Howard Marks of Oaktree’s latest follows, with an excerpt first:
As I mentioned above, debt isn’t the problem, or the cause of the problem. But it has been the facilitator.
In “The Long View” (January 9, 2009), I wrote (albeit without reference to Greece) about a strong uptrend over the last few decades in what I called “expansiveness”:
Every business, government, non-profit organization or individual has a certain amount of equity capital, net worth or surplus. That capital, in turn, will support a certain level of activity: production and sales, lending, government action, charitable grants or consumption. But over the last several decades, if you wanted to do more of these things than your capital permitted, you could borrow capital from someone else.
Without credit – I think back to my pre-credit card college days of 45 years ago, for example – you couldn’t spend money you didn’t have. Thus you couldn’t buy things you couldn’t afford. Then the miracle of credit came along and it became easy to get in over your head.
What would have happened if governments couldn’t finance deficits by issuing debt? Greece would only have been able to pay the benefits it could afford. Less pleasant, but perhaps healthier.
The rest is after the jump.