Monday, 8 July 2013

China’s Looming Bust

One would think that an important lesson would have been learnt following the crisis of 2008. In many Western countries large buildups in debt allowed for wild spending to occur in the wake of the dot-com bust. Unfortunately, this leverage proved to be the Achilles heel of the economy as the interest payments on these bills became too much to bear.

Many countries did learn an important lesson, and have allowed their banking system to be cleaned up (i.e., shrunk) to sustainability. Leverage has decreased, and many homeowners learned the hard way that purchasing an asset depends on one’s ability to pay for it upfront, or at least continuing to pay down the mortgage after the fact.

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