Redwood: Debt battles and choppy markets

Debt is a funny thing for markets. Have too little of it, and spirits sag. Share prices perform badly and investors worry there will be insufficient growth.

Too much of it, and share prices can plunge, as investors worry debts cannot be repaid, banks lose heavily, and the whole financial system is placed at risk. When looking at modern markets, you have to grasp we are still living under the shadow of the credit crunch. The crash of 2008 was wider than just a US crash. The UK, Spain and even Germany suffered from bad recessions and found their banks were badly exposed by the sharp fall in asset values. On the other side of the world India and China sailed through apparently little damaged. The fairest summary is the credit crunch was p...