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"The building up of unsustainable debt loads is a commonplace in history. There are several standard means of resolving the problem: execute the lenders, exile
by timf 16y ago
"The building up of unsustainable debt loads is a commonplace in history. There are several standard means of resolving the problem: execute the lenders, exile them, default outright or simply renegotiate to achieve partial default and low interest rates."
Or in the United States' case where the money is being lent in US dollars, print money (inflate) which decreases the value of the debt in real terms.
- brazzy 16y agoReducing debt through inflation is by no means special to the united states and indeed a major option missed in the article.
- gte910h 16y agoThe modern money supply is not primarily inflated by minting/printing money. The money supply is inflated when people make loans. Easy credit causes money supply inflation. Most of the inflation is caused by private lending, not public printing. Loans cause a 10-1 money supply increase on the base, and often more like 30-1 when you start to look at more risky lenders. The recent CARD act has likely done more to deflate the money supply than anything in recent memory, as it made one of the most pervasive forms of credit much less attractive to people. Every debt write down is money disappearing. That alone makes me laugh at people complaining about inflation and strategic default at the same time, as the later directly combats the former.
- timf 16y agoLooks like there are a wide array of opinions about what causes inflation (let alone deliberate inflation) http://en.wikipedia.org/wiki/Inflation#Causes http://en.wikipedia.org/wiki/Inflation#Causes
- randallsquared 16y agoThe money supply is inflated when people make loans. Well, when people loan more than they have, which banks in the US are allowed to do. Loans in and of themselves promote deflation, since people get loans to build wealth, and wealth increase in a static money supply is deflation.
- gte910h 16y agoLoans are inflation. By definition. Here is a movie about this: http://www.youtube.com/watch?v=P_Ydp7-ApdA http://www.youtube.com/watch?v=P_Ydp7-ApdA Deflation occurs when the loan is paid down or written down.
- randallsquared 16y agoLoans are inflation. By definition. The youtube video isn't working for me, right now, but that's clearly not correct. In a loan from A to B, the money B now has the use of is money that A does not have the use of. If there is interest on the loan, B can't make up the money for the interest from nowhere (unless B is a government controlling the supply for the money in question), so while the interest represents the additional wealth generated by the loan, it's not inflationary in and of itself. If no one is creating more money, the interest has to come out of a fixed pool of money in the economy, and now that there's more wealth (assuming the loan was successful), each unit of money is worth a little bit more, which is deflationary. This might or might not be a problem, depending on who you ask. I think it probably is, but the only way to solve it permanently (rather than in a stopgap manner like creating money at a rate you hope matches the actual growth of the economy) is to make actual wealth the basis of the money. This is, uh, very difficult, to understate the problem.