Why Debt is Good For Big Boys

[HerefordSire]

Without a gold standard (fiat currency), the higher the debt the more profit can be made until the tipping point is reached. We have not reached a tipping point yet.

 

[1982vett]

I'm not sure I understand the 135% supportable Debt-GDP trendline graph.

Do you have a graph to include the 1900 - 1950 post WWII era?

I'd have a sneaking suspicion (if what current graph is showing what I think it is) that if that era were included it would show the 1951-1980 era could also (at the time) been considered a bubble that popped in 1977. A bubble that got bigger and started loosing lift in 2002.

Something else that is not clear (to me a non-professional) What does the "Financial Profits per GDP" include? Is it refering to the profits of the financial sector only or is it including all sectors?

Now I'm really confused. :?

 

[HerefordSire]

I'm not sure I understand the 135% supportable Debt-GDP trendline graph.

Do you have a graph to include the 1900 - 1950 post WWII era?

I'd have a sneaking suspicion (if what current graph is showing what I think it is) that if that era were included it would show the 1951-1980 era could also (at the time) been considered a bubble that popped in 1977. A bubble that got bigger and started loosing lift in 2002.

Something else that is not clear (to me a non-professional) What does the "Financial Profits per GDP" include? Is it refering to the profits of the financial sector only or is it including all sectors?

Now I'm really confused. :?

The 135% of GDP trendline does not take into consideration prior years than what is visible on the chart. However, I would guess the ratio is probably very close to the same, historically speaking, because the gold standard was used. No, I do not have prior years than what is visible on the chart but the information can be mined.

Financial profits are profits from financial institutions including savings banks, commercial banks, mortgage banks, investment firms, venture capitial firms, mutual funds, hedge funds, insurance companies, etc.

It is very clear once you think about it. Debt increases leverage. For example, say I own 1,000 shares of Conoco Phillips common, paid free and clear. For each point the stock goes up, I can make $1K. If however, I used the collateral to buy another 1,000 shares, each point the stock price goes up, I can make $2K. The investment firm also makes twice as much. But, if the stock went against you, the investment firm's profit is constant. Therefore, as long as there is no gold standard, according to the Bretton-Woods agreement, then large financial institutions are guaranteed to increase profit.

What happens over time, is the largest profits go to the biggest boys that are on the right side of the trades. This is why there are billionaires and poor people with huge discrepencies in life quality.

 

[1982vett]

Thanks, cleared up a lot of "assumptions" I wasn't sure of.

Reason I think adding 1900 - 1951 to the chart is "my assumption" that few people borrow money. If you didn't have it you didn't spend or invest it. So I'm thinking that period of time would be like a flat line then spiking when the 50's and 60's arrived.

Could I be wrong? Absolutely. I've no basis for this assumption other than perception.