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A debt is a debt is a debt. Debt is meant to be repaid, not held indefinitely. It is not being repaid because everyone knows (certainly in Japan's case, and mo

by jazzyk 11y ago

A debt is a debt is a debt. Debt is meant to be repaid, not held indefinitely. It is not being repaid because everyone knows (certainly in Japan's case, and most probably in other countries' cases) that it CANNOT be repaid and therefore WILL NOT be repaid. Debt 'servicing' is just sweeping the problem under the carpet.

dragonwriter 11y ago
What do you mean by "debt is meant to be repaid?" Debt is an asset for the lender, and debt service names it in l an income generated asset. Where it is not better for the borrower to pay it off now vs m continuing to pay debt service, and where the terms of the debt alow that (or where the debt service can be transferred by paying off one lender by borrowing from a new one), then it can be mutually beneficial to the parties involved not to pay off the debt. Debt does not have some cosmic purpose outside the interests of the parties involved. You may have a mental model of debt that preferred it being paid off, but that's quite possibly an irrational preference outside the circumstances of as particular debt.
- jazzyk 11y ago
  Not sure why you downvoted my post. At 300% of GDP, Japan is the most indebted country in the world and essentially bankrupt (Greece is at 180%). The government has a mountain of debt (300% of GDP) which it mostly owes to the people of Japan. Debt means the money has been spent, but -at maturity- the money needs to be returned to the lender (not all of them at once, of course). But Japan does not have money to reduce the debt so keeps servicing the debt by artificially lowering borrowing costs and just finding new lenders to pay off former lenders. In case the Japanese find better safe places to park their money, borrowing costs will go up, causing the debt to balloon, and may cause financial meltdown. This has been going on for the past 20+ years resulting in stagnation in Japan.
  - Retric 11y ago
    Japan's debt has been sold at generally less than its inflation rate for a decade, making servicing costs essentially below zero over the last decade. While that may not be stable, you can't get into a debt spiral with a negative interest rate. That said, they have been running large deficits for a long time which is a separate issue.
    - jazzyk 11y ago
      At some point, borrowing costs will rise and then they are in big trouble.
      - Retric 11y ago
        Perhaps, it's an odd situation. If you exclude the Bank of Japan's holdings Japan's debt to GDP ratio is ~70%. It's as if the FED used QE to increase the money supply and ended up owning most US public debt. Sure, on paper it would look bad, but there would be nobody to pay back that debt to.

by jazzyk 11y ago

dragonwriter 11y ago

What do you mean by "debt is meant to be repaid?" Debt is an asset for the lender, and debt service names it in l an income generated asset. Where it is not better for the borrower to pay it off now vs m continuing to pay debt service, and where the terms of the debt alow that (or where the debt service can be transferred by paying off one lender by borrowing from a new one), then it can be mutually beneficial to the parties involved not to pay off the debt. Debt does not have some cosmic purpose outside the interests of the parties involved. You may have a mental model of debt that preferred it being paid off, but that's quite possibly an irrational preference outside the circumstances of as particular debt.

jazzyk 11y ago
Not sure why you downvoted my post. At 300% of GDP, Japan is the most indebted country in the world and essentially bankrupt (Greece is at 180%). The government has a mountain of debt (300% of GDP) which it mostly owes to the people of Japan. Debt means the money has been spent, but -at maturity- the money needs to be returned to the lender (not all of them at once, of course). But Japan does not have money to reduce the debt so keeps servicing the debt by artificially lowering borrowing costs and just finding new lenders to pay off former lenders. In case the Japanese find better safe places to park their money, borrowing costs will go up, causing the debt to balloon, and may cause financial meltdown. This has been going on for the past 20+ years resulting in stagnation in Japan.
- Retric 11y ago
  Japan's debt has been sold at generally less than its inflation rate for a decade, making servicing costs essentially below zero over the last decade. While that may not be stable, you can't get into a debt spiral with a negative interest rate. That said, they have been running large deficits for a long time which is a separate issue.
  - jazzyk 11y ago
    At some point, borrowing costs will rise and then they are in big trouble.
    - Retric 11y ago
      Perhaps, it's an odd situation. If you exclude the Bank of Japan's holdings Japan's debt to GDP ratio is ~70%. It's as if the FED used QE to increase the money supply and ended up owning most US public debt. Sure, on paper it would look bad, but there would be nobody to pay back that debt to.