The Coming Savings Meltdown by Michael Hudson – Dandelion Salad
Automobile debt also has soared, leading to rising default rates second only to student debt defaults. The overhang of junk-mortgage debts that crashed the economy in 2008 remains on the books of families who managed to survive the ten million foreclosures under the Obama bailout of Wall Street. (His constituency turned out to be his Donor Class, not the junk-mortgage victims among his voters. He characterized them as “the mob with pitchforks” to the banksters he invited to the White House to celebrate his bailout.)
By driving down interest rates, the Fed’s policy of Quantitative Easing has subsidized an enormous debt buildup without increasing the interest burden proportionally. This has enabled corporations to carry much higher debt and even indulge in leveraged buyouts and stock buyback programs.
This QE policy has made financial engineering much more enriching than industrial engineering. But it has painted the U.S. and European economies into a corner. At some points interest rates will inevitably begin to rise back up. Some countries will have to increase rates in order to borrow to stabilize their exchange rates when their balance of trade and payments falls into deficit. Other countries will simply see that the game is over and will give up the pretense that the personal, corporate and public-sector debt overhead can be paid.
It is to prepare for this inevitable eventuality that Europe is experimenting with its trial run of negative interest rates. Once the technique is established, it will prepare the way for the