3 ms·

> 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 fundin

> 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.

pjc50 9y ago
That's not at all what I mean: I mean the accounting entries for debt and assets. If a bank lends a bridge-building company $1m, that produces a $1m liability for Bridge LLC and a $1m asset for Bank. (In fact slightly more, due to interest). When Bridge LLC spends money on concrete, its free cash goes down and its asset value labelled "bridge" goes up. In the worst case, Bridge LLC spends the money to no effect and goes bankrupt - leaving Bank to take a writedown on the "asset" side of the loan. But until it does that the loan still exists as two sides held by the two companies which should have the same value. The "missing" money is money owed where it is not clear from the outside statistical reporting where it is owed to - and in a global sense, the ledger must balance unless we owe money to aliens. The PDF explains the methodology. (An unsafe bridge may be a "liability" in the legal sense, but in any accounting sense it's an asset. Maybe subject to depreciation. But unless it's something that you owe to someone else, it's not an accounting liability.)
- slededit 9y ago
  The ledger does not have to balance. If the probability of you repaying me is reduced I have no choice under accounting standards but to mark down the value of the loan on my books. You still owe me the money, but the asset on my balance sheet is a function of likelihood you'll go bankrupt.
cuckcuckspruce 9y ago
>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. Not entirely true. If the net effect of the bridge is to connect two communities together more effectively then there may be people who pay property tax that buy land near the bridge, and then grocery stores, restaurants, barber shops, service stations and the like that spring up to serve those people. A bridge, constructed in the correct location, can easily spur economic growth which can pay back both the initial cost for the bridge and provide enough tax revenue to pay for its upkeep.

pjc50 9y ago

That's not at all what I mean: I mean the accounting entries for debt and assets. If a bank lends a bridge-building company $1m, that produces a $1m liability for Bridge LLC and a $1m asset for Bank. (In fact slightly more, due to interest). When Bridge LLC spends money on concrete, its free cash goes down and its asset value labelled "bridge" goes up. In the worst case, Bridge LLC spends the money to no effect and goes bankrupt - leaving Bank to take a writedown on the "asset" side of the loan. But until it does that the loan still exists as two sides held by the two companies which should have the same value. The "missing" money is money owed where it is not clear from the outside statistical reporting where it is owed to - and in a global sense, the ledger must balance unless we owe money to aliens. The PDF explains the methodology. (An unsafe bridge may be a "liability" in the legal sense, but in any accounting sense it's an asset. Maybe subject to depreciation. But unless it's something that you owe to someone else, it's not an accounting liability.)

slededit 9y ago
The ledger does not have to balance. If the probability of you repaying me is reduced I have no choice under accounting standards but to mark down the value of the loan on my books. You still owe me the money, but the asset on my balance sheet is a function of likelihood you'll go bankrupt.

cuckcuckspruce 9y ago

>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. Not entirely true. If the net effect of the bridge is to connect two communities together more effectively then there may be people who pay property tax that buy land near the bridge, and then grocery stores, restaurants, barber shops, service stations and the like that spring up to serve those people. A bridge, constructed in the correct location, can easily spur economic growth which can pay back both the initial cost for the bridge and provide enough tax revenue to pay for its upkeep.