7 ms·

Disclaimer: I know about economy as much as the next guy. Retirement pensions are one thing, the other is debt - whenever I hear that all countries are in debt

by qb45 9y ago

Disclaimer: I know about economy as much as the next guy. Retirement pensions are one thing, the other is debt - whenever I hear that all countries are in debt I think of the law of conservation of mass and have an obvious question: who is this monumental, multiple-GDP debt owed to? I figure it must be the private sector, but in such case - why are they lending? It looks like either there are people with resources they have no idea how to invest in something actually productive or there are people who knowingly choose to invest in this somewhat risky business of "pay companies to do something for the public now and hope that the public will return you more than the GDP of the whole country, maybe it will work out", which is how I see these big national debts. Who are these investors and how hard would it be to make them cut their losses? At the risk of committing a blasphemy against capitalism, could it be a sign of insufficient taxation of the proverbial "top 1%"? This doesn't necessarily need to be "top 1% individuals", maybe it's "top 1% companies" or "top 1% banks" or whatever. In either case, it appears that somewhere, someone has some big money which is being spent on public projects anyway but under the guise of an "investment" which may actually be a big dud.

somecallitblues 9y ago
It's banks. Our current capitalism functions on financial credit. Banks are lending all this money they don't have in hope that they'll get it back with interest. Everyone believes in it and I'd say that it's a form of modern ideology.
- deleted 9y ago
  [deleted]
- RobertoG 9y ago
  The function of private banks (apart of managing the system payments) is to arbitrate the creation of money when there is something deserving to invest. That's not a problem, or an ideology, is how the system works. A different question is if they do a good work.
humanrebar 9y ago
The debt levels are high enough that tax hikes would have to be very broad to close budget gaps. The top 1% can't make up these shortfalls.
- a3n 9y ago
  Not advocating it, but what if we just confiscated their total wealth? "Eat the rich" and all that.
  - pjc50 9y ago
    Hard to do legally, and if you do it illegally it tends to collapse the rule of law and result in investors fleeing. Far better would be even small levels of property tax, land value tax, and (important for 21st century) intellectual property tax. IP licensing fees are a key component of how many big businesses shuffle money into low-tax jurisdictions. Oh, and kill the tax secrecy havens. This is already starting to happen, but it's a very long slow process.
    - belorn 9y ago
      Unrest do collapse the rule of law for a shot time, but there is a problem. If investors start to flee then they stop being the top 1% earners in that place. Sooner or later the allure to earn money overrides the fear of loosing, and the cycle continues. In a book called Debt, the First 5000 years they explore this concept and uses it to explain why nations tend to independently concludes that you must have laws that regulate lending. If not you get periodical unrest where the populace go and burn down the debt ledges, and in some historical places this happened as often as once every few years. Collapse of the law don't permanently scare away investors. Not to say that unrest and collapsing the rule of law is a good thing.
      - sgt101 9y ago
        In the Bible I think this was called a "jubilee"; debt was forgiven, slaves (some) freed every 20 years. I guess that in a high mortality society this makes a lot of sense - 90% of human assets will expire in that time period in any case so if you have the bad luck to live for 10+ years in slavery you deserve a break!
RobertoG 9y ago
The problem arises when you assume that the debt of a country in its own money is the same that private debts. When a private bank credit some household or business they get an asset (the debt owned to them) and a liability (the money they just created from nothing) that cancel each other. The entity receiving the credit have the same position but inverted. So, if you take all the economy, everything cancels to zero and not "law of conservation of mass" has been violated. The debt issue by a country is a very different animal. In fact, probably we should stop calling it debt. When a government issue debt they are creating financial assets that allows the private sector to operate. An interesting mental experiment is to think in what would happen if all the governments pay all the 'debt' and stop spending. Stephanie Kelton write about those things: "Our challenge is not whether we can “afford” to make the payments we have promised to seniors, veterans, the disabled, government contractors, healthcare providers, bondholders, etc. (today, tomorrow and into the indefinite future) but whether we will be a productive enough nation to allow the government to make good on those promises without causing an inflation problem. That is the debate we should be having." http://www.nakedcapitalism.com/2013/10/stephanie-kelton-how-to-talk-about-debt-and-deficits-dont-think-of-an-elephant.html http://www.nakedcapitalism.com/2013/10/stephanie-kelton-how-...
- tonyedgecombe 9y ago
  In the UK the political parties are wed to a lock on pensions that keeps them tracking inflation. One of the parties tried to wiggle out of a small part of it in the recent election and it seems that was at least partly responsible for their poor election performance. It will be interesting to see how this plays out over time and whether at some point the dam will break and chaos will ensue. At an individual level it's probably a good idea not to rely on the state for anything if you can manage that.
  - RobertoG 9y ago
    The point is that, the government, can always pay future pensions because it can issue money. The question is: can do it without generating inflation? It depends of the productivity of the economy in that future. The conclusion is that saving money means nothing, what is really important is generate real wealth now so we can pay in the future without generating inflation. So, investment in real capacity (creating infrastructure and knowledge) now will allow generate the real resources for "paying" in the future. Just the opposite of what they try to sell us. Never mind how much money you save now if, in the future, there are not real resources for taking care of everybody.
pjc50 9y ago
> whenever I hear that all countries are in debt I think of the law of conservation of mass and have an obvious question: who is this monumental, multiple-GDP debt owed to? Finally, someone asking the right questions! The first observation is that if you try to tally "global debt" vs "global assets", a lot of it appears to be missing. This is because the ownership is obscured in tax havens. There's an excellent paper on this: https://gabriel-zucman.eu/files/Zucman2013QJE.pdf https://gabriel-zucman.eu/files/Zucman2013QJE.pdf The second observation is that the 2008 financial crisis put a lot of previously high quality government bonds in jeopardy, and we saw who the major bondholders were: banks. Banks are effectively required to hold bonds as "safe" assets to cover their liabilities. > why are they lending? It looks like either there are people with resources they have no idea how to invest in something actually productive This seems to be basically true, and is why there is so much SV money sloshing around. There's lots of investment that would be societally useful but the returns would not flow back to the original investor, so either it doesn't happen or elaborate schemes need to be constructed to bribe them with future taxpayer cashflow in order to make this investment. > insufficient taxation of the proverbial "top 1%"? Some of whom own more than the GDP of some small countries. And a few who have stolen a good fraction of the GDP of small countries.
- caseysoftware 9y ago
  > The first observation is that if you try to tally "global debt" vs "global assets", a lot of it appears to be missing. Part of that comes through debt funding of future liabilities. For example, if you invest $1M into a number of small businesses, those businesses make and spend money, buy and sell goods, hire people, and pay taxes in a variety of ways. Hopefully, they're a net positive in a variety of ways. If you invest $1M into a bridge, there's no additional tax revenue, a brief burst of construction jobs, it will need maintenance, improvements, etc long term. You've created a net liability. Therefore, many "global assets" simply disappear as time goes on while the debt/liabilities grow. This is why more and more cities are pulling in their borders (aka responsibilities) to let unsustainable streets crumble, water infrastructure collapse, and police/fire coverage dwindle. It's awful if you're in one of those de-annexed areas.
  - 9y ago
Someone 9y ago
"Who is this monumental, multiple-GDP debt owed to?" Government bonds can be popular parts of the investment mix of private pension funds because they pay out in the currency that those pension funds will need to pay out pensions. That removes any risk of exchange rate changes (say that you know you will have to pay out a billion euros in pensions in the next five years. A mix of technology shares statistically will do better in the long run, but in such a short timeframe, it could do worse, especially if it pays out in US dollar, which may go up or down relative to the euro) Also, for governments there is a fairly easy way out of last resort: print money. The resulting inflation effectively gives everybody a cut on the government debts they hold, without the government having to negotiate a deal on that cut (that only holds if countries write debts in a currency they control. Debts in euros are somewhat of an exception in this respect, as are the rare country bonds in foreign currencies)
gaius 9y ago
who is this monumental, multiple-GDP debt owed to? To our future selves. Why are pensions failing? Because in the past people moved the money from the future into the present (i.e. the past), and now we are in the future (i.e. the present) the money isn't there. Where is it? It was spent on crap rather than invested in assets. Oops.
- Lambdanaut 9y ago
  > Where is it? It was spent on crap rather than invested in assets. What makes something crap rather than an asset? How could they have done it "the right way"?
  - gaius 9y ago
    Governments spend a lot of this money on job creation. So the question is, what are those jobs? Are they creating value-adding infrastructure such as bridges and tunnels that accelerate movement between commercial centres? Or are they doing the equivalent of paying people to dig holes and fill them in again, such as employing huge bureaucracies to shuffle paper around and sit in meetings eating biscuits? Another example is a person who borrows money and spends it on home improvements. He or she still has to pay back the money and the interest, but if the value of the improvements is greater than the cost, that money can be recovered later by selling the house. Or that person could have spent the money on... nothing. That might have been fun, but it still needs to be paid back...
    - RobertoG 9y ago
      A household an a government are very different things. A government that issue its own currency is not limited in the same way that a household. A government, that issue its own currency, could spend (constrained by the real resources available) without creating debt at the same time. It's true that it would be wise to spend in creating more real capacity in the economy, instead of digging holes and fill them again.
      - gaius 9y ago
walshemj 9y ago
And pension debt depends on how you account for future liability an d guess what Bloomberg etal have a vested interest in making things seem as bad as they can. you need to ask Cui Bono "Who benefits" when you read articles like this
bluGill 9y ago
> Who are these investors and how hard would it be to make them cut their losses? One of the bigger ones is pension plans for private companies which legally cannot invest in anything sensible. This is why companies are pushing their employees to invest in a 401k: the 401k can invest in something with a nice rate of return. Making them cut their losses might not be hard though - private pensions are generally believed to be underfunded. It is generally accepted that many companies will cut their pensions anyway when they cannot afford them. There are lots of other buyers of debt though.
eli_gottlieb 9y ago
The situation you're describing is a basic capital glut. There's too much cash floating around looking for something to invest in and make a return, but the pool of current and future aggregate demand has mostly run dry. As a result, society's most high-value projects have become money-losers, and useful stuff (like repairing trains or investigating the natural sciences) stops getting done.
- stillsut 9y ago
  Maybe Broad Institute, Harvard, MIT, shouldn't be tax free "non-profits" while TrainRepair Inc is paying 35% tax rate?
  - eli_gottlieb 9y ago
    I'd certainly favor taxing the ever-loving heck out of Harvard and MIT (actually, everyone in Kendall and Harvard Squares) to repair the MBTA that literally brings their employees to work.
paulddraper 9y ago
> no idea how to invest in something actually productive It is productive, aka it produces a return. If you have another idea of "productive" to a lender, let me know.

by qb45 9y ago

somecallitblues 9y ago

It's banks. Our current capitalism functions on financial credit. Banks are lending all this money they don't have in hope that they'll get it back with interest. Everyone believes in it and I'd say that it's a form of modern ideology.

deleted 9y ago
[deleted]
RobertoG 9y ago
The function of private banks (apart of managing the system payments) is to arbitrate the creation of money when there is something deserving to invest. That's not a problem, or an ideology, is how the system works. A different question is if they do a good work.

humanrebar 9y ago

The debt levels are high enough that tax hikes would have to be very broad to close budget gaps. The top 1% can't make up these shortfalls.

a3n 9y ago
Not advocating it, but what if we just confiscated their total wealth? "Eat the rich" and all that.
- pjc50 9y ago
  Hard to do legally, and if you do it illegally it tends to collapse the rule of law and result in investors fleeing. Far better would be even small levels of property tax, land value tax, and (important for 21st century) intellectual property tax. IP licensing fees are a key component of how many big businesses shuffle money into low-tax jurisdictions. Oh, and kill the tax secrecy havens. This is already starting to happen, but it's a very long slow process.
  - belorn 9y ago
    Unrest do collapse the rule of law for a shot time, but there is a problem. If investors start to flee then they stop being the top 1% earners in that place. Sooner or later the allure to earn money overrides the fear of loosing, and the cycle continues. In a book called Debt, the First 5000 years they explore this concept and uses it to explain why nations tend to independently concludes that you must have laws that regulate lending. If not you get periodical unrest where the populace go and burn down the debt ledges, and in some historical places this happened as often as once every few years. Collapse of the law don't permanently scare away investors. Not to say that unrest and collapsing the rule of law is a good thing.
    - sgt101 9y ago
      In the Bible I think this was called a "jubilee"; debt was forgiven, slaves (some) freed every 20 years. I guess that in a high mortality society this makes a lot of sense - 90% of human assets will expire in that time period in any case so if you have the bad luck to live for 10+ years in slavery you deserve a break!

RobertoG 9y ago

The problem arises when you assume that the debt of a country in its own money is the same that private debts. When a private bank credit some household or business they get an asset (the debt owned to them) and a liability (the money they just created from nothing) that cancel each other. The entity receiving the credit have the same position but inverted. So, if you take all the economy, everything cancels to zero and not "law of conservation of mass" has been violated. The debt issue by a country is a very different animal. In fact, probably we should stop calling it debt. When a government issue debt they are creating financial assets that allows the private sector to operate. An interesting mental experiment is to think in what would happen if all the governments pay all the 'debt' and stop spending. Stephanie Kelton write about those things: "Our challenge is not whether we can “afford” to make the payments we have promised to seniors, veterans, the disabled, government contractors, healthcare providers, bondholders, etc. (today, tomorrow and into the indefinite future) but whether we will be a productive enough nation to allow the government to make good on those promises without causing an inflation problem. That is the debate we should be having." http://www.nakedcapitalism.com/2013/10/stephanie-kelton-how-to-talk-about-debt-and-deficits-dont-think-of-an-elephant.html http://www.nakedcapitalism.com/2013/10/stephanie-kelton-how-...

tonyedgecombe 9y ago
In the UK the political parties are wed to a lock on pensions that keeps them tracking inflation. One of the parties tried to wiggle out of a small part of it in the recent election and it seems that was at least partly responsible for their poor election performance. It will be interesting to see how this plays out over time and whether at some point the dam will break and chaos will ensue. At an individual level it's probably a good idea not to rely on the state for anything if you can manage that.
- RobertoG 9y ago
  The point is that, the government, can always pay future pensions because it can issue money. The question is: can do it without generating inflation? It depends of the productivity of the economy in that future. The conclusion is that saving money means nothing, what is really important is generate real wealth now so we can pay in the future without generating inflation. So, investment in real capacity (creating infrastructure and knowledge) now will allow generate the real resources for "paying" in the future. Just the opposite of what they try to sell us. Never mind how much money you save now if, in the future, there are not real resources for taking care of everybody.

pjc50 9y ago

> whenever I hear that all countries are in debt I think of the law of conservation of mass and have an obvious question: who is this monumental, multiple-GDP debt owed to? Finally, someone asking the right questions! The first observation is that if you try to tally "global debt" vs "global assets", a lot of it appears to be missing. This is because the ownership is obscured in tax havens. There's an excellent paper on this: https://gabriel-zucman.eu/files/Zucman2013QJE.pdf https://gabriel-zucman.eu/files/Zucman2013QJE.pdf The second observation is that the 2008 financial crisis put a lot of previously high quality government bonds in jeopardy, and we saw who the major bondholders were: banks. Banks are effectively required to hold bonds as "safe" assets to cover their liabilities. > why are they lending? It looks like either there are people with resources they have no idea how to invest in something actually productive This seems to be basically true, and is why there is so much SV money sloshing around. There's lots of investment that would be societally useful but the returns would not flow back to the original investor, so either it doesn't happen or elaborate schemes need to be constructed to bribe them with future taxpayer cashflow in order to make this investment. > insufficient taxation of the proverbial "top 1%"? Some of whom own more than the GDP of some small countries. And a few who have stolen a good fraction of the GDP of small countries.

caseysoftware 9y ago
> The first observation is that if you try to tally "global debt" vs "global assets", a lot of it appears to be missing. Part of that comes through debt funding of future liabilities. For example, if you invest $1M into a number of small businesses, those businesses make and spend money, buy and sell goods, hire people, and pay taxes in a variety of ways. Hopefully, they're a net positive in a variety of ways. If you invest $1M into a bridge, there's no additional tax revenue, a brief burst of construction jobs, it will need maintenance, improvements, etc long term. You've created a net liability. Therefore, many "global assets" simply disappear as time goes on while the debt/liabilities grow. This is why more and more cities are pulling in their borders (aka responsibilities) to let unsustainable streets crumble, water infrastructure collapse, and police/fire coverage dwindle. It's awful if you're in one of those de-annexed areas.
- 9y ago

Someone 9y ago

"Who is this monumental, multiple-GDP debt owed to?" Government bonds can be popular parts of the investment mix of private pension funds because they pay out in the currency that those pension funds will need to pay out pensions. That removes any risk of exchange rate changes (say that you know you will have to pay out a billion euros in pensions in the next five years. A mix of technology shares statistically will do better in the long run, but in such a short timeframe, it could do worse, especially if it pays out in US dollar, which may go up or down relative to the euro) Also, for governments there is a fairly easy way out of last resort: print money. The resulting inflation effectively gives everybody a cut on the government debts they hold, without the government having to negotiate a deal on that cut (that only holds if countries write debts in a currency they control. Debts in euros are somewhat of an exception in this respect, as are the rare country bonds in foreign currencies)

gaius 9y ago

who is this monumental, multiple-GDP debt owed to? To our future selves. Why are pensions failing? Because in the past people moved the money from the future into the present (i.e. the past), and now we are in the future (i.e. the present) the money isn't there. Where is it? It was spent on crap rather than invested in assets. Oops.

Lambdanaut 9y ago
> Where is it? It was spent on crap rather than invested in assets. What makes something crap rather than an asset? How could they have done it "the right way"?
- gaius 9y ago
  Governments spend a lot of this money on job creation. So the question is, what are those jobs? Are they creating value-adding infrastructure such as bridges and tunnels that accelerate movement between commercial centres? Or are they doing the equivalent of paying people to dig holes and fill them in again, such as employing huge bureaucracies to shuffle paper around and sit in meetings eating biscuits? Another example is a person who borrows money and spends it on home improvements. He or she still has to pay back the money and the interest, but if the value of the improvements is greater than the cost, that money can be recovered later by selling the house. Or that person could have spent the money on... nothing. That might have been fun, but it still needs to be paid back...
  - RobertoG 9y ago
    A household an a government are very different things. A government that issue its own currency is not limited in the same way that a household. A government, that issue its own currency, could spend (constrained by the real resources available) without creating debt at the same time. It's true that it would be wise to spend in creating more real capacity in the economy, instead of digging holes and fill them again.
    - gaius 9y ago

walshemj 9y ago

And pension debt depends on how you account for future liability an d guess what Bloomberg etal have a vested interest in making things seem as bad as they can. you need to ask Cui Bono "Who benefits" when you read articles like this

bluGill 9y ago

> Who are these investors and how hard would it be to make them cut their losses? One of the bigger ones is pension plans for private companies which legally cannot invest in anything sensible. This is why companies are pushing their employees to invest in a 401k: the 401k can invest in something with a nice rate of return. Making them cut their losses might not be hard though - private pensions are generally believed to be underfunded. It is generally accepted that many companies will cut their pensions anyway when they cannot afford them. There are lots of other buyers of debt though.

eli_gottlieb 9y ago

The situation you're describing is a basic capital glut. There's too much cash floating around looking for something to invest in and make a return, but the pool of current and future aggregate demand has mostly run dry. As a result, society's most high-value projects have become money-losers, and useful stuff (like repairing trains or investigating the natural sciences) stops getting done.

stillsut 9y ago
Maybe Broad Institute, Harvard, MIT, shouldn't be tax free "non-profits" while TrainRepair Inc is paying 35% tax rate?
- eli_gottlieb 9y ago
  I'd certainly favor taxing the ever-loving heck out of Harvard and MIT (actually, everyone in Kendall and Harvard Squares) to repair the MBTA that literally brings their employees to work.

paulddraper 9y ago

> no idea how to invest in something actually productive It is productive, aka it produces a return. If you have another idea of "productive" to a lender, let me know.