Ian,
Thank you for pointing out this piece which escaped my reading net. I know Carmen and have been at the receiving end of many of her lectures. Krugman has had a field day arguing with her and with the deflation potential aspects of debt being repaid in the so-called advanced economies.
What matters is the maturity of the debt and who owns the assets that will need to deflate in value.
Maturity mismatch is obvious and has been exaggerated by low interest short term funding for long term exaggerated value assets. At some point the long term bank assets are bad debt because the saleable real value of the assets is much less than the real value of amortisation. Consumers / property developers default on bank loans because the value of their properties is less in nominal terms than apparent nominal debt, rental income and amortisation to be serviced. They have both variable interest rates and property prices to contend with. Who could live in a world where the collective fall in property values and real interest rates work against completing debt amortisation to maturity.
So another crisis is indeed imminent. We have in fact a need to continue to inflate the economy so as to continue to keep property values up, but we are in a cost / value trap. When one looks at a property one needs to have a clear idea of total costs compared with total saleable value plus accumulated rent and interest on that rent and interest, etc.
Plug all these variables into a system of equations where real incomes are stationary or falling?
Yes, gold has value, but perhaps not so much as a store of value because deflation hits everyone and commodities in particular. Bit coin as a hedge?
It's possible to achieve what economists call a soft landing, but part of the process would be to totally delink banks from housing finance, insurance, and stock markets where they are pretty hopeless. Right now there is insurance on change, on the change in the change and on the change in the change in the change? It's a Las Vegas economy coming from American banks that have acquired huge amounts of second and first generation bubble money to play games with.
Interestingly, were the rich to be taxed to pay for all the debt, the world would see productivity and employment rise rather rapidly, because rather than being the gateway to employment the incomes and assets of the rich are a black hole for employment. Traditional capitalism does not and did not produce the goods promised politically.
Arthur
