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The current credit cycle dynamic

I read this article Article over at the Economist about the current global credit bubble situation.

I think that there is an excess of money flooding into the bond market from the savers and currency peg maintaining central banks in Asia. It is being sent back to them by debt financed consumption in the developed world which they are putting back into bonds. As long as the trade volume keeps increasing at greater than the rate of interest this will keep going as the Asians keep giving the rest of the world the liquidity to issue new debt and make the interest payments on the bonds.

This will continue until trade volume becomes flat or falling.

A good analogy is that of a person who buys everything he owns from walmart on his walmart credit card. All the profits from walmart gets lent back to the customer so he can pay his interest payments on the credit cards. If walmart stops lending then walmart can't sell anymore. If the customer stops buying than walmart can't fund his interest payments anymore. Of course there is no free lunch in economics. Eventually the interest payments become so high that they exceed walmarts profits. The thing about walmart though is it pays its laborers 50 cents an hour and there are constantly billions flooding in from the countryside to work at walmart. As long as labor is the core cost everything works for now.

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