What’s two trillion between friends?

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Sounds like an embarrasing mistake by S&P but we must remember that governments are hardly angels when it comes to financial accountability.

As Ken Rogoff and Carmen Reinhart explain in their excellent “This Time is Different“:

One can only surmise that many governments do not want capital markets to fully recognise the risks they are running by piling on debt and debt guarantees due to their fear of having to pay much higher financing costs. Publishing historical data will make investors ask why current data can not be made equally available … Yet today even the United States runs an extraordinarily opaque accounting system, replete with potentially costly off-budget guarantees. In its response to the most recent financial crisis, the US Government (inluding the Federal Reserve Board) took huge off-balance sheet reserves onto its books, arguably taking on liablities that, from an actuarial perspective – as evaluated at the time of the bailout – were of the same order of magnitude, as, say, expenditurres on defense, if not greater.


  1. My take home message from Rogoff and Reinhart is: There is no such thing as private debt. When the private sector defaults, all debts become public.

    For mine, this blows the “consenting adults” thesis out of the water. Excessive private debt is every bit as dangerous as excessive public debt.

    BTW, Did anyone watch the Chris Joye vs Michael Stutchbury smackdown on Sky News Australian Agenda? Stutchbury called CJ “crazy” for continuing to call for rate hikes given the current meltdown on financial markets. CJ suggested (again) that the RBA board had been “rolled by the doves”.

    I’ll say one thing for you guys, you’re going down fighting!

  2. No I didn’t catch sky this morning. I will have to watch a replay.

    It’s a fair point you make about private debt. That’s another finding of the Rogoff work. High current account deficits are one of the factors leading in to a financial crisis.

    How big is our CAD again?

  3. I wonder if Chris Joye will repeat his call for 2-3 rate hikes by Christmas today?

    S&P 500 down 6.66% (spooky).

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