The Doom Loop

July 28, 2010 · Leave a Comment

According to Roubini, for the past 40 years debt has been increasing at a rate out of all proportion to the underlying rate of economic growth. This increase in relative debt burdens is quite unhealthy and has created an ever-lower interest rates to prevent economic calamity followed by an ever-increasing severity of financial crisis, the Doom Loop.

What is the doom loop? It is the unstable, crash-prone boom-bust lifestyle we have now been living for some 40 years, where a cycle of cheap financing and lax regulation leads to excess risk and credit growth followed by huge losses and bailouts. With interest rates near zero everywhere, the doom loop seems to have hit a terminal state where debt deflation and depression are the only end game unless serious reform measures are taken. Recovery or not, weak consumer spending will last for years.

Categories: Academic
Tagged: risk, crisis, debt, losses, sovereign, bailout, roubini, doom loop, new normal, interest rate

0 responses so far ↓

  • There are no comments yet...Kick things off by filling out the form below.

Leave a Comment