[quote=livinincali][quote=dumbrenter]
That’s a pretty good explanation of wealth backed by debt, livinincali.
But if there is a debtor, there needs to be the counter-party creditor.
In this situation, who is the creditor? folks who buy the treasury bonds?
Is it the banks? The FED? Treasury? Foreign governments that peg their currency to dollar?

How are they going to react once they find out that there is very little for them to claim in terms of what they lent against (i.e. assets)?[/quote]

The creditor is the big banks, pension funds, the growing wealth gap between rich and poor. As the American populace has taken on increasing amounts of debt to buy things they want now rather then waiting they made the rich people wealthy. They are responsible for the large wealth gap in this country.

In all honesty I think this is just the natural state of affairs based on the demographics. People are growing older and are desperate to acquire assets to be sold to finance consumption in retirement. The need for somebody to owe you in retirement has lead to the loose money policies. People nearing retirement are desperate to claim part of a future workers productivity.[/quote]

How can a creditor be a “wealth gap between rich and poor”? Shouldn’t the rich become poorer because of loss of wealth.
Let me see if this makes sense:
Poor need “things” right now.
Rich have Money.
Rich loan money to poor buy “things”
Poor default
Rich are left holding a highly devalued asset as a repo.
Poor are exactly where they began other than losing FICO score.
Rich have lost wealth (in real terms).

So from above, the deleveraging process actually evens out the wealth field rather than concentrating it.

Maybe unless the rich get the government to buy the devalued asset and make them whole and stick the difference to the tax payers who are mostly poor. But that would never happen in a democracy, right? 🙂