By Golem XIV on March 22, 2012
Around a black hole there is what is called an event horizon. It is the point beyond which you can no longer turn back. In Hollywood films the event is often made rather dramatic with lots of shaking and sirens, as if it was like the lip of an approaching waterfall. It isn’t. In reality there would be nothing to mark it, no sign or apparent change. The Event Horizon would be hard to notice, much like a Tsunami out at sea. Just a small ripple you might not notice until it was passed.
And so it is in debt as well. In even quite large quantities debt can be fairly harmless. But beyond a certain accumulated mass it changes. There is now, I think, enough debt in the Fed, the Bank of Japan and the ECB that each of them is in the process of becoming a debt black hole. That is, the debt in them is so massive that it is gravitational, sucking at any and all of the debt and finance around it pulling more and more in to itself.
The problem is this. The Central banks have chosen to lend to insolvent private banks and to the nations that already bankrupted themselves trying to bail out their unbailable banks. In an attempt to make their lunacy seem sensible, the central banks assured everyone that they would only accept as collateral for the money they were lending out, the best assets the banks possessed. So the best of the insolvent banks’ assets were sucked in and cheap central bank loans flooded out.