[OPE] "If Eastern Europe falls, world is next"

I commented on this before on 26 october last year
http://archives.econ.utah.edu/archives/ope-l/2008m10/msg00281.htm

Probably this credit problem is just as bad as the United States has,
although some EU countries are in much worse shape than others.

If however they say "Austrian banks have lent E230 billion to Eastern
Europe, equal to 70 percent of Austria's GDP" this is
not all that meaningful, since it is not stated what the asset base for the
loans is. If they have loaned E230 billion, then they
will obviously not be paying Austria back E230 in one year, but only a
smallish fraction of that amount.

The United States has a GDP of about $13.8 trillion, but it owns physical
assets conservatively estimated at around $60 trillion
and financial assets conservatively valued at another $60 trillion, in which
case the total value of US assets owned must, in reality,
be at least ten times the size of the anual GDP. Against such an asset base,
you can run up a lot of debt.

It's just that if the majority of the population does not own or earn much,
then even a comparatively "small" loss
of aggregate capital on their part (small compared to the total stock) can
give economic activity an enormous jolt.
The largest chunk of the foreign loans however concern the very wealthy,
multinationals, and various governments.

Jurriaan

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Received on Tue Feb 17 11:39:00 2009