The Roots of a Financial Crisis

Stats from Howard Marks’ letter to Oaktree clients:

• Consumer credit outstanding grew 260 times from 1947 to 2008 (4% of GDP to 18%)
• Bank indebtedness: 21% of GDP in 1980, 116% in 2007
• Federal debt: $1 trillion in 1980, $11 trillion in 2008
• State debt: $1.2 trillion in 2000, $1.85 trillion on 2005 (9.2% CAGR)
• Solvency became contingent on the continuous availability of credit
• An upward sloping yield curve promotes short term borrowing to cover investing long.

Question: how should one invest in 2009? A global reflation seems the most likely path. Does the US have any option other than inflating its way out of its troubles…