Via Lew Spellman of the Spellman Report as posted on Zero Hedge:
How Monetization Happens: Being at the Helm When the Ship Goes Down
The consequences of excess debt are now facing the leaders of Europe head on, and a monumental decision must be made whether explicitly or implicitly. Excess debt leads to a long chain of D words: Deleveraging in an attempt to retire debt results in a depressed economy and declining asset prices. The depressed economy breeds private debt defaultsthat in turn produce distressed banks. The chain then runs through depositor flight from the banks, producing a financial crisis and in turn a devaluation of the currency as capital flees. When foreign goods become more expensive there is a declining standard of living as import prices rise faster than wages. Then in an effort to stop the governmentdebt trap, there is a default on promised entitlements under an austerity program leading to the swift defeat of the political leaders. But ultimately there is a sovereign restructuring or a default of the government debt. Most, if not all, the D words are visiting Europe at the moment and its leaders are falling by the wayside.
There is not a precise science that tells us when the debt trap begins the downward spiral that takes the ship down, but there are some rough guidelines. Reinhart and Rogoff (This Time is Different) have found to the extent one can generalize when a country’s debt-to-income ratio reaches the 90 percent level the ship of state begins to list and currently the OECD aggregate of 30-country gross debt-to-income ratio is 105 percent.
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