Word of the Day: Peak Debt
By Barry Ritholtz - March 13th, 2009, 1:30PM
n. In an economy or household, the point at which the costs to service increasing debts become so high relative to income that no more debt can be taken on, so consumption plummets.
A corollary, peak debt, was coined in 2006 by a former Cisco employee named Jaswant Jain, who calls himself the Prophet of Doom and Gloom, and who first observed the deleterious effects of unrestrained borrowing as an eight-year-old in a village near the city of Jodhpur, where debt-ridden Brahmins appeared worse off than solvent untouchables.
—Ben McGrath, “The Dystopians” (paid registration required), The New Yorker, January 26, 2009
Via Word Spy
March 13th, 2009 at 1:37 pm
that’s the tale of it.
http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=Jas+Jain
March 13th, 2009 at 1:50 pm
………………
THE BOND PRINCE ! ! ! !
………………
March 13th, 2009 at 1:51 pm
Jas is a regular commenter on CR’s blog. He calls us all a nation of born and bred dopes and our corporate and political leaders “gangistan”. Not very kind but at times I find it oddly humorous……..
March 13th, 2009 at 1:55 pm
Mish had something similar last year: Peak Credit – http://globaleconomicanalysis.blogspot.com/2008/06/peak-credit.html
March 13th, 2009 at 1:57 pm
That is it exactly- everything else (the housing implosion, credit crisis, bank crisis, soon-to-be credit card crisis) is a result of over-leveraging- I was amazed that it lasted as long as it did. I knew it would end badly and I have no sympathy for any of the parties involved- from the homeowner to the bank CEO or fund manager- if it is a result of misuse of credit.
March 13th, 2009 at 1:57 pm
Holy crap. Jas Jain gets a shout out in the New Yorker?
Now that’s a bottom bell ringing if I’ve ever heard one (and if I believed in such things)
March 13th, 2009 at 1:57 pm
Jeff,
the best thing a Friend can do is to Tell the Truth..
of course, the grand thing, about “Rules”, is that there can be exceptions..
“Laws”, on the other hand, are either broken, or they’re not..
March 13th, 2009 at 1:59 pm
Problem is, we all know about bubbles, and that sucker hasn’t finished rolling over yet.
Just wait until inflation starts biting people in the butt again at the end of the year.
March 13th, 2009 at 1:59 pm
Mark E Hoffer – who is “Jeff”?
March 13th, 2009 at 2:03 pm
@nades: That would be me. That was my former handle on the old site.
@Hoffer: Oh, I agree. I just get a kick out of his way of saying it. He rubs many commenters on CR’s site the wrong way quite a bit. Doesn’t really bother me though.
March 13th, 2009 at 2:34 pm
Commentmersion – coined by VennData March13th, 2009
The best thing about Jas Jain is most of his self-righteous, PITA comments are well below the commentmersion, the point where people stop reading the blog comments.
March 13th, 2009 at 2:36 pm
Gregor has a very interesting post today about where he thinks this is all heading.
http://gregor.us/ng/rock-scissors-paper-recession-vs-collapse/
March 13th, 2009 at 2:41 pm
VD,
here’s one for the reflection pond:
““Moral certainty is always a sign of cultural inferiority. The more uncivilized the man, the surer he is that he knows precisely what is right and what is wrong. All human progress, even in morals, has been the work of men who have doubted the current moral values, not of men who have whooped them up and tried to enforce them. The truly civilized man is always skeptical and tolerant.” — H.L. Mencken
March 13th, 2009 at 2:59 pm
i wonder what would have been our economy if the debt debacle had never happened?
with the strong head winds against like falling wages, globalization, the on coming retirement of the baby boomers. never mind the constant terrorist ‘threat’.
would the previous recession have ever ended (if it really did?)? or would it have become even worse?
would the market have ever reached where it did?
would there have been a lot fewer banks?
would there have been a lot few financial companies?
Would China or India where they are today?
March 13th, 2009 at 3:06 pm
Old word or phrase of the day:
I Want That.
Which one do you think wins when people feel good about themselves? Or when they feel bad about themselves and want to feel better?
“Peak Debt?” Asking someone about that is a good way to see if they are really visitors from Mars and hiding as people before the attack. If they aren’t Martians and take the concept seriously they either have a major nanny complex or are talking about someone else. I know … “Hey Kids, lets grab our dates and do something responsible!!!”. or “lose 20 lbs and all your peak debt, today!” Or maybe we should sic Al Gore on Peak Debt as it is certainly a natural consequence of running out of cash, which is a finite resource.
March 13th, 2009 at 3:16 pm
We’ve seen peak debt before, in the plantation days of the American South. Southern slaveowners grew so rich off of exploiting black labor that they gained complete control of the political system, both nationally and on the state level. It wasn’t until the 1850s that the balance of power began to swing to the north, but the South still controlled state governments. They were able to use the “wages of whiteness” (you tell some dumb poor redneck that even though you’re screwing him, at least he’s not black) to control their society.
Their coup accomplished, the Southern planter class felt emboldened to consume conspicuously in a manner befitting their social status. They spent massive sums on the consumer goods required to live in regal splendor, and they went into debt to fund it.
The result was that by the 1860s, the South lacked the manufacturing base necessary to fight the Civil War. The problem wasn’t that they had borrowed too heavily. The problem was that they had borrowed heavily to fund consumption rather than production. Furthermore, the undemocratic nature of their concentrated power had retarded innovation and entrepreneurship. Blacks were slaves, and many whites were uneducated peons. The South lost the Civil War.
Thus, the first true application of the modern philosophies of conservatism resulted in an unmitigated disaster for the Plantation class of the South.
March 13th, 2009 at 3:22 pm
franklin411,
What about the company store, as in who you owe your soul to?
Now that’s peak debt. Not the sissy peak debt we have today. The old timers really knew peak debt and dozens of recipes for boiled shoes.
March 13th, 2009 at 3:22 pm
The spam filters have some pretty odd selection characteristics.
March 13th, 2009 at 3:24 pm
Blasphemy! Everyone knows the ills of the world are to be blamed on a worldwide savings glut. Right, Ben? Ben?? Ben??? Hey, where’d ya go?
March 13th, 2009 at 3:35 pm
Hey Mannwich- who’s CR and what’s this blog your talking about? I am racking(sp?) my brain but can’t pull it.
March 13th, 2009 at 3:42 pm
Calculated Risk.
March 13th, 2009 at 3:44 pm
@call me ahab: Calculated Risk.
March 13th, 2009 at 3:47 pm
Duh! I am an idiot- CR- Calculated Risk- man that is a tough one to pull. For some reason I thought Mannwich was talking about a person- for example BR’s blog would be The Big Picture.
Thanks MRegan!
March 13th, 2009 at 4:59 pm
Speaking of massive debt, add Jack Welch to the parade of former geniuses now admitting they were/are hucksters, shills, liars, thieves, idiots, etc. The actual interview is in the FT but Forsyth at Barron’s sums it up nicely:
http://online.barrons.com/article/SB123694354415718485.html
Of course the thing about King Rat Bastard Welch is that in the 1990s every — and I do mean every — CEO in America wanted to be just like him. The best and the brightest indeed.
March 13th, 2009 at 5:15 pm
It’s Friday. Nobody hits on all eight cylinders all the time. The only remedy for a week like this is to break Hopkins down phonetically and get some arrhythmia sprung.
ul oy vuh uhz oo huik il (put it up to a mirror).
March 13th, 2009 at 5:56 pm
If the US economy, or for that matter the world economy, cannot spur growth through debt, then what level of economic activity can we (US or world) expect to return to?
March 13th, 2009 at 8:15 pm
Interest on debt compounds, so debt will grow exponentially.
When debt becomes asymptotic, it collpases.
This is where we are now, and this is why the “best” efforts of global policy makers to resolve the crisis have failed and in fact are doomed to fail.
March 14th, 2009 at 1:42 am
@Hoffer
While I enjoy Mencken’s writings, I can’t quite agree with his statement that, “The truly civilized man is always skeptical and tolerant.”
It seems to me that there are a number of behaviors a civilized man or people simply do not tolerate. His point is too simple. Kind of like those bumper stickers espousing the idea that “Hate is not a family value.” Well, my question is, “Is hating hate a family value?” Makes me want to get a sticker that says “Hate hate.”
March 14th, 2009 at 3:40 am
Makes me want to get a sticker that says “Hate hate.”
That would be an instant classic
While I enjoy Mencken’s writings, I can’t quite agree with his statement that, “The truly civilized man is always skeptical and tolerant.”
As I age I am becoming more accepting of Mencken’s phrase. That is because more and more I am realizing what the true nature of mankind is and that there is little chance of me changing it by either force or worry. I don’t think it is about civilization. I think it is more an acceptance of reality and the dropping of denial. Experience tends to make one practical
March 14th, 2009 at 5:57 am
What does one TRILLION dollars look like?
jaw dropper
http://www.pagetutor.com/trillion/index.html
March 14th, 2009 at 7:07 am
Swampfox,
I hear your point, I think it’s a good one. Esp., as HTCMSI illuminates: “Makes me want to get a sticker that says “Hate hate.” That would be an instant classic.”
Though, note how you get there–”Well, my question is, …” and Mencken’s point: “..truly civilized man is always skeptical..”
if we see: http://www.thefreedictionary.com/tolerant
I think HLM’s point is more along the lines of “not being reactionary”..
http://www.thefreedictionary.com/reactionary
w/that, as I said, above, it was one “for the reflection pool”, and, as we know, what we see, from such, changes with the time of day..
to be sure, though, I like Mencken; I find there’s much to be learned from his Gifts..
March 14th, 2009 at 10:25 am
Be careful about those bumper sticker in Missouri. It could make you a terrorist:
http://www.infowars.com/secret-state-police-report-ron-paul-bob-barr-chuck-baldwin-libertarians-are-terrorists/
March 14th, 2009 at 12:50 pm
HtCMSI – that is a great link to the pallets of 100’s that make a trillion … gotta forward it to my trucker friend
( Tom Cruise in Minority Report is on tv again – saw conclusion last night – seen before too ) wake’g this morning I had a concept I’m gonna pass on here … I’ve been telling myself the one thing I did right is not create a human child of my own .. it gives me a freedom many of you can’t have .. the birth forces your hand into a slavery IF you hold the primealist view of family …….. that was background
GOP (maybe) view on FDR principles of “care for the weak” … the concept point being . care’g via social programs relieves the family unit of the glue … I’m growing old and do not have a support structure .. but also a poor family does not have to raise a healthy unit for its future support structure .. I mean why bother raise’g a good kid for its parents future survival support structure .. let the system do it
it was a mind bending thought .. and I hope I don’t make a mess of things by saying it
March 14th, 2009 at 4:54 pm
It is like Hyman Minksy never existed. Am I on the wrong planet?
Plus I am glad that a trillion dollars takes lots of pallets. There are lots of people in the world. There are even 300,000,000 people in the U.S. alone. There should be lots of money in the world for this many people, pallets and pallets of money, plus acres of cars and millions of acres of planted crops.
March 14th, 2009 at 5:34 pm
@ JohnnyVee March 13th, 2009 at 5:56 pm Says:
If the US economy, or for that matter the world economy, cannot spur growth through debt, then what level of economic activity can we (US or world) expect to return to?
Every week deflation re-shapes our options. If/whenever it returns, inflation, will also shape our options. My crystal ball cant see beyond either of those horizons. From how far it does see , it says that a ‘Pay As You Go’ option works best for household, municipal and state budgets, as well as for vast swaths of the private sector. So maybe whatever employment growth that can be pulled from pay-as-you-go.
March 14th, 2009 at 5:39 pm
@ franklin411 March 13th, 2009 at 3:16 pm Says:
We’ve seen peak debt before, in the plantation days of the American South. Southern slaveowners grew so rich off of exploiting black labor that they gained complete control of the political system, both nationally and on the state level.
Franklin, that’s worth exploring further (and am I surprised no one responded here? No).
Do you have some $$ numbers to quantify that observation? Admittedly that might be tricky…when I lived in the footprint of Sherman’s Trek thru Georgia a few years ago, I was informed that the South had vast episodes of issuing their own currency back in those days.