- The only way to create (fiat) money is to borrow it; debt is money and money is debt.
- Money creation, i.e. borrowing, at a pace faster than GDP growth and earned income has lead to a run-up in asset prices.
- Borrowing at a pace faster than earned income is unsustainable because debt cannot be serviced properly; it ultimately becomes a self-destructive Ponzi scheme.
- A collapsing Ponzi scheme wipes out debt and slashes asset prices until the balance between income and debt is restored.
- All actions designed to maintain a Ponzi scheme are - mathematically - certain to fail.
Total Debt as a Percentage of Disposable Income (Data: FRB Z.1)
Debt has exploded upwards, rising much faster than income: ===> Ponzi.
Therefore, re-capitalizing banks, brokers, pawn shops, French bakeries or nail salons by issuing huge amounts of even more debt is simply not going to work. In fact, it will make matters worse when the whole thing inevitably comes crashing down.
Corollary: the only way to "save" an economy that relies on a self-destructive, vicious cycle of borrow-inflate-spend-borrow is to chuck it and replace it with a new macro-economic model. Period.
P.S. If you want to find out the differences (and some similarities) between today's situation and 1929, this is the best book about the Crash, by far: The Great Crash 1929 by John Kenneth Galbraith