A “bang point” is a point in time when the bond market believes that a country (such as the United States or Greece) can no longer pay its bills. A “bang point” is a sort of financial “Armageddon” or end-of-times for a nation’s economy.
The term “bang point” has been credited to Kenneth Rogoff and Carmen Reinhart. Their April 2012 paper with Vincent Reinhart, “Debt Overhangs: Past and Present,” does not contain the term “bang point” in the preliminary version that is available free online. The paper does mention T. S. Eliot’s famous line from “The Hollow Men” (1925) on pg. 20: “This is the way the world ends; Not with a bang but with a whimper.”
Hoisington First-Quarter Review and Outlook
JOHN MAULDIN APRIL 16, 2012
That is, unproductive government debt is killing us. So what gives? It’s simple: we either make some big, tough collective decisions, and make them soon; or we come to the “bang point” documented by Reinhart and Rogoff, where the bond market no longer believes the US will pay its bills. Europe and Japan will get there before we do, but the writing is on the wall: we must get our national-deficit act together.
Once The US Hits The Debt ‘Bang Point’ We’re Screwed
Sam Ro|April 17, 2012
Money management firm Van Hoisington is out with its latest Quarterly Review and Outlook.
The real worry is that the mounting debt could lead to the “bang point”:
There is a longer-term negative feedback loop that has been referred to as the “bang point” by economists Reinhart and Rogoff, and it occurs when government or private borrowers are denied access to further credit because the marketplace has no confidence that new or existing debt can be repaid. At this point interest rates soar and debt issuance becomes impractical; therefore, the government or private borrower is forced to live on current revenues. As recent cases in Europe have documented, this is painfully disruptive, with high social costs.
The good news is that Van Hoisington think we’re at the “bang point” just yet.
The Automatic Earth
The Grinding Halt: Reality Falls to Bits and Pieces
WEDNESDAY, APRIL 18, 2012 8:51 PM
I don’t think Mauldin’s (or rather: Reinhart and Rogoff ‘s) bang point is near for the US. There are many countries in line before the US to reach their bang point. But the issue of accumulating additional debt in order to make matters look better today in exchange for worse conditions tomorrow, stands. For every country. It’s madness that originates in the human talent for discounting the future.
The Wall Street Examiner
The “Bang Point”
Posted 09 May 2012 - 04:04 PM
Citigroup’s economist, Willem Buiter, is calling for central banks all around the world to print like mad, even drop money from helicopters. PIMCO & Goldman heavyweights see more easing likely ‘round the corner. Meanwhile, CNBC shills still think the current environment represents a buying opportunity. Is all this reflective of a recovery, or are they scared as shit? Really, they foolin’ nobody! It’s the “Bang Point”, you can almost smell it! The potential for collapse and contagion-like effect has ‘em all scared.
The Bang Point
There is what’s described as a longer-term negative feedback loop, referred to as the “bang point” by economists Reinhart and Rogoff. It occurs when government or private borrowers are denied access to further credit because the marketplace has no confidence that new or existing debt can be repaid.
At this point interest rates soar and debt issuance becomes impractical; therefore, the government or private borrower is forced to live on current revenues.
Unintended Consequences of Well-Intended Policies
August 2, 2012 5:50pm GMT
By Dr. Lacy Hunt for Casey Research
The original theoretical argument in favor of deficit spending originated in J.M. Keynes’ The General Theory of Employment, Interest and Money. A search of Keynes’ work reveals no recognition of the “bang point,” or the condition where a government engages in deficit spending for such a prolonged period of time that a massive buildup of debt leads to denial of additional credit to the government because of fear that the existing debt will not be repaid.
How Change Happens
John Mauldin, Thoughts From The Frontline | Aug. 18, 2012, 8:12 AM
Bond markets require confidence above all else. If Greece defaults, then how far away is Spain or Japan? (We now see that Spain is not all that far!) What makes the US so different, if we do not control our debt? As Reinhart and Rogoff show, when confidence goes, the end is very near. And it always comes faster than anyone expects. Bang! there goes the sandpile.
New York City • Banking/Finance/Insurance • (0) Comments • Tuesday, September 04, 2012 • Permalink