Cascading effect of Debt.

Sunday, July 24, 2011

In the next few weeks, there are two issues watched closely.

i. Raising of debt ceiling by US.
ii. Bail out package for Greece.

About two years back (2008-09), financial institution and banks were in trouble, which required to bail out and so was the Greece. Money had been pumped in to save them, but still money or 'wants' (you may call it Debt is not fading) has kept growing.

I would say 'Debt' is spending future money for present, whether it's for government or as an individual who seek Debt. One the factors which influence 'inflation' is Debt. This means 'Debt' allows free flow money in the hands of government or an individual, who would naturally look at way on investment for better returns or asset creation, so that one can pay back the debt at later point of time.

For a moment, lets compare early days, whether its government, financial institution or individual the debt content was well in control or meaning people showed reluctance or thought twice before taking the debt route of financing. This made asset prices look more realistic in earlier days, without causing bubble every now and then.

Naturally, it looks like the usage of 'future money' or debt is creating financial tsunami every now and then as well.

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