Peak debt was briefly explored in a previous blog post: What do the GDP figures mean? In this post, I wish to explore Peak Debt more and offer a proper model for it.
What is Peak Debt
Well, it could be a theory seeing as the basis for it is Peak Oil, which is a theory slowly becoming an observation, but it is an observation with a theory attached to it.
Once the peak of the bell has been crossed, a contraction in consumption will be felt throughout the economy in order to service the debt. The contraction will begin in large structures – in order to balance the books – before it filters down. Once it hits the individual consumer, the contraction is sudden and sends shock-waves up the system, exacerbating the situation and repeating the process until debt is brought back to manageable levels.
Now to the theoretical part. It is cyclical…
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