5 ms·

Is it necessary to pay this money?

tehabe 9y ago
No it isn't. If all the debt is paid in full, the only effect this would have is that the income of the economy would be lower. The interests are low now because many states don't invest as much as they used to do. So the demand for money is low. And when the demand for something is low, the price for it goes down.
- iagooar 9y ago
  Trying to wrap my head around "the demand for money is low, the price goes down". Genuinely curious.
  - lowpro 9y ago
    If an entity doesn't see a good way to invest money, they won't borrow money to make money. This is what they mean when 'the demand for money is low'. If the government borrowed money, they would not make as much on that money as the interest payment to who they borrowed from, so they never borrow the money. This has the overall effect of reducing money demand, reducing the premium to get that money (the interest rates continue to drop). Everyone though 0% interest was a hard line and you couldn't go lower, until negative interest rates were introduced to try and reverse this trend, which it largely hasn't.
  - thesumofall 9y ago
    What part of it? You are a bank and try to earn as much as possible with the money your customers gave you. However, states, consumers, and businesses don't invest as much as they used to / don't borrow as much money. What do you do as a bank? You lower your interest rates to try to attract at least some customers. Combine that with exceptional supply due to quantitative easing and you have what you have right now
  - tehabe 9y ago
    Why is that so complicated? If the demand is low but the supply is high, prices usually decrease.
  - golergka 9y ago
    "Money" is cash now. Price is the interest.
  - hl5 9y ago
    Lower interest rates cause people to wait for a lower rate, higher rates cause people to take out loans before the rate goes up again. CBs did the worst possible thing with no historic evidence it would work, as usual.
- la_fayette 9y ago
  i would state it differently. the ecb sets the interest rate low so that borrowing money is cheap and thus more investments will be made and thus economic activity is stimulated.
thesumofall 9y ago
No. It should stay at healthy levels and grow with GDP as long as there are attractive investment opportunities at a national level (e.g., education). The challenge is to determine "healthy"
reallydattrue 9y ago
One of the mods doesn't like my conservative views. My comments keep on getting deleted/shadowed. Lets see if this one sticks. Yes, the states/countries shouldn't really have any debt. One of the previous presidents in the US wanted in the constitution for the (federal) state to never have debt. If you subscribe to Keynesian economics the answer is more debt the better. If you subscribe to Austrian economics, no debt should ever exist.
maze-le 9y ago
Not accumulating any debt (as a state) results in missed investments in infrastructure and other state expenses, wich may be cruicial for the economy. Investment in the energy infrastructure, payed by debt, for example benefits the whole society. Not taking this debt would be foolish since it would impair the development of your country. Accumulating too much dept (again as a state), results in a 'trickle up' economy, where a significant proportion of taxpayers money goes directly to the banks (in the form of interest). This is foolish too, since the bulk of the population would not work for the development of society, but for the profits of banks. >> Is it necessary to pay this money? It becomes necessary, when you reach a critical level of debt. But I also think it is in the interest of both state and economy that a reasonable proportion of debt exists, as long as it does not exceed a certain level. The big question remaining is, what is this certain level?
- chimeracoder 9y ago
  > Accumulating too much dept (again as a state), results in a 'trickle up' economy, where a significant proportion of taxpayers money goes directly to the banks (in the form of interest). This is foolish too, since the bulk of the population would not work for the development of society, but for the profits of banks. ...what? No, the money goes back to bondholders, who are themselves taxpayers. I guess banks can make some profit along the way, but it's incredibly misleading to say that the primary beneficiary of interest are banks themselves, or that this is even the primary risk with excess debt.
petters 9y ago
No. For example, in my country Sweden, a major part of the national debt is between the government and the central bank. Basically, the central bank created money and gave it to the government. Viewing the government and the central bank as a single entity makes that huge debt almost an accounting detail. "Repaying" all of that would introduce a money shortage into the economy.
fulafel 9y ago
Typically governments borrow (= issue bonds) for long term, and gradually replace older loans with newer loans. So yes, these loans will probably be paid, but they will mostly be replaced with new ones. But no, there is nothing forcing the countries to repay these loans. You can't really collect from sovereign states if they miss loan payments. (https://en.wikipedia.org/wiki/Sovereign_default https://en.wikipedia.org/wiki/Sovereign_default)
merpnderp 9y ago
Think of it as government created inflation, ie a tax on your held currency, and it makes a lot more sense.
taw55 9y ago
According to the convergence criteria, yes. Those criteria pretty much ensure the inability of the Euro to function properly though [1] Domestically, not really. Internationally, it depends on a number of factors. [2] [1] https://www.lrb.co.uk/v14/n19/wynne-godley/maastricht-and-all-that https://www.lrb.co.uk/v14/n19/wynne-godley/maastricht-and-al... [2] https://larspsyll.wordpress.com/2017/07/18/the-balanced-budget-paradox/ https://larspsyll.wordpress.com/2017/07/18/the-balanced-budg...

No it isn't. If all the debt is paid in full, the only effect this would have is that the income of the economy would be lower. The interests are low now because many states don't invest as much as they used to do. So the demand for money is low. And when the demand for something is low, the price for it goes down.

iagooar 9y ago
Trying to wrap my head around "the demand for money is low, the price goes down". Genuinely curious.
- lowpro 9y ago
  If an entity doesn't see a good way to invest money, they won't borrow money to make money. This is what they mean when 'the demand for money is low'. If the government borrowed money, they would not make as much on that money as the interest payment to who they borrowed from, so they never borrow the money. This has the overall effect of reducing money demand, reducing the premium to get that money (the interest rates continue to drop). Everyone though 0% interest was a hard line and you couldn't go lower, until negative interest rates were introduced to try and reverse this trend, which it largely hasn't.
- thesumofall 9y ago
  What part of it? You are a bank and try to earn as much as possible with the money your customers gave you. However, states, consumers, and businesses don't invest as much as they used to / don't borrow as much money. What do you do as a bank? You lower your interest rates to try to attract at least some customers. Combine that with exceptional supply due to quantitative easing and you have what you have right now
- tehabe 9y ago
  Why is that so complicated? If the demand is low but the supply is high, prices usually decrease.
- golergka 9y ago
  "Money" is cash now. Price is the interest.
- hl5 9y ago
  Lower interest rates cause people to wait for a lower rate, higher rates cause people to take out loans before the rate goes up again. CBs did the worst possible thing with no historic evidence it would work, as usual.
la_fayette 9y ago
i would state it differently. the ecb sets the interest rate low so that borrowing money is cheap and thus more investments will be made and thus economic activity is stimulated.

thesumofall 9y ago

No. It should stay at healthy levels and grow with GDP as long as there are attractive investment opportunities at a national level (e.g., education). The challenge is to determine "healthy"

reallydattrue 9y ago

One of the mods doesn't like my conservative views. My comments keep on getting deleted/shadowed. Lets see if this one sticks. Yes, the states/countries shouldn't really have any debt. One of the previous presidents in the US wanted in the constitution for the (federal) state to never have debt. If you subscribe to Keynesian economics the answer is more debt the better. If you subscribe to Austrian economics, no debt should ever exist.

maze-le 9y ago

Not accumulating any debt (as a state) results in missed investments in infrastructure and other state expenses, wich may be cruicial for the economy. Investment in the energy infrastructure, payed by debt, for example benefits the whole society. Not taking this debt would be foolish since it would impair the development of your country. Accumulating too much dept (again as a state), results in a 'trickle up' economy, where a significant proportion of taxpayers money goes directly to the banks (in the form of interest). This is foolish too, since the bulk of the population would not work for the development of society, but for the profits of banks. >> Is it necessary to pay this money? It becomes necessary, when you reach a critical level of debt. But I also think it is in the interest of both state and economy that a reasonable proportion of debt exists, as long as it does not exceed a certain level. The big question remaining is, what is this certain level?

chimeracoder 9y ago
> Accumulating too much dept (again as a state), results in a 'trickle up' economy, where a significant proportion of taxpayers money goes directly to the banks (in the form of interest). This is foolish too, since the bulk of the population would not work for the development of society, but for the profits of banks. ...what? No, the money goes back to bondholders, who are themselves taxpayers. I guess banks can make some profit along the way, but it's incredibly misleading to say that the primary beneficiary of interest are banks themselves, or that this is even the primary risk with excess debt.

petters 9y ago

No. For example, in my country Sweden, a major part of the national debt is between the government and the central bank. Basically, the central bank created money and gave it to the government. Viewing the government and the central bank as a single entity makes that huge debt almost an accounting detail. "Repaying" all of that would introduce a money shortage into the economy.

fulafel 9y ago

Typically governments borrow (= issue bonds) for long term, and gradually replace older loans with newer loans. So yes, these loans will probably be paid, but they will mostly be replaced with new ones. But no, there is nothing forcing the countries to repay these loans. You can't really collect from sovereign states if they miss loan payments. (https://en.wikipedia.org/wiki/Sovereign_default https://en.wikipedia.org/wiki/Sovereign_default)

merpnderp 9y ago

Think of it as government created inflation, ie a tax on your held currency, and it makes a lot more sense.

taw55 9y ago

According to the convergence criteria, yes. Those criteria pretty much ensure the inability of the Euro to function properly though [1] Domestically, not really. Internationally, it depends on a number of factors. [2] [1] https://www.lrb.co.uk/v14/n19/wynne-godley/maastricht-and-all-that https://www.lrb.co.uk/v14/n19/wynne-godley/maastricht-and-al... [2] https://larspsyll.wordpress.com/2017/07/18/the-balanced-budget-paradox/ https://larspsyll.wordpress.com/2017/07/18/the-balanced-budg...