By Martin Wolf
You have enjoyed a debt-financed spending spree. But times are now harder: you find it impossible to roll over your debt; you have to pay much higher interest rates than before; or you find that the value of the assets you pledged as collateral is now less than your loan. What can you do? Provided enough of you are in trouble, you call for help from the fairy government-mother.
Thus, George Magnus of UBS, among the wisest analysts of this crisis, has already observed, with some approval, that the crisis “is spawning an array of well scripted but highly unconventional public policy responses” – that is to say, rescues of various kinds.*
Over-indebted individuals have just three choices: reduce spending below income, sell assets they own to somebody else or, if the worst comes to the worst, default. But one person’s debt is another person’s asset, one person’s expenditure is another person’s income; one person’s sale is another person’s purchase and one person’s default is another person’s loss.
The remainder of this column can be read here. Debate from our panel of economists appears below.
