Kate Mackenize, pounds the table over the balance of payments

Just in case the point has not been hammered home over the last few years, or even the last few days, here’s a chart showing how quickly and dramatically the external debt imbalances got out of hand in the eurozone:

Euro imbalances - 2002 - 2010 -  Net international investment position - Mark Carney, Bank of Canada

It’s from a speech given in Toronto earlier this week by Canada’s central bank governor Mark Carney, who recently took over from Mario Draghi’s former gig as chair of the Financial Stability Board, titled “Growth in the Age of Deleveraging”. Carney points out that it doesn’t matter whether the debt is initially public or private, because private debts inevitably become public.

And of course, Europe is a microcosm (or, whatever a big microcosm is called) for the whole world. As Carney says, “Accumulating the mountain of debt now weighing on advanced economies has been the work of a generation.

This in itself, however, is not enough.

Lets imagine that Portugal received massive inflows of foreign capital from 2002 to 2010. Then it used that capital to stockpile massive quantities of gold.

Where would they be today?

Chances are living the high life.

If for some reason creditors wanted their money back Portugal could either ask them to take payment in gold or slowing sell off their holdings to meet credit redemptions.

The point isn’t that there is something magical about gold. Its that there is something magical about the ability to send back whatever you borrowed.

One of the things about Europe’s situation and that in America as well is that what was borrowed was structures. Or, to follow the chain out a bit more the balance of payments supported at much higher investment rate in structures without a corresponding drop in concurrent consumption.

Yet, Portugal can’t just ship Villas back to Germany or China to make good on its debts.

What it could do is ship Germans or Chinese to Portugal to stay in the Villas. That would require, however, increased expenditures on vacations in Germany or a falling Euro to make it more affordable for the rising Chinese middle class to visit Portugal.