets. However, other market participants are trying to do the same thing.… Private sector financial crises are associated with private debt buildup. Unfortunately, we cannot expect simple rules based on debt growth to be able to accurately predict such crises. Bond
Topics:
Mike Norman considers the following as important: Debt, Finance, financial crises, financial instruments, financial markets, private debt
This could be interesting, too:
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This article is a continuation of previous comments on financial crises, with two lines of discussion. The first is a bit of a primer, explaining why I and other commentators associate financial crises with a buildup of private debt. The second part discusses the main problem with associating crises with private debt buildups: growth in debt stocks is by itself not enough to trigger a crisis. The catch is a variant of the efficient markets hypothesis: if we could easily forecast crises, it would be easy to outperform markets. However, other market participants are trying to do the same thing.…
Private sector financial crises are associated with private debt buildup. Unfortunately, we cannot expect simple rules based on debt growth to be able to accurately predict such crises.