Monday, 29 August 2011

Switch of debt from private to government

Under the fractional reserve system of fiat (paper) currency debt being serviced is used to calculate the multiple of real capital that can be carried by the market.
(Because the total amount of Anglo zone debt has now passed the point at which it could be paid back I am leaving aside the consideration of the algorithm itself - it no longer matters.)
This is known as M1 and is composed of bank accounts, current account overdrafts and mortgages.
The policy of the US central bank since 2008 has been to buy up private debts no longer being serviced - bad debts and incorporate them into the public debt.
As you can see the entire US economy since 2008 and so the worlds reserve currency is now an edifice sustained only by ever increasing government debt.

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