Inside Investment: Debt cubed

“Up and down the City Road,/In and out of the Eagle,/ That’s the way the money goes,/Pop goes the weasel.” News last month that UK pawnbrokers are doing 20% more business in 2006, and that one-in-25 mortgage holders had missed a payment in the previous 12 months, should probably come as no surprise. As the popular 19th-century song reveals, the great British public has always been thoroughly dissolute.

These days the Brits are far from unique. Over the past 50 years the average US household savings rate was 7.4%. In mid-2004 it switched into negative territory, largely as a result of booming house prices and record mortgage refinancing. It has stayed there. Perhaps Mom and Pop are taking their cue from the Federal government, which is running a record $800 billion current account deficit.

Debt in its myriad forms is repackaged and sold...