To anyone wondering what debt "means", or if some debts will ever be repaid, or wondering about "jubilees" where debts are forgiven, I recommend David Graeber's book "Debt: The First 5000 Years".
I am not sure if some of the ideas about debt that Graeber argues are correct, but he does discuss a lot of interesting examples of debt from societies throughout history.
A debt is a very natural thing for humans, because we feel compelled to provide value to people who can't pay us yet.
Even before money people had gifts and favors - we give with the expectation that we'll be given something in the future - or we say 'you owe me one' when someone has helped us through an issue without sending us an invoice.
So the genius of fiat currency is that you get to represent these IOUs as a standard, fungible currency, such that I can take the debt you owe me and transfer it to someone else, so now you owe them. Being able to trade debt like this essentially turns debt into the currency.
The benefit of this being that economic growth is not limited to how many gold coins we can mint -- we can become as indebted to each other as we like -- the more people go into debt, the more money we have to trade. Pretty neat.
Each IOU is actually a promise to work. Before money it could have been 'I will work for you 30 years' and if someone believes that, they can trade that promise for a nice house for the person to live in. A promise is basically analogous to a debt.
In todays world, the promise is made to a lender (a bank), which then creates a fungible IOU, i.e standard currency for that promise, which can be exchanged for equivalent amount of work.
The whole system is a collective promise to work, and that keeps the society running.
The problem is that if everyone were to try to collect all the debts owed to them, there would not be enough currency to fulfill it all. We freely create debt, but the result is a deficit that can only be resolved by creating enough value to offset the debt. And if that is somehow infeasible, economic collapse occurs.
Currency is debt. If you have a 20$ bill that means essentially that the government owes you the equivalent in value. If everyone converted all their debt to currency that just means the state buys all the debt and prints sufficient government IOU’s (bills) along the way. If there is not enough value to cover the debt, the notes just lose value as others refuse to trade them at their previous rate.
> If you have a 20$ bill that means essentially that the government owes you the equivalent in value.
This may be true in some theoretical sense, but in practice, it is hard to believe. How would I go around to make the government accept my 20$ and give me some equivalent of that? What could government possibly give me for my 20$?
Dollar bills are for buying things. I could go to a store and buy a bottle of expensive wine for that bill. But I wouldn't say the store owes me.
That is true. But if the only way a government owes me something is that it has to accept dollar bills to erase my tax/fee duty, then I think this proves my point - the government does not owe me equivalent of those bills, it only has to accept them for limited set of "services".
"I could go to a store and buy a bottle of expensive wine for that bill. But I wouldn't say the store owes me."
That's a misunderstanding. A $20 bill is the government's liability, not the store's liability. You and a third party are using government liabilities as a currency. Every $20 bill is on the liability side of the central bank's balance sheet. Every entity accepts its own liabilities as a form of payment. Governments issue currency which they then must accept as payment for taxes. Banks issue credit which they then must accept as payment for debt service.
Interesting video, but can't help to notice it paints too simple and dandy picture and probably has an agenda behind it. If you read the comments, not everybody believes in this "the government created the money so there is no problem in creating some more" idea. In principle yes, the government has that power. But in practice, this is being prevented by powerful people in and out of government and only gets a pass in special cases (like saving the big banks yes, funding public healthcare no).
The answer is gold. Your $20 is worth a certain amount of gold, and that is what the government owes you. $20 in gold. These days you'd be hard pressed to get the government to give you gold, of course, but that is the answer to your question.
As an example, British pound notes have the wording "I promise to pay the bearer on demand the sum of five [ten/twenty/fifty] pounds", which dates back to a time when you could actually exchange the notes themselves for gold.
> If you have a 20$ bill that means essentially that the government owes you the equivalent in value
As the book delves into, it may actually be the opposite. A bank borrows the original 20$ from the government. This allows the bank to create a 20$ bank note to be loaned out, and as long the government doesn't demand their money back, it can continue circulating in the economy. The bank notes get traded and becomes the currency, which is how many paper money currencies was created according to the book. The problem arrives then when a single nation has bank notes from several different banks, so in order to solve that problem the government then grants a single bank, let's call it a central bank, the monopoly of borrowing money from the government from which all the other banks then borrow from.
A key point here is that the central bank can not be part of government in this scheme since then it would be the government borrowing money from itself. When people talk about money as an illusion, this is one of the larger aspects to it.
They could (think of it: a bank could just tell government that it has more money in the bank now, or tell another bank that they transferred an x amount to the government’s account there), but regulations forbid it and various controls work hard to prevent it.
”Because banks hold reserves in amounts that are less than the amounts of their deposit liabilities, and because the deposit liabilities are considered money in their own right, fractional-reserve banking permits the money supply to grow beyond the amount of the underlying base money originally created by the central bank.”
The amount by which a bank can do that is regulated, and, in the end, under control of the central bank. The central bank won’t be involved in every minor fluctuation of the amount of money in circulation, though.
Currency is physical tokens of value for trading money. Money is a system that fulfills several criteria: unit of account, medium of exchange and store of value. Not debt in any meaningful sense, apart from systems that lack trust for store of value or stability for unit of account, in which case explicitly linking to another less easily gamed asset is supposed to increase trust.
Debt can be money if the legal system is sound. But money doesn't need to be debt if the money issuer is trusted not to debase the currency.
A owes $100 to B. B owes $80 to C. C owes $80 to D. D owes $90 to E. Total debt is $350.
A pays $100 to B. B keeps $20 and pays $80 to C. C pays $80 to D. D adds $10 of his own money to pay $90 to E. Everyone's debt has been repaid, but only $110 of currency is needed for all these transactions to take place -- assuming all debts are paid in cash. All you need is sufficient liquidity.
I could loan you five quadrillion dollars provided that you also loan me five quadrillion dollars. No currency has changed hands, but we've just increased the world's total outstanding debt by ten quadrillion dollars!
Or society works because people do things for others without expecting repayment and there’s enough social pressure for the vast majority to not exploit that system.
Problems really only arise if debt is systemically expected, like a housing market that works only on a foundation of mortgages.
Currency is just a fungible way of trading value. It means you don't need to use barter. A government could easily print enough currency to represent all the debt available, but they'd want to own the corresponding assets and income streams in return.
The answers are very complex. In the book, Graeber shows that debt is as much a cultural/social norm as any other abstract, social construct we've invented throughout history. What debt meant in early Buddhist Nepal or Sumeria or aboriginal Australia, and what it means in modern western economies is completely tied in with governmental/religious/familial etc. structures that existed in the given time. He goes into great detail about many forms which debt has taken and - where it's known - gives some relevant context to help understand it.
One thing he does point out, however, is that in recent decades, much of our debt has seemed to shift from a more useful tool for robust modern economies - as it was used in early 20th century for Keynesian stimulus and the likes - to more of a tool for subjugation, through new forms of debt peonage - e.g. with student debt in the USA or financial aid packages to former colonies - very similar to what we've seen in earlier times.
I think it's a fantastic book, offering a very compelling narrative of how our social systems have evolved around these notions of debt since civilisation began. Also, if anyone wants to dig into the book right away, there are free versions of the book online[0], including an audiobook[1]. Since Graeber is an anarchist, I'm sure he doesn't mind if not everyone is paying for it ;)
One of those examples of debt as a social construct is in my opinion the following, which shows that even in Western economies there can be a different meaning for this concept.
In English language there's a clear separation between debt and guilt. Debt is used for money, guilt for (e.g.) the legal system when talking about criminal activities. Those are 2 different words with 2 different meanings.
But in Dutch language we don't have different words for debt and guilt. Both concepts are essentially translated to the Dutch word for guilt ("schuld") which has a much more negative connotation than debt when talking about money. The same is true for the German language for example. And this might impact policies when dealing with debt, see: https://www.ft.com/content/a2c51e14-1ded-11e0-badd-00144feab...
> and ask her to contemplate
the justice of insisting that the lenders be repaid, not by the dictator,
or even by his cronies, but by literally taking food from the mouths of
hungry children.
I'm still willing to give this book a chance, but it's not a good look when the third page already contains an emotionally manipulative and gross misuse of "literally".
I mean, this predatory lending did lead to a lot of starvation. That is not controversial. He may be using exaggerated narrative (and that part is only the introduction, setting the scene) but he is quite clear in the text about what the known or suspected facts are and what we might deduce from them.
I forgive the author for mixing some emotion into it -- he's trying to write a book about debt that will appeal to a general audience. Like the sibling said, it's still quite rigorous in its citations.
Or you could say it's dual to money - creating debt creates money, paying debt destroys money. There's literally less money in the world when you make your mortgage payment (bank just sends much of your payment to /dev/null), and there's literally more money in the world when you take a mortgage (bank pulls it out of thin air).
If all debt would be repaid then almost all of the money as we know it today would disappear.
What is the relationship to money and wealth or money and productivity? Surely we wouldn’t say that incurring debt increases wealth and paying debt destroys it? Also, does “creating money” via incurring debt drive inflation (more money in the system)?
My view on this is that wealth is something real that actually impacts people's lives. At the same time money is not, it's the story told around wealth so that we can all agree on how one "wealth" compares to another. The goal is to not let this story go wild (e.g. into super-inflation) so that people don't lose trust in money.
Keeping those two in check is the main goal of any central bank, ever since the gold standard was generally abandoned and money became entirely abstract. In my opinion no one really knows how to do it (although it's been okay-ish so far), the FED for example often uses national unemployment rate to decide how much dollars should be thrown at the system.
That’s not really how it works. The bank takes savings deposited and issues most of it as loans keeping enough on hand to issue to people withdrawing their savings (fractional reserve banking). The interest on the loans pays the interest on the savings (which is why one tracks the other). They also borrow money from the markets (or the central bank) at low interest rates to reissue as higher-interest loans. Nowhere in that system do they create money out of thin air or send money to /dev/null (although I get the impression they do some of that in derivatives markets).
Actually, the GP's explanation is closer to true than yours is. I was taught the same explanation you gave, but it doesn't fit the facts on the ground. Banks don't base the loans they issue on deposits (the closest to this they come are the capital requirements regulators impose on them), they base them on models of the borrower's ability to repay and on models of the ability to resell the loan (aka 'securitization', though less so since that practice helped drive the financial crisis). If the models fit, the loan amount is credited to the seller, and debited to the buyer, essentially creating money 'out of thin air.' The economist Steve Keen is perhaps one of the more vocal advocates of this view (http://www.debtdeflation.com/blogs/).
This is how the system works. There's a limit to that practice (the money multiplier), which is one of the reasons why banks need to rotate money as you said (another being cross-bank transfers). See this link:
https://en.wikipedia.org/wiki/Money_creation#Credit_theory_o...
Mortgages make MBS, mortgaged backed securities, which are traded around. You can buy these, or SLABs, student loan backed securities.
Neither are money. M0 money can only be made by the US Fed. M1 or M2 money can be made by banks out of savings accounts or checking accounts, due to the fractional reserve system.
By lending money to a bank through the savings account mechanism, the bank owes YOU money, because the bank spends roughly 80% of it on other things.
That's why there is a distinction from M0 pure cash, and the M1 or M2 virtual 'nearly money' in the system. I think credit cards are a higher order of money as well...
To be fair, he directed people to a >500 page book on the subject as a good introduction to some of these ideas. Do you expect him to effectively summarize a massive text in a single HN comment?
I feel this way every time someone recommends a study or a book to me. If you can't summarize it for a 5 year old, then you are either lazy or don't understand it yourself.
For example, instead of telling me to read a 500 page book, you can say "the Big Bang is this really crazy but suprisingly plausible theory that our universe just suddenly exploded from nothing into this really hot and dense and chaotic realm, and now everything is expanding and cooling down and getting farther apart but also clumping together because of gravity. Check it out!"
Becuase at least then you can say "oh wow, why is it clumping together? how do we know gravity is a thing?"
The two-sentence summary is ”Cultures around the world (historical and current) have an incredible variety and richness of traditions/practices related to debt. Debt is of central importance in every human society, predates and provides the conceptual foundation for economic exchange and property rights and many other cultural practices/institutions, and the culture-specific details are fascinating to read about.”
Ability and willingness to oversimplify nuanced text does not imply understanding. Unwillingness to deal with details and nuance of long more accurate text is lazy too.
Calling someone lazy and not understanding, because you want explanation for 5 year old and are not willing to engage with longer text and want him to do the work is hypocrisy and manipulation at its best.
As someone working in cosmological astrophysics, I think that is a very misleading summary of what the big bang theory is... However, luckily for us, people who go around misunderstanding the big bang theory because of bad tweet-length explanations (by experts or non-experts) are not a great danger to the rest of us. They aren't basing their politics or personal finance decisions on that misunderstanding.
The thing with topics like the ones covered in Debt, is that they have been weaponised by our leaders to facilitate social stratification and very unjust economic disparities. I believe this has largely been made possible through simplification of these concepts and making bite-sized claims about how "basic economics" works, where all the detail and nuance has been thrown out. These kinds of 3 sentence summaries can be very dangerous.
Lol then continue to keep your topic of study less accessible.
"A car is a small vehicle that has a motor that turns energy into motion".
"Ummm well ackshually there are smaller vehicles than that, and cars can be electric or oil, so clearly you don't understand the topic unless you start with the factory blueprints first instead of the dictionary definition."
That depends on the person on the receiving end. For an expert on the topic, it may be misleading. For average Joe on the street, it is completely fine.
Do you have a better 5-sentence explanation for what Big Bang is? Joe isn't going to read a book about it.
>If you can't summarize it for a 5 year old, then you are either lazy or don't understand it yourself.
I... kinda feel the opposite? if you feel like you can summarize something complex in 5 sentences to a person without any background, I think you probably aren't fully understanding the thing you are summarizing.
I think this is especially true in fields like economics where even the people at the top of the field who have studied for years don't 100% understand everything.
Everyone is entitled to their own use-case of course, but let me phrase it a little differently:
If you recommend me a dish from a restaurant, but you can't describe the flavors, texture, and quantity in a few sentences, then why are you recommending it?
"It's awesome, the flavor is spicy, salty, and smokey. It is charred on the outside and greasey and chewy inside. It is a very hearty and filling dish."
Actually, I think that's a really good example; I hang out with a lot of foodies, and that's another thing where I'm not very educated. I can understand 'Yeah, you'd probably like it' or "this is like that other thing"
but... when they start going on about the various flavors? Yeah, I have a really hard time translating that into what a thing tastes like, because I lack the background, I lack the education.
Explain the Riemann hypothesis to me, including the contexts and the current work, without using technical language, to a general audience, in three sentences or less. What about the Japanese language? The history of Israeli-Palestine relations maybe?
Some things are complicated and take 200 pages. There's nothing more to it.
"The Japanese language is a very interesting and unique human language. With over 250m speakers and a rich linguistic history, everything from its orthography to grammar to pronunciation provides interesting areas to explore further."
At least now the reader can ask, "what makes the orthography so interesting"? To which a deeper conversation can be had about its symbolic writing method and efforts to romanize and digitize it efficiently.
Now the reader has more reason to check out the book with just 4 or 5 sentences of info. Its like an outline vs a headline.
Me too. I gave up after a couple hundred pages. At times interesting, but too unfocused, not to mention daunting due to the extreme length. Note that none of the commenters here have been able to supply a much more thorough synopsis than “debt has taken lots of different forms in different societies throughout history, including our own today.”
By contrast, I found Graeber’s follow up collection “The Utopia of Rules” startlingly provocative and a super fun read - one of my favorite books. I think Graeber’s divergent writing style and argumentative form work better in the essay format.
I liked his talks as Morea easily digestible, but the book was full of useful tidbits. As an alternative to the real way debt is used today though, I suggest John Perkins books and The Tower of Basel
Since this subthread is about personal anecdotes of reading experience, mine was completely different. I had no problem finishing the book in record time and I'm glad I bought (and read) it.
Not necessarily. The value of debt as an asset is often less than the amount owed, because there is a non-trivial risk that the debt will not be paid back in full. Furthermore, if you are a central bank, you can effectively borrow money from your future self.
I believe the statistic referenced in this headline is roughly total sum of debt in the world (184 trillion) / earth population (7.6 billion) is the total number of debt per person. I think what you are driving at is exactly why this article is misleading.
edit:
I don't think debt is exactly zero sum. When a loan is made, the person who took the load has a debt of the present value of future loan payments(ie with interest accrued and adjusted for inflation). The lender has an asset that is the present value of the loan payments times the probability the loan will be payed off. I might be missing something here though.
Right, if you have US government bonds (or a bond fund) in your 401k, that's included in the total. Your savings is also loaned out to others, and counts toward this number.
Not necessarily in all conversations. The quality of the collateral asset is subject to lots of things.
If you look at what happened during the Great Depression, assets were effectively worthless — demand vaporized and seemingly safe loans secured by valuable factories became junk.
I'm guessing it's the latter. I owe hundreds of thousands on my house, but my house is worth significantly more than my debt, so my net debt is zero.
I'm guessing this is just all debts added together, and then divided by the number of people. And it's probably including national debt, which is ~$58k/person in the US (which is surprisingly slightly below average for countries with debt).
>"I owe hundreds of thousands on my house [...] my net debt is zero."
>"my house is worth significantly more than my debt"
You realize the value of your house dropping by 50% in a year would not be very surprising? And that would be mild, it is all up to which group of people the federal reserve chooses to benefit.
Not often. Actually there is an interesting distinction here between frequency and probability... but anyway there has recently been a ZIRP induced bubble (~2008-2016), which leads to high prices of various assets in a trickle down way: https://fred.stlouisfed.org/series/FEDFUNDS
I'm ignorant on this, but to me there are two kinds of debt. 1) Personal debt, like I took out a car loan and I can get the car repossessed or the loan sold to debt collectors. 2) Debt that exists just to create more money i.e. the IMF or Fed Reserve decide to have an expansionary monetary policy and they lend from... what exactly? The purpose is to just control inflation.
I'm guessing this is the second kind of debt, but the title makes it sound like the first.
My understanding is that reserve banks create money out of thin air and then 'loan' it to governments. Then governments use the money to pay for public projects. A lot of the money ends up going to large corporations through significant government contracts, grants and subsidies.
When a government takes a loan from the reserve bank and puts it into circulation by giving the money to corporations to pay for public projects, the government is effectively diluting the value of everyone's money and giving it to corporations. This process creates public debt for which the government will need to take additional loans from the reserve bank to keep meeting the interest repayments; which will further dilute the value of everyone's wealth while increasing corporate wealth; and the cycle will keep repeating.
In the modern economy, most money takes the form of bank
deposits. But how those bank deposits are created is often
misunderstood: the principal way is through commercial
banks making loans. Whenever a bank makes a loan, it
simultaneously creates a matching deposit in the
borrower’s bank account, thereby creating new money.
The reality of how money is created today differs from the
description found in some economics textbooks:
• Rather than banks receiving deposits when households
save and then lending them out, bank lending creates
deposits.
• In normal times, the central bank does not fix the amount
of money in circulation, nor is central bank money
‘multiplied up’ into more loans and deposits.
I don't understand your comment, especially the "distract" part.
First, it isn't false at all, commercial banks create money, just as they say in the paper. Second, if you make the bold claim that the people of the Bank of England wrote a paper that is false you should provide more than a single sentence - especially when commenting here on HN.
Ok, since you rightly are asking for more details, I will try to explain my position. First, the disclaimer, I'm not an economics major, but I have read enough to understand things like the Bretton Woods system, the transition to the petrodollar, the transition period to the Federal Reserve, IMF and World Bank. So I'm just a layman with a particular interest in the higher-level view of how banking, in particular, central banking on a national and international scale, operates. I'm always open to learning more or being corrected, because it's a huge very insular group that's hard to get good info from on certain things (see: Libor scandal).
So, your original response is to someone who said their understanding was "that reserve banks create money out of thin air", so that is the foundation of our discussion at the moment. Your response on the surface feels like a refutation of that assertion, largely resting not on content necessarily but on the weight of authority that is the BoE. Essentially, what I was trying to say is that I don't think it refutes the person you were responding to, mostly because it is some very carefully crafted wording the obscures instead of reveals the truth of the matter.
A quick dissection would go as follows: while technically correct about loans showing up as deposits in accounts and thereby creating money, it ignores the basis for those loans, which is the fractional reserve system itself. It is FRB [1] that was what spawned the system of creating those deposits based on mathematical rules such as the fractional reserve rate [3] (which many people tend to think of as being 10%, though it is often not true these days). A very crude summary of that system is this; if all deposits (created money, as according to the BoE document) are 100% of a banks money, they are only required to actually have in reserve 10% of that. Therefore, the person you are responding to is essentially right. Banks create money out of thin air by entering it on systems, even when they don't actually "have" that money to lend. The reserve rate was thought of as a minimal protection required in order to assist in preventing runs on the bank if too many depositors requested their money at the same time (because, as per the reserve system, the bank doesnt actually have all that money at any one given time). So in America for example, this is the foundation of the Federal Reserve system, wherein member banks (not all banks are) then have promises of assistance from the regional reserve bank (of which there are 12, with NY Fed being the titular head of the system), so that if your local bank gets close to a "bank run" level, that regional reserve bank will inject funds to them temporarily in order to create stability, which was part of the original mandate of the Federal Reserve.
In the response you quote, the wording might lend one to understand otherwise, and that the fractional reserve system no longer works that way, especially with the patronizing ending sentence of the first paragraph about how "some economics textbooks" differ from how money is created today. I can practically hear some posh accent with an upturned nose dripping that sentence out with disdain. Silly plebs, trying to understand banking. The part about "distraction" is that it seems the bankers don't actually want people to understand how banking really works on the underside, as it is actually in their interest to obfuscate it for various reasons.
Given what I've said so far, I'm therefore not sure how the statement: "Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.", nor the ending of the following sentence, "or is central bank money ‘multiplied up’ into more loans and deposits" can be actually accurate. I assume there is some word trickery I am failing to understand, (see: NSA on what "collection" means) because otherwise it seems flat out wrong. I am better versed though in the American system, so perhaps there is some nuance of the English system I am unaware of. (but it is worth remembering that the American system was founded upon the British/European system, when post 1907 Knickerbocker crash congress sent a delegation to hobnob with the central bankers of Europe to learn how they did things, which was largely the basis for the Aldrich and later Federal Reserve bills)
> The fractional reserve theory where the money supply is limited by the money multiplier has come under increased criticism since the financial crisis of 2007–2008. It has been observed that the bank reserves are not a limiting factor because the central banks supply more reserves than necessary[19] and because banks have been able to build up additional reserves when they were needed.[20] Many economists and bankers now realize that the amount of money in circulation is limited only by the demand for loans, not by reserve requirements.
> ...
> Banks first lend and then cover their reserve ratios: The decision whether or not to lend is generally independent of their reserves with the central bank or their deposits from customers; banks are not lending out deposits or reserves, anyway. Banks lend on the basis of lending criteria, such as the status of the customer's business, the loan's prospects, and/or the overall economic situation.
The idea is that the public projects increase everyone's wealth by a greater amount than the interest on the debt.
If you take money out of the equation and just consider that we have a large pool of labor to make use of, government's purpose in spending on projects is to allocate some of that labor towards long-term goals that no company would involve itself in as the pure profit potential is too risky, distant, or difficult to capitalize on.
But it doesn't increase everyone's wealth equally... What's worse is that it doesn't even increase everyone's wealth in a fair way. It does not reward value creation. It rewards rent seeking (value capturing). It's not about who can create value in the most efficient way; it's about which corporation has the most friends in government and can get the biggest contracts.
So then debt and IOUs as obligation for some future work that’s due re-introduces a feudal system with fancy language. Suddenly people have to work longer and harder to maintain the same living standards while their wealth gets expropriated and via crony government relationships of particularly well established lobbying industries runs into to pockets of a minority that’s not necessarily engaged in generating true value for the public. Sounds like ‘systemic’ Feudalism.
Inflation generally doesn't hurt the value of stocks in a 401(k). You still own the same percentage of the underlying public corporations. Inflation only hurts your bond holdings. This is one reason why it's best to keep at least some of your retirement fund assets in stocks even as you approach retirement age rather than shifting entirely too bonds.
TIPS also provide a way to hedge against inflation in retirement funds.
Inflation does hurt the underlying companies, and thus stocks are not immune.
Except in cases with extremely high inflation most contracts are not inflation adjusted. By the time a company is paid the merchandise sold is worth significantly more in fiat terms. In high inflation an entity is loathe to trade assets for dollars and so the economy will slow.
Your point is generally false as long as inflation remains at a reasonable level (no hyperinflation). You can chart out stock market index returns versus inflation if you don't believe me.
I was speaking of relatively high inflation (>10%). The fed has been extremely good at keeping inflation stable so we have not seen this in a long time.
This is not a criticism of current fed policy with respect to its relatively low inflation targets. While the effects I mentioned still occur, they are vastly outweighed by other concerns at low inflation levels.
But the working poor don’t see their hourly wage rise automatically as a consequence of inflation, so unless the government mandates higher minimum wage, or unions negotiate it, or there’s a shortage of low-wage workers driving up wages, their income drops in real terms and they are worse off.
But it also deflates the value of assets that generate monetary profits. If the value of cash goes down, then the value of cash-generating assets also goes down.
When the value of today-money goes down, the value of tomorrow-money goes up relatively. That explains why tech companies and speculative investments do well during expansionary monetary policy. It aslo explains why advertising and brand become so important. Because if the value of money goes up in the future, then the value of each customer will also go up; even if you have to make a net loss today to pay for advertising to get those customers.
Poor people with debt actually profit from inflation. Losers are people with cash savings and equivalent, plus those expecting pensions not indexed to inflation.
They give a loan to someone, which means someone owes them 10,000 dollars. Now they can trade that 10,000$ worth of debt to someone else. You could say "out of thin air", but its really "out of social expectations that you pay your debt eventually"
>You could say "out of thin air", but its really "out of social expectations that you pay your debt eventually"
You missed that- Since its 'out of thin air', the interest on this debt is artificially low.
When interest rates around 0, things that would otherwise be a bad decision, become feasible. Or, things that are a good idea, are sold and the cronies who get the loans make even more money.
I agree that the article conflates a lot of issues and I can't find a clear explanation on how government debt is calculated. Most of the global debt in the world is from governments and in this case it isnt the worst thing as is usually a relationship where a government owes its own people money but the people owe the government money every year in taxes too.
The total government debt = total private sector savings, to the last cent. That is an accounting truth, for every debtor there is a creditor, and the creditor of the public sector as a whole is the private sector.
In reality, when you look at how government debt is actually computed, you will find that government debt is the sum of all the coins and banknotes in circulation, all bank deposits at the central bank, and all treasuries. Basically it's the sum of all the savings denominated in that government's currency. It is purely an accounting illusion, governments could also create money out of nowhere without accounting for it as "debt", but that is the accounting standard we are currently using, mostly an heritage from the gold standard times. I'm not sure what the article accounted for exactly, but if they just did a sum of government debt divided by human population, what the article really means is that there are in circulation about 86k dollars for every human, so the average human has a monetary wealth of 86k (with the median being of course much much lower). We should cheer on that number increasing ,the only bad case is if inflation is higher, so that means in real terms we are on average getting poorer even if we have more dollars per capita.
In a country with a balanced trade deficit (exports are the same that imports), in order to keep the economy working at the same pace, if the public debt is reduced, the private debt have to grow. As you said, it's an accounting truth.
So, when they don't distinguish between private and public debt they are just confusing the issue.
> In a country with a balanced trade deficit (exports are the same that imports), in order to keep the economy working at the same pace, if the public debt is reduced, the private debt have to grow. As you said, it's an accounting truth.
This is not precisely correct. It is more correct to say that if the public net worth decreases, the private net worth increases. Or, in other words, if the public sector runs a deficit, the private sector runs a surplus. And the flow of funds is conserved.
And net worth is assets minus liabilities, or savings minus debt.
> 1) Personal debt, like I took out a car loan and I can get the car repossessed or the loan sold to debt collectors. 2) Debt that exists just to create more money i.e. the IMF or Fed Reserve decide to have an expansionary monetary policy and they lend from... what exactly?
As far as I know, these two are the same.
In a fractional reserve banking system, when you borrow money from the bank for a car or a house, that money is then created from nothing. They just punch in the number in your account, and there you have it.
At the end of the day, the bank has to have a certain reserve, which is held in the banks account in the central bank. The central bank doesn't usually create the money itself, it lets the banks to it for them, as long as they stick within the limits.
I could be very wrong here. Not an expert. This is my laymans understanding.
This is why it's not really worrying on its own that there's a large amount of debt per person. Debt is how money is created in our system. As other countries get wealthier, you expect them to have more debt. Put another way: if you're living outside civilisation, you're not gonna get a loan for anything. But as soon as you live in a modern city with some steady income, you can borrow several times the amount you make a year, and that's generally OK as long as you expect to make that money back some time during your lifetime.
The money isn't created from "nothing" - it's definitely real money from real people's savings accounts.
The difference is that on a large enough scale, you can make a $1 of real savings circulate as though it were $1.50 or (probably a lot more) of circulating currency and there's huge benefits to doing that (when it's backed by real productivity).
The source of things like the 2008 collapse was the dark side of that - trillions of dollars debts, backed by no possible amount of productivity that could repay them (and tons of fraud allowing these to exist on the books).
Banks do indeed make money "from nothing". If you get a loan of $1000 from a bank, they just add $1000 to your current account, and write down in another account that you owe them $1000. They don't have to "get" this money from somewhere.
This is all as it should be. Say I can make tables, and you want one, but don't have anything to give me in exchange. We can agree that you now owe me $100, say. You can write me an IOU and sign it. Suppose you are trustworthy enough that an IOU from you is considered acceptable as payment. I can now use your IOU as money - we have just "created" $100 money from nowhere (or, $100 debt, same thing).
>It's kind of silly to spread corporate and government debt across all people.
Why? The most indebted (how may have billions the bank) still need to have others work for them in order to repay their debt. Billionaires earned billions because "people" work for them (or buy from them, in the end that's the same thing).
There's a real difference between taking out a loan to buy consumables/non-revenue generating depreciating assets and corporate debt that is taken out on the expectation that there will be a higher return on them.
In a sense rising corporate debt is a vote of confidence in the growth of the economy as lenders are expecting to be paid back with interest.
Government debt is somewhere in between IMO, since it has stimulative effects and the government captures some of that through taxes.
Well, in part the ideas was not get into big debts. People could self-sustain much more easily in the past. No need to buy iPhone each year help on that.
Is important to note that the jubilee was a measure against the worst case scenarios: Persons that sell themselves as slaves (or sons of slaves), people that lost the hereditary land and things like that.
This also means the society was based around this expectations.
People live form the land or livestock. Even without much money you could get food. Plus, was part of the Law that anyone could harvest from any field after the first pass from the owners, as measure against starvation.
If you live in a rural area, even today, you will see that is normal and easy to share and get food free or very cheap (in fact, a lot of food will not get in the supermarket for lack of ways to fully utilize the capacity!).
Is kind of simply to maintain a live if your are friendly in the community.
You're thinking too much in terms of modern debt. In ancient (and not-so-ancient) times, the ordinary peasant always owed something to the landowner/sovereign for the privilege of dwelling on their land.
Sometimes, that debt would be higher than what could reasonably be paid back and so the debt would accumulate.
In other words, they'd rig the game from the start and then loosen the thumbscrews along the way.
Well it was also illegal to charge interests, so in theory it would not be economically rational to lend money except for safekeeping. Lending was probably more about lending land.
The rationale of the jubilee-rule was probably to avoid multi-generational debt-slavery.
It's obvious this law would restrict economic development, but the Hebrews made that tradeoff for social stability.
The main feature of the Jubilee law was that land could not be permanently sold, it could only be leased for up to 50 years. This together with their inheritance laws guaranteed that each clan or family group would have an economic base in perpetuity.
They wouldn't and maybe it's a bad idea to enter debt that last more than 50 years. It pretty much means to borrow money that the next generation has to pay off.
I understood the original comment to mean everyone’s debt is zeroed at 50 year intervals, e.g. 1900, 1950, 2000, etc. regardless of when it started.
What you are suggesting is all debt is zeroed out 50 years after it’s issued? Then why would any borrower pay off any principle at all?
This whole jubilee thing makes no sense, may be a little bit if the jubilee happens unexpectedly so that people can’t just plan around it. But that kind of sort of happens after a war.
Well the last one was post-2008, and if you didn't get your share, then perhaps you weren't one of corporate entities helped out by a Quantitative Easing program.
Debt jubilees have been replaced with other institutions, most notably, in the modern world, bankruptcy (which is need-based rather than regularly scheduled.)
In the article this is the IMF talking, so we're talking about sovereign debt not commercial debt like credit cards or mortgages or car loans.
Sovereign debt is nominally repaid through the execution of the economy. A country borrows by selling debt securities, with fixed maturity dates and then redeems those securities once they mature.
Consider this really simple example in the US; The treasury department sells a note that has a face value of $10,000 and a maturity date 10 years from now, to Alice for $8,188. If you figure out what interest rate you would need to have $8,188 equal $10,000 in 10 years (monthly compounding) you would find that the "equivalent" interest rate or yield to be 2%. So they have "borrowed" $8,188 dollars from Alice, who, 10 years from now, will turn in her note and they will give her $10,000. They might end up selling two notes to Bob and Charlie just before Alice shows up at the window in order to have cash to give Alice but in either event the note that Alice bought gets "redeemed" (or retired) and it is off the books, it has been "repaid."
Over the course of the year revenues come in, and sometimes there is already enough cash in the drawer to pay off Alice without selling any more notes, in which case the total amount of notes out there goes down. The amount of revenue is proportional to the economic output or GDP of the country because, well everything gets taxed a bit. This is easiest to understand when looking at income taxes since the more income (the more people working the more people have incomes or more income) the more taxes you get. So more economic activity results in more revenue for the state, which means selling fewer notes. If spending levels are kept constant, and the economy grows, then you reach a point where you don't need any note sales to pay your bills.
So the IMF is responding to the news that the US deficit (which is that the US sold more notes than they had expected revenue) for the month of November was a record[1] to $205B. What does it mean to you and me? Well it probably means a some point someone in Washington DC will have to raise taxes if they want to keep the debt ceiling down.
Debt doesn't concern me. As another poster said "The total government debt = total private sector savings, to the last cent. That is an accounting truth". What does concern me is obligations - specifically underfunded public pension obligations. There is no accounting balance here - a day of reckoning will surely come.
"Mitchell and Friedberg warned that the pension hole will swallow public- and private-sector employees alike, because all income earners will pay for it. Mitchell ran a simple calculation to illustrate her point: If the shortfall were $5 trillion, divide that amount by the 158 million workers in the American labor force for an obligation of about $32,000 per worker."
Modest rise in taxes... Across the board to person in the United States? To only the 50% of people who are taxpayers? To only the top 10% who pay 70% of the taxes already? Tax those who do not generate income traditionally but rather earn based on investments? Seizure of personal assets?
Depending on how you go about this, you could create economic stagnation because of burdensome pension programs.
Alternatively, you could cut benefits, or privatize the investments rather than simple redistribution from one payroll tax payer to one pensioner.
I'm in favor of privatization combined with benefit reduction and increased minimum retirement age.
The combination of these three could easily solve any pension shortfall and generate long term wealth for every American.
Does anyone actually still believe that these debts will all someday be repayed? Does anyone even believe that the amount of debt will go down, rather than up, over the course of any length of time? Even a day? I don't, which raises the question: how does a world where debt monotonically increases indefinitely work? Can that happen forever, in which case debt has just become a standin for currency (that allows people to have negative amounts of currency). Or does it eventually go kabloie? Unfortunately I don't have an answer, but I suspect we'll find out within our lifetime.
> Does anyone actually still believe that these debts will all someday be repayed?
Approximately no one, in all of history, has ever believed that all debt on the globe would be repaid, so “still” is inappropriate. This is why we have interest, debt jubilees, bankruptcy laws, legal provisions for discharge of certain debt separate from bankruptcy, negotiated debt modifications (and laws which facilitate them), security for debt (and in some cases limitations on collections beyond the security) and numerous other current and historical features of society.
> Does anyone even believe that the amount of debt will go down, rather than up, over the course of any length of time?
Why should it? The number of people is increasing, as is their average economic output, as is (globally, and in long-term trend) lifespan. So real (much less nominal) aggregate debt can increase over time with no meaningful change to what the average person owes (and is owed) as a proportion of their expected future output.
> Does anyone actually still believe that these debts will all someday be repayed?
I don't understand why you would ask this question. On the individual level its obvious that some debts won't be. It happens all the time for a lot of reasons. So I assume you aren't talking about the individual level.
But on the macro level zero debt is a very bad idea and unless civilization collapses there will always be debt. Debt itself is a very good thing. Too much, and too little, of a good thing is bad.
So in either case all debts being paid off will almost certainly never happen.
> Does anyone even believe that the amount of debt will go down
In absolute terms due to inflation it always goes up.
> (that allows people to have negative amounts of currency)
You say this like its a bad thing. Debt isn't a bad thing. Debt allows people to own homes and cars and pay for education and invest in business. Debt means you are optimistic about the future.
I honestly do not understand this perspective and would like to be enlightened.
The only way a young person could be given a house without owing any debt would be if someone else bought it for them or if the government paid workers to build houses for everyone. However, if the government paid people to build houses without any payments in return the government would be collected the debt which it would then hold. This doesnt reduce any debt globally it just transfers it.
Maybe you could argue it is better for the debt to be on government than individuals but that doesnt address how no debt is good. No debt would just mean zero houses.
Previous generations bought homes in early 20s, and paid off their mortgages in 7-10 years, so by their mid-30s their housing expenses were rather low. And inflation helped with the payments too.
Our generation gets 25-year mortgages, and very little help from inflation.
When were you born, and what country do you live in?
As someone born in the 1980s in the USA, I don't think this is true. I believe that the 30 year mortgage has been the standard here since sometime in the mid 20th century.
Worse, we would end up with the student loan effect, which would mean that houses, like education, would explode in cost since there are no constraints on cost when you can just "charge it".
>Maybe you could argue it is better for the debt to be on government than individuals but that doesnt address how no debt is good. No debt would just mean zero houses.
You don't need a new house for every young person.
You can reuse houses across generations. 100, 200 and even 500 year old houses are not uncommon in Europe for example, if you build them properly (and not the el-cheapo wood US construction). They're not any kind of ruin either, but highly coveted city and rural real estate.
Plus, there's an existing pool of a hundred million houses or close, so you wouldn't have to worry about getting them a house either.
Lastly, debt means money owed. A government can also money it actually has (e.g. form taxation, dropping military expenses and so on). Presumably there's still that.
Not to mention that the government could still ask for payments for the houses, but for a much smaller interest, and without expecting a profit, allowing people to repay them much earlier.
This is not some communism plot, places from England to Singapore, most of EU and beyond have done public housing in different degrees. England's public housing plan, for example, implemented for the most part of the 20th century, turned it from a country of extreme poverty slums (think L.A.'s seedier districts but in Dicken's London and Manchester and elsewhere) into an acceptable middle class (they'd call it "working class") existence.
Using debt for homes, cars, education, and investments are generally assumed to be able to out grow the costs of that borrowing. For example, ideally a better education now means you can probably make more money over time, offsetting those costs and overall ending up much better than without borrowing. Its not stealing, to phrase like that is wrong.
If you only see these things as "nice", your should reevaluate what you value.
Personally I think we view education entirely too much as an individual responsibility. The worker isn’t the only one who benefits from the education. Companies, investors and society at large does too. So to push that cost entirely onto the individual and force a possible lifetime of debt is unreasonable. And that’s only possible because of debt.
Housing and cars - I’d agree. But for me the problem with debt is it seems like a ploy to squeeze more and more out of people who don’t realize the deal, or who because of encroaching levels of debt don’t have a choice in society.
If debt were purely opt in and people could simply not get into it while still having a first world life then I wouldn’t disagree with you at all. But as it stands debt is a requirement that permanently endentures far too many of our citizens.
>Using debt for homes, cars, education, and investments are generally assumed to be able to out grow the costs of that borrowing. For example, ideally a better education now means you can probably make more money over time, offsetting those costs and overall ending up much better than without borrowing. Its not stealing, to phrase like that is wrong.
All of the above things have stopped worked for the majority of middle class and most working class people for the past 30+ years in the US (and lots of EU).
"a better education now" doesn't "means you can probably make more money over time", but leaves you straddled with a large debt, as just another person with a degree in a huge pool of people who might not even make as much as their parents did.
And the huge debt crisis shows that people and countries alike increasingly can't "out grow the costs of that borrowing".
You are basically arguing that most people should never be able to own real estate, doomed to live as perpetual tenants. Over the course of a lifetime, that is actually more expensive than a 30 year mortgage.
And I think you're arguing that the disappearance of mortgages would have no effect on real estate prices. IMO, and that of many others, loose credit has been the major factor driving up property prices to their current insane heights.
There's a place for credit, but right now I think it does more harm than good.
On the contrary - no mortgages would mean I couldn't afford a house, and someone richer than me would buy it and loan^H^H^H rent it to me. They'd get richer, and do the same to the next person who couldn't quite afford to buy a house. You've described a society closer to feudalism than efficient housing.
yeah sorry that's not the life I want. I'm glad I didn't grow up in some country like argentina or whatever that has a no lending where I would have to live with my parents until I'm 35 and take my girlfriends to love hotels.
I find it difficult to reconcile this POV with environmental concerns. That elusive "debt" is 100% convertible to real resources (land, water). We have more debt because we consume too many things we don't need. How is that good?
Can you please provide any evidence for this? I am really curious and interested.
At the same time I have the impression., independent what the environment-protection-movements want to achieve or actually did, the state of the planet did not improve.
Education free of charge and accessible to every child, in my opinion, is the greatest achievement in human history.
However education for which you need to get into debt is something that I really don't think is a progress. It is still better than no education or education for which you have to join a political party or a religion, but it is actually a step back from free education.
This reads like a person with Stockholm syndrome, captured by the Federal Reserve system. Money/currency does not have to be debt based. For a lot of America's history, it was not debt based.
Debt is older than money. Debt created money. You don't need a Federal Reserve to create money, you can make it yourself.
If I do work for you, and you can't pay, and you give me an "IOU", that is debt, and if I agree to make that IOU transferable that that is money.
The Federal Reserve system is simply one specific kind of money that is only special because the US government accepts it for tax payments and certain other kinds of money at illegal.
> For a lot of America's history, it was not debt based.
For a lot of America's history we used horses and sailing ships to get around. Are you suggesting we should return to that too? Otherwise this argument is empty.
This reads like a person with Stockholm syndrome, captured by the crypto hype train. The entire point of money/currency is to have a standard unit of transferable debt!
I started a reply, but honestly, I just don't feel like it's worth the energy to follow up with the replies I'd get. Probably because of the tone of the response.
I don't see debt as all that much different than insurance. Sure, society can get by without it, and you may never need it, but society in general benefits. If I run a business any large expenses would be amortized over the lifetime of that thing. I could pay for it upfront, but that might never happen and if I could it wouldn't be the best use of my resources. Ideally, I'd "pay rent" in order to borrow money upfront, now that I have that machine it's easier to pay back since that fixed cost will benefit me for the next 20 years. That's the scenario where all debt is never paid back.
Financial tools, like anything else can be good or bad depending on the circumstances and motivations at play. Payday loans (generally seen as bad) aren't all that different from micro-loans lauded in third-world countries. Let's say there's an older woman who walks out of town to buy goods and carries them back to town every day to sell (arbitrage). If she gets a small loan to buy more goods up front, invest in a wheelbarrow, or a booth at the market she can do more business and more easily pay off that loan benefiting; her, the person offering the loan, the sellers and the buyers--society in general. If she cannot pay back the loan she can get into a debit spiral. There are situations where that is beneficial to the person giving her the loan at the expense of her and the rest of society.
I think many think articles like this intentionally make the numbers seem as scary as possible. Negative currency (debt) is a good thing for most people. It is what enables people to buy cars and houses or go to college. Of course, many individuals will get in over their head but on the whole it is a positive thing that individuals can take out mortgage and owe more on the house than they put down. The same goes for companies and governments.
>I think many think articles like this intentionally make the numbers seem as scary as possible. Negative currency (debt) is a good thing for most people. It is what enables people to buy cars and houses or go to college.
Exactly. Most people have significantly more than $86k debt in the form of a mortgage. I owe a lot more than $86k on the mortgage for my home.
I have more assets than debt and I could pay off my mortgage but it's simply not the best way for me to spend my capital.
Additionally, I suspect this article is using a median value for "average income" but a mean value for "average debt." This paints a misleading picture.
First, even if you couldn't pay off your mortgage today that doesn't mean you would be in a bad position at all. If you had enough to contribute 50k a year (plus job increases) and had 500k left on a house you would be in great shape. You would be happy to have the debt and the entity issuing you the debt would be happy to be repaid.
Second, while it is useful to think of debts in terms of things like mortgages and auto loans, most of this global debt is government debt. Think locally - your local town may need 50 million dollars to build a new school. They aren't increasing taxes for one year to build the school they instead take on 50 million dollars of debt in the form of bonds. So even if you have no personal debt you still have tens or hundreds of thousands of dollars in debt which the government has taken out which can reasonably be repaid overtime.
That's obviously not the angle this article takes though. Obviously there is more than enough assets to cover worldwide debt and one only goes into debt to obtain something of value. The context here is debt on paper excluding assets.
And every debt is someone else's asset. I have a retirement plan that owes me money, that has US bonds, that I pay part of the interest on with my taxes. It is when the credits all pile up on the same group and they don't use it wisely, the world can get into a real conundrum that seems to only be solved by violence.
In other words, $350k home = $300k mortgage + $50k in equity. You still have debt. Its just that the debt was exchanged for something. Its the same equation for credit card debt.
No one takes on debt without receiving something in return.
Well people do take on debt for things that are quickly worth nothing. For example, you buy groceries with a credit card. You eat them; they are gone. But you still have the debt.
Or you buy a car. It quickly loses value, but you still have the debt based on the original purchase.
The formula still holds, but the "equity" part is negative, which leads many people to conclude that bankruptcy is a better option than paying for something they no longer have or is no longer worth what they owe.
> Or you buy a car. It quickly loses value, but you still have the debt based on the original purchase.
Aside from perhaps the first year of owning a financed car, it is worth more than remaining principal on the loan for the majority of the loan's duration.
It's worth reading the Ray Dalio debt crisis book to see how this might end - the most likely scenario is the US, Japan, and EU all encountering cash flow problems in the next recession that they resolve by devaluing their currency. In that sense people have less money today than they believe. If all the major currencies and stock markets crash at the same time, there's no safe place for everyone to keep their money.
A fixed or limited supply asset will hold its value against fiat currencies devaluing to some extent. Although it's likely that a scarce asset like gold/bitcoin is already artificially inflated by people who currently hold this belief.
If those people then liquidate their scarce asset in order to acquire more fiat currency after a devaluation then the market glut will devalue that scarce asset too to some extent.
Money is abstract labour. Debt is promised future labour. An individual cannot become wealthy in currency that retains meaningful value without others piling up implied debts. If you have saved money but no else has debt you can't compel anyone to work in exchange for your saved money. Debt is inherent to currency.
For every debt there is someone holding it as a credit. Unless the lizard men space alien conspiracy is correct and they will come down with their space weapons to enslave us if we don't pay, this is just digits in a computer and can disappear in a wink of and eye (or revolution).
As for the currency idea, that is already how dollars are created. A bank loans out money it owes other people and creates new money.
It doesn't need to be repaid. It creates relationships, in the form of ownership or shared risk. Its why inflation is key and having control over interest rates and quantitate easing is such a powerful tool for managing all this. All this is not to say that it won't blow up in our face (in particular with perverse incentives where we continue to destroy on our environment).
> how does a world where debt monotonically increases indefinitely work?
The interest rate (and hence service payments) on such debt tends to rise. The lenders just price the possibility of distant default and demand fatter checks upfront.
> Or does it eventually go kabloie?
I am not sure all scenarios are as drastic as you describe. A bunch of countries have a privilege to issue debt in the currencies they themselves control and can inflate their way out of it.
People who have paid up a portion of their mortgage can get interested in a HELOC, provided that the interest rates are attractive, or even buy a second house / rental property once the credit situation allows them. Their growing debt is not necessarily an indication of a bad balance sheet - they have tons of collateral and just choose to use the debt mechanisms when it makes sense for them.
What matters more than nominal amount of debt is the debt-to-income ratio. If people have income (or liquid assets) to cover their debt payments, things are fine. It's generally when that ratio gets large that problems arise.
Also, debt is money. When you give me something of value, and I say I will pay you later for it, we have created money. A big part of the problem in down cycles is that lending drastically decreases, and there is therefore less money (broadly defined) in the system.
Does anyone actually still believe that these debts will all someday be repayed?
This kind of rhetoric involves essentially a misunderstanding of our present capitalist system.
Individual, organizations and government in the course of their existence, need to sometimes get access to more resources than they currently have. Borrowing for capital expenditures is the means to do this - issuing bonds, taking out mortgages and etc is the basic way this happens. This applies to houses, to bridges and to many other things.
Since new, large expenditures happen even as other others are paid-off, of course all the debt is never paid. There's no reason for all the debt to be repaid, paying it all would be counter-productive.
We could talk about the particular ways that debt and expenditures are done in this society (and boy there's a lot to talk about there). One big, problematic is imposing more debt on the personal level when it belongs on the state level (see student loans, "health care savings accounts" and other problems). But to begin the conversation, one has to understand how the broad economy works at all, how it's not equivalent personal values of honesty and thrift, etc.
I’m not an expert, but to hazard a guess, the debt allows financial institutions to extract money directly from government tax take. If I were them, I certainly wouldn’t want that debt to ever be paid off, and indeed to get higher, so that I could keep collecting rent from everyone else in society.
>>Does anyone actually still believe that these debts will all someday be repayed?
I believe that all debts will be repaid. They will either be repaid by the borrow or by the lender, when the borrow can't pay and the lender has to bail them out.
Do you have any sources to back that up? I find it hard to believe that credit cards aren't either paid back or ultimately end in bankruptcy. It grows at ~20% per year!
I'm excited to see how all kinds of things unfold in the next 50 years. Supposedly max human population, running out of oil, icecaps melting, unsustainable amount of food production, dying ecosystems. The economy seems like the least troubling really as it is all superficial anyway.
Me too! I think some things like “unsustainable food production” will probably slowly resolve itself with increases in automation and efficiency, but I do think runaway global warming will need a drastic solution.
What other ones do you think will be hardest to solve?
>runaway global warming will need a drastic solution
I look forward to our subterranean future. I think the combination of vehicle automation and tunneling technology will allow us to build massive underground systems. If things get too rough on land, we can go below the surface.
I secretly believe that for all of the bluster about Mars, Elon's real goal is to produce the technology base necessary for humans to live here on Earth following the collapse of the biosphere.
Why go to Mars to encounter an atmosphere hostile to life when we can all collectively experience right here at home?
Storms washed out your fiber optic cables? Starlink. No place to hide from the hostile surface? Boring Co. Need to remediate the atmosphere? Solar panels / Powersats -- I believe he's being reserved about Powersats. Need to move things around without easy access to transport? Electric vehicles. Need energy storage through the night time because the baseload power stations have all fallen into disrepair? Grid storage. Building your Gigafactory in a desert? Future-proofing.
It is a nice theory, but there is a problem. The problem is that in the event of collapse, only SOME can reasonably be supported this way. And how to keep the unlucky masses from tearing down the means of survival for the lucky few?
The most effective answer is distance. While unlucky mobs can walk to your solar panels in the desert after civilization breaks down, how are they going to get to Mars? Get a good trampoline to jump on?
>The most effective answer is distance. While unlucky mobs can walk to your solar panels in the desert after civilization breaks down, how are they going to get to Mars? Get a good trampoline to jump on?
On some Mars colony with the foreseeable level of technology for the next 100-200 years you're even more prone to death and to worse climate than whatever might happen here on earth.
Beyond 200 years, Elon Musk could not care less about...
On what evidence do you think that Elon Musk doesn't care about the future beyond 200 years?
I believe that he wants to go down in history. And he wants there to be a history for him to go down in. True, he won't be there for that. But the thought of what it might be is a positive motivation for him.
First of all, the government won't go down without a fight. Those teaming mobs won't be squaring of with Elon's plucky group of scientists, but with a military tasked with defending them and motivated by a promise of survival for themselves and their families.
Second, we don't have to worry about protecting acres of land-based solar panels from damage if we're beaming microwaves from orbit. The receiving arrays would be smaller, more defensible, and cheaper to maintain. The powersat could be weaponized to defend its own receiving array.
Third, regarding distance, it's really hard to dig more than a few meters underground without heavy equipment.
Fourth, in a total collapse scenario -- no food, air becomes unbreathable due to methane pollution from melting permafrost --, the people remaining on the surface will die off rapidly. The death squads may last longer, but aren't going to be able to present a significant risk to a deep underground military base protected by the members of the former government with a powersat on overwatch.
After the chaos of the collapse, these locations could quickly begin the effort to repair the atmosphere using all of those terraforming approaches that we would not tolerate being deploying today: ocean iron seeding, orbital shades, bioengineering.
Then the hardened survivors could return to a generally functioning planet, and then maybe go to Mars with their newfound skills.
EDIT: This might seem preposterous, but it's far more viable than shipping one million people to Mars and building up a manufacturing base under time pressure capable of keeping everyone alive and fed while also reproducing a supply chain capable of developing integrated circuits on a world with a different gravitational constant.
This would make sense if Elon's goal was to keep the government alive. It doesn't if his goal is to keep himself and those he cares about alive.
Also most collapses to worry about are not "the Earth just became immediately uninhabitable" but instead "there is a complete collapse in civil order". Think the power grid goes down like it did in 2003, but on a wider scale and doesn't come back up. As we go from inconvenience to mass starvation, what happens?
If you hide away, the survivors aren't just going to conveniently die off. They are going to remain, and WILL have a grudge.
Sure, I would agree if we weren't facing the threat of multiple degrees of warming causing climate changes that will threaten to upend the social order and melt the permafrost within our lifetimes.
If we had room to speculate on the wide variety of disasters that may befall the Earth within the next, say, 200 years, then perhaps hiding underground isn't the optimal best solution.
Aside: I'm sure you'll agree that it'll be easier for Elon to keep his family alive if he's adequately defended. Regardless, he might not have a choice. The third amendment was not always a thing.
My point remains. Disrupted enough to cause the social order to collapse is a lot less disrupted than disrupted enough to cause the environment to be lethal to be in.
As an example of the difference, consider "widespread crop failures followed by food riots causing a general breakdown of transportation networks". The social order is destroyed. But the air is still breathable. And where you live the local crops might even have been fine until pillaged by hungry people.
On a side note, the 3rd amendment has only come up in one legal case, and it was decided in that one that the violation of the 3rd amendment happened, but the government had a qualified immunity because a reasonable person would not have known of the rule. See https://en.wikipedia.org/wiki/Engblom_v._Carey for the bizarre case.
Too many humans is ethically unsolvable. There is that solution from the book Inferno where they (spoiler alert) release a chemical warhead of somekind that causes the majority of the world to become infertile. But try voluntarily convincing people they aren't allowed to have children. At least it is better than a war that kills off part of the population.
We also use other limited resources in unsustainable ways even if it won't deplete in the next 50 years it is obviously inevitable. I hear about usable sand for construction being depleted at a rate faster than it is replenished.
Debt can increase forever.
What can't increase forever is the percentage of income going to interest on debt.
So long as income increases at least as fast the interest, increasing debt is sustainable.
The USA is sometimes on that list, but confiscation of everyone's gold/(personal credit horde) in the 1930's seems to me to be even a bigger deal than a sovereign debt default.
If everyone is borrowing then who owing? The trick is to borrow against the future generations. Assume that it was legally allowed to borrow $1000 against the income that would be generated by your kids 10 years later. You can use this to accumulate infinite amount of debt by extending to grad-kids and so on. This is more or less what is happening.
Government made promises to pay pensions/medical benefits to large quantity of people but doesn't have that kind of money from tax income. So they borrow from the future generation by printing more money promising to pay itself back. The net result is inflation like phenomenon which rises cost of services but not the income for the new folks who enter the job market. So this debt indicates amount of hardship future generations will encounter, at least at the start of their careers.
Issac Newton changed the world for the better by creating fractional reserve banking. But it's like an elastic band as we noticed in 2008. To get any perspective on this a breakdown by age groups would be more revealing. My goggle fu failing me.
Asset values are not static.
e.g if you borrowed $100K for to buy your $110K house 10 years ago, you may have $86K remaining on your mortgage today and your house might have appreciated to $134K.
But the 134K is only a validated if someone buys the house with 134K cash and/or credit. And that 134K is typically measured in terms of comps - nearby houses of similar size and similar condition... that were purchased with cash or credit. Currency is a ledger... one man's debt is another man's credit.
Flex? Just openly sharing debt info that is relevant to the article, meanwhile we have a whole bunch of people previously applauded for openly sharing their salaries, and I’m the one flexing? Thanks for your contribution...it’s not a flex, it’s just a fact.
By writing off the debts? That's not so nice for those who are owed. A bunch of those are pension funds, for example. If peoples' pensions get wiped out by by all debts being forgiven, they won't be so happy.
By the government giving money to people? But where does the government get the money? By taking on debt? Then the government's even more deeply in debt, which means that we the people still are in debt, too.
Or does the government just create more money? This might be the least-bad way of doing it, but it would still be hugely inflationary.
> By the government giving money to people? But where does the government get the money? By taking on debt? Then the government's even more deeply in debt, which means that we the people still are in debt, too.
But it's a lot easier to pay off, especially if you prioritize high risk debt to nationalize, so the government has a lower cost of borrowing (especially if the government, instead of paying off distressed debt, instead purchases it at current fair market value, since then the cost will be below the face value; “healthy” debts don't need a correction.)
That actually makes sense economically. Politically, though, what's going to happen is that people aren't going to want to pay taxes to service the government's debt (even if in advance they said they would). The consequences of the much-larger government debt without increased taxes could be anywhere from "somewhat negative" to "catastrophic".
I guess creating more money as you wrote. I believe the government has boosted the economy by giving money to workers to fix things that are not necessarily at the end of life. So to boost the economy by adding more money into the system. I believe it would be a similar strategy.
I think it’s better than continuing to exploit the underprivileged. The persons who were either in one of the categories: uneducated, unfortunate, desperate, deluded/ill, or whatever it may be to how they didn’t have the variables & events needed to succeed compared to the ones that did. Add a forgiveness plan with some financial health classes and the community health will improve or the system is inherently socially poor and needs to adapt for persons who are destined to fail with the system that favors others unfairly.
Good intentions don't save bad policy from causing really bad effects. Venezuela was going to help the poor. Really, that was the intent. They wound up with the poor losing 15 pounds each because they can't get enough food. How did they get there? Well, there wasn't enough money to pay for all the things that the government wanted to do for the poor, so they printed more money. Then the next year, there still wasn't enough money, and prices had gone up, so they printed more money. And they wound up at runaway inflation. It's a real danger, to be taken seriously. Merely saying "it's better than the alternative" does not in fact make it better than the status quo, even for the underprivileged.
But there are two things that might prevent this idea from winding up at hyperinflation. First, it is a one-off. The government prints money to pay off everyone's debt. Now nobody has debt, so the government doesn't need to do it again. Except that having no debt didn't give me enough money to buy a house, so I still have to take out a mortgage, and behold, I'm in debt again. And it didn't give my kid enough money to pay for college, so she's in debt again. And now there's cries for the government to do it again. And if they keep doing it, then we're probably going to wind up in hyperinflation. (Especially because of incentives. If the government paid off all debts, and I think they're going to do it again, my incentive is to borrow as much as I can to buy anything I think I want, because to me, it will be free.)
The second way this might not wind up in hyperinflation is because of deleveraging. A bank has $100 on deposit. They lend out $90 (fractional reserve banking), and now $190 exists, but someone owes $90, so the net is still $100. Now the government prints $90 and pays off the bank. Now $190 exists, which is no change, but the net is now $190 instead of $100, which is a change. Is that inflationary or not? I don't know.
They wipe out pretty much all debt and financial history. Although it doesn't apply to actually doing it because it was uncontrolled and caused the collapse of the dollar and was done in a way more like a terrorist attack than a debt forgiveness.
What if we just delete all the debt and start from zero? Won't the zero (everything people have built and developed to the date) be better than if the debtors had never taken the credits?
I would like a theoretical answer ignoring the ethical part and the fact creditors will become less willing to lend money again if this happens.
Why-Not depends on which side you fall into. There are two sides: People with Debt and People collecting Payments.
People-Paying would love to start from zero.
People-Collecting would not want that.
If you think about it as two groups (theoretically): one group receives monthly, recurring payments from the other group.
In practice, individuals move from one group to another group and back, etc. based on life circumstances.
But here is a catch: Due to a bug or design, if an individual (or few individuals or families) could always stay in the receiving-group, he can live for free till end of time (or system halts/collapses.)
What will blow your mind is, are there such individuals or families in the system by design?
And what about the creditors? And what about the future people who want to borrow to finance something, but are unable to because everyone is afraid to lend money?
What if some humans are greedy to the point of everyone suffering huge social issues, what if creditors get their money while the poor starve? Won’t somebody think of the bankers in all this!
I am not sure if some of the ideas about debt that Graeber argues are correct, but he does discuss a lot of interesting examples of debt from societies throughout history.
https://www.mhpbooks.com/books/debt/
https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years