Debt doesn’t “trigger” anything. Debt is irrelevant until something else triggers a meltdown, and only after that does debt become a problem. The debt, on its own, doesn’t actually matter. Debt is predictable. It takes something unexpected to actually cause a meltdown.
The 2008 meltdown was caused by the banks writing bad, subprime mortgages which they knew were going to default. So in that case, the root cause was in fact the debts themselves. The trigger could have been any number of small things, since the meltdown was already overdetermined by the subprime mortgages, like overheated water that starts boiling at the slightest bump. The proximal cause is always of course that people start defaulting on their debts.
Mortgages went underwater because housing prices fell after the housing bubble popped, but the debt didn’t cause the bubble to pop. What caused the bubble to pop was lower sales and rising inventories, which lead to falling prices, which then lead to defaults from bad debt. The debt, itself, doesn’t trigger anything. I think of debt more like fuel. Having a lot of fuel doesn’t cause the explosion, just fuels it.
The pedantic argument that debts don’t trigger anything implies that any arbitrarily large amount of debt can be created, but never blamed. The root cause of the largest economic collapse since the great depression was the millions of ludicrously bad, known-to-be-unpayable debts, which were the cause of the massive real estate valuation bubble in the first place.
It’s not that an arbitrarily large amount of debt can be created, but the amount of debt that can be created is predicated on the amount of economic growth that can happen. Eventually growth slows down and then the debt goes bad, but it wasn’t the debt that caused growth to slow down. The growth slows down because growth, itself, can never actually be infinite. It always slows down.
That’s why markets regularly go into crisis. They need infinite growth to work, so the housing market (for example) needs to always be building and selling more houses to be a sector for growth. The problem is that you can only sell so many houses before you reach the carrying capacity of the market, after which sales fall and inventories rise, and then prices fall, and then the debts go bad. The debt, itself, doesn’t cause the crisis. The limits to growth are what cause the crisis, and this is inevitable in all market economies.
Debt is what makes an economic downturn go from “bad” to “bad”.
Debt doesn’t “trigger” anything. Debt is irrelevant until something else triggers a meltdown, and only after that does debt become a problem. The debt, on its own, doesn’t actually matter. Debt is predictable. It takes something unexpected to actually cause a meltdown.
The 2008 meltdown was caused by the banks writing bad, subprime mortgages which they knew were going to default. So in that case, the root cause was in fact the debts themselves. The trigger could have been any number of small things, since the meltdown was already overdetermined by the subprime mortgages, like overheated water that starts boiling at the slightest bump. The proximal cause is always of course that people start defaulting on their debts.
Mortgages went underwater because housing prices fell after the housing bubble popped, but the debt didn’t cause the bubble to pop. What caused the bubble to pop was lower sales and rising inventories, which lead to falling prices, which then lead to defaults from bad debt. The debt, itself, doesn’t trigger anything. I think of debt more like fuel. Having a lot of fuel doesn’t cause the explosion, just fuels it.
The pedantic argument that debts don’t trigger anything implies that any arbitrarily large amount of debt can be created, but never blamed. The root cause of the largest economic collapse since the great depression was the millions of ludicrously bad, known-to-be-unpayable debts, which were the cause of the massive real estate valuation bubble in the first place.
It’s not that an arbitrarily large amount of debt can be created, but the amount of debt that can be created is predicated on the amount of economic growth that can happen. Eventually growth slows down and then the debt goes bad, but it wasn’t the debt that caused growth to slow down. The growth slows down because growth, itself, can never actually be infinite. It always slows down.
That’s why markets regularly go into crisis. They need infinite growth to work, so the housing market (for example) needs to always be building and selling more houses to be a sector for growth. The problem is that you can only sell so many houses before you reach the carrying capacity of the market, after which sales fall and inventories rise, and then prices fall, and then the debts go bad. The debt, itself, doesn’t cause the crisis. The limits to growth are what cause the crisis, and this is inevitable in all market economies.
Debt is what makes an economic downturn go from “bad” to “bad”.