The Default Function

clipped from market-ticker.denninger.net After a bit of prodding I decided to go back and expand a bit on the "Weekend Chart To Ponder" posting.  Just to reiterate for those who didn't catch this up front - these numbers are expressed as percentage changes and are all per-capita. First, there is a "critical level" beyond which all debts will default - without exception.  That point is where the carrying cost exceeds income.  For example, if you have a $100,000 mortgage and $9,999 (or less) in income, if the interest rate is 10% every such mortgage will default since you can't pay $10,000 with $9,999. Now let's think for a moment about the actual "default function"; that is, how outstanding debt compared to income actually results in defaults (or not) in a real system. Today we simply have no more "forward debt capacity" in our economy.  Attempting to use even more lending - that is, credit - to "pull us out" of this recession is not only doomed to fail it will drive the default equation closer to zero.