Big Banks, Big Governments, Big Debts, Let the Sucker Go Down
By: Gary North
Nov 24, 2011
Conclusion: Europe is in bad shape. This is hedge fund manager Kyle Bass’s assessment of the situation in Europe. He stated this in a rousing interview on the BBC’s TV network. Here is the segment.
He made two crucial points – points that stock market investors are ignoring. First, over the last nine years, there has been an increase of world debt from $80 trillion to $210 trillion. These numbers are staggering. Global debt over the last nine years has grown at 12% per year, while GDP has grown at 4% per year.
While he did not verbally spell out the conclusion for the interviewer, it is this: when credit must grow by 12% per year in order to produce 4% GDP growth, at some point there will not be enough GDP to supply sufficient credit.
It is time once again to quote economist Herb Stein: “When something cannot go on forever, it has a tendency to stop.”
Bass had a great metaphor: the PIIGS have “sailed into a zone of insolvency.”
Second, he explained, the sovereign debts in Europe will be written down. There is no other solution.