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Debt, in and of itself is not necesserily a bad thing, at least at the micro level. If that debt is at a low interest rate, and used to finance something that s
by darkr 11y ago
Debt, in and of itself is not necesserily a bad thing, at least at the micro level. If that debt is at a low interest rate, and used to finance something that stimulates economic growth then that is a net positive.
One problem with debt is the long-term effects caused by the method in which much modern debt is created: I.e the bank creates capital out of 'thin air' and it costs them nothing other than some liability for the value of that debt, and conversely when money is paid back to the bank, that money (minus a small cut) is effectively destroyed. Usually you can only pay back that money by receiving money from someone else who has gone into debt in order to raise that capital.
At the macro level, this means that effectively all money is debt. It is very hard (some would say impossible) to make any sizable reduction in levels of debt without causing a recession.
The pessimist in me has some sympathy for the viewpoint that bailing out the banks in 2008-2009 only served to delay an inevitable and long overdue correction in the global economy.
- andy_ppp 11y agoWhat happened when the amount of money was tied to gold? I do sometimes look at fractional reserve banking and see a giant ponzu scheme. I'm not sure ever increasing levels of debt are sustainable, but then I'm not an economist...
- ArkyBeagle 11y agoFractional reserve banking began under the gold standard or before. "What happened" is the Great Depression in the interwar period. Some say various nations "cheated" on the gold standard - rigged conversion rates to hoard gold.
- static_noise 11y agoThe money needed to pay back the debt exists. In principle all debt could be repaid - BUT only if nobody saves money. That money which is saved cannot be used to repay debt. It is this money which requires new debt to pay back old debt. Some entity (the state) needs to ensure that nobody saves a lot of money in order for the system to work long term. A weak state would rather take on new debt on its own instead of taking the money out of the hands of its citizens. This creates a temporary relief but in the long run it creates an increasing amount of money saved which in turn worsens the problems.