6 ms·

A special report on debt: Repent at leisure

69 points by pg 16y ago

woodrow 16y ago
This is a useful interactive feature from the article that lets you look at various countries' debt over time and by type -- financial, government, household, etc.): http://www.economist.com/blogs/buttonwood/2010/06/indebtedness_after_financial_crisis http://www.economist.com/blogs/buttonwood/2010/06/indebtedne... Particularly interesting to me is the variation in debt mix amongst countries (click on the headers at the top of the image) and the changes over time (click on the countries on the map).
- jbert 16y ago
  Yes, thanks. That was very interesting. It also made me wonder. Looking at the UK, the largest proportion of debt was 'financial', which I assume is debt owned by businesses operating in the financial sector. If so, is this even a bad thing? For example, does a hedge fund (which borrows large amounts of money to amplify it's wins and losses) naturally have a large "base" debt? Does a large financial sector just mean large financial debt as a matter of course? UK household debt is also high. I'd expect a significant part of this to be mortgages. The combination of the culture of home-ownership (as opposed to renting) and high property prices (small island, lots of people) leads most people into a long-term mortgage quite early (and has for a long time). Does that mean the UK's position isn't perhaps as bad as the "overall" graph paints it?
  - arethuza 16y ago
    As far as I understand it there is no fundamental reason why a hedge fund has to take on any debt at all - just that the investment strategies they often employ actually have very small returns so to make the overall returns to investors attractive they often borrow (or used to) large multiples of investors capital.
nostrademons 16y ago
Reminds me of the old software engineering maxim "All problems can be solved with another layer of indirection - except too many layers of indirection." Debt is not all that much unlike a layer of indirection - it's basically a pointer to the debtor who's actually doing something with your money. And just like a heavily-layered Java program, it's often difficult to figure out exactly where the work is getting done. Add enough layers of indirection, and it's possible to have the appearance of a very complex system where no real work is getting done at all. Maybe the financial crisis and associated bailouts were the equivalent of throwing out the old codebase and starting anew. "We don't understand the system anymore, so, err, let's throw it all out and rewrite everything!" With all the associated loss of institutional learning.
- Maro 16y ago
  I like your analogy, so I'll extend and maybe fix it. The economy is like a heavily layered enterprise Java program, where little useful work is performed by lots and lots of expensive layers of abstractions. There are so many abstractions that virtually nobody understands the program or where problems come from. The bailout is not equivalent to throwing out the old codebase and starting anew. Just the opposite, it's the government saying do not abondon the old codebase, here's a $800 billion dollars, hire another 10.000 Java programmers to maintain it. If the government would let you abondon the old codebase, all the programmers who had jobs maintaining it would be unemployed, which is political suicide.
- brc 16y ago
  Thowing out the old codebase is exactly the correct solution. It's also the most politically unpalatable, which is why it won't happen while the politicals still have some control. Depressions and Recessions are not allowed to happen anymore. They are actually healthier for an economy, as the bad debts get written off, lending practices get rewritten, consumers and companies learn the dangerous side of debt. Like a forest needs fire, economies need blow off periods where the bad decisions and investments get cleared off. By shifting private losses to the public balance sheet, and producing shifty numbers which don't say 'depression', politicans dance around like project managers and keep the old codebase going. But, as we all now, you eventually have to toss it all in the bin and get going again. The negatives, of course, is that people will lose jobs, homes and all that goes with it. The positives is that once you're bankrupt, you can't get any more bankrupt and can work your way back - this applies to companies and individuals. Old industries and practices die, and new ones rise up to take their place. It's the placing of old industries on life support that kill the economy in the long run. Keeping GM on life support through public money diverts that money away from worthwhile investments (either public or private) and keeps subsidising a smaller group of people at the expense of society at large. The damage is already done, and the chips need to lay where they fall. Papering over the cracks with phony statistics and bailout after bailout will eventually fail with the same result, but it will take much longer to happen, and much longer to recover. The irony in all this is that the only avenue left for governments (and being actively pursued) is inflation. Money printing through quantitative easing is going ahead in big numbers. Eventually all this fake new money will be lent out under fractional reserve by banks, and inflation will roar ahead. The only people left standing after that will be the ones with real assets (housing, factories and machinery, farmland) bought with debt denominated in 2010 dollars. People will turn off debt and onto saving just as savings become decimated by inflation. The smart thing right now is to buy real, worthwhile assets with locked-in low interest rates and just ride out the deflationary period until the inflation spark catches in the tinder-dry monetary world. It's quite likely that another stagflationary period will be with us in the next 10 years. If you don't believe inflation will happen just tell me which paper currency is older than 150 years. All paper currencies eventually reach their intrinsic value - which is nothing. It's just the timeframe that varies.
mmaunder 16y ago
It's worth reading a history of Usury if you're interested in more on the history and morality of debt. http://en.wikipedia.org/wiki/Usury http://en.wikipedia.org/wiki/Usury
- _delirium 16y ago
  Not sure it was correct, but it's interesting how much of the focus traditionally was on the lending side of the equation, whereas today it's mostly on the borrowing side. Today people will look disapprovingly on someone who borrows more than they can repay, but traditionally people would look disapprovingly on someone who lent to someone who couldn't repay it. Regular debt amnesties every N years also seem to have been a common traditional feature, making it impossible for debt to persist beyond short-term loans (and discouraging lending to someone who you weren't very sure was going to repay it soon). It does seem that approach has some structural benefits, in that it doesn't produce long-term webs of debt that will never actually be resolved, but with everyone carrying on as if they will. Forcing a debt reset every 7 years or 20 years or whatever keeps things somewhat honest, making sure people are really talking about assets they have, as opposed to assets they supposedly are promised but will in reality never get.
  - yummyfajitas 16y ago
    I think you are confusing two separate issues. One is the probability of debt repayment, and the other is debt lifetime. The two are not necessarily related. Payday loans have a relatively low level of debt repayment (necessitating high interest rates) and also a very low debt lifetime (days to months). In contrast, many AAA corporate and govt bonds have long lifetimes and high repayment rates (until recently, mortgages did as well). There are also low repayment probability, long term debts (subprime mortgages) and high probability, short term debt (commercial paper). I don't think debt lifetime is that important a factor. Long term debt makes sense to finance long term investments.
david927 16y ago
I wouldn't be comforted by the Debt as a % of GDP figures. The GDP is a washy figure that shouldn't be relied on; it can easily be overstated. And just like with a person, the big question is future income -- whether a country can pay back that debt as things change. Germany and Switzerland have similar debt levels to the U.S., but the former two are going to do fine; I wish I could be so confident of the latter.
- roel_v 16y ago
  How so? What kind of productive capacity does Switzerland have? Their have cheese, watches and cuckoo's clocks. And the finance industry obviously, but only because of their secrecy towards the tax agencies of other countries, which is going to go away in the next decade or so. So what kind of logical reasoning can lead to the conclusion that a country whose only asset is a bunch of mountains where people can ski is going to fare so much better than a country that has everything it needs to be self-sufficient (arable land, oil and other resources, 2 coasts, the most advanced technology in the world, a huge work force), plus a government that actually supports rather than just pays lip service to capitalism, the only system proven to lead to economic prosperity? (I'm not an American and I won't say that all that the US does is great and fine but come on, if you're going to make outrageous statements you'll have to at least back them up a little, especially on a site where (I hope) people pride themselves on their rationality).
  - david927 16y ago
    I am American and it's not outrageous, just not (yet) conventional wisdom. Switzerland has banking and stability. That will soon come at a premium. It has self-sustaining energy and perfect transportation systems. This will all be very valuable in the near future. Sure the US has arable land. It has oil. The problem is, it doesn't have enough oil. (You probably weren't around in the 1970's, but there was a big crisis as America switched to depending foreign oil and OPEC took advantage.) It's been a net importer ever since. Two coasts? Really? Greece has more. It's not going to help them. The most advanced technology? That's China. In fact, China and oil are the big elephants in the room. I can happily write more about why, if you're interested. a government that actually supports rather than just pays lip service to capitalism, the only system proven to lead to economic prosperity Sweden is doing much better than America by every account and it's Socialist.
cwp 16y ago
Interesting, but I was disappointed. This article seem to promise a lot, but then peter out at the end without coming to a strong conclusion. One little image I did like was government debt as a ponzi scheme based on population growth. If population starts to decline, we'll need some fundamental changes to the economic system.
- mmt 16y ago
  If population starts to decline, we'll need some fundamental changes to the economic system. It's actually worse than that, since it's not the population as a whole, but, rather, the productive, working-age population. The US (and perhaps the "West" as a whole) is already on the precipice, if not already tipping over, with Baby Boomers hitting retirement age. Even when the more patent Ponzi scheme of Social Security collapses, it won't solve the underlying economic problem, that so few will have to support so many.
jimmyjim 16y ago
From all angles the situation manifests itself as a gridlock. The article seems to have very concretely taken the harrowing position that the future is either default or inflation. Now, let's consider the average American Joe in this new world. Things are looking pretty grim for him -- corporations are inevitably looking forward to even more automation (as opposed to manual labor), because it's in their best interest, so as far as I see, there just aren't going to be very many jobs for the larger majority of the people in the times ahead. What then? By application of the original position, a radical rethinking of the fundamentals of governing bodies and economic systems is called for. Unlike centuries ago, when all mechanical work had to have been purely supplied by the raw muscles of humans, we now have technology. We can do so, so much more than we could have imagined with only a limited amount of man's mechanical power. We are actually in a very technical sense within our capability to feed every hungry mouth in the world today. And by any reasonable ethical framework, this free capability absolutely bounds to service this obligation. Thoughts? And please go easy on me here, these are just the late-night musings of a 21st century youngin. ;)
- lionhearted 16y ago
  > Things are looking pretty grim for him -- corporations are inevitably looking forward to even more automation (as opposed to manual labor), because it's in their best interest, so as far as I see, there just aren't going to be very many jobs for the larger majority of the people in the times ahead. > Thoughts? And please go easy on me here, these are just the late-night musings of a 21st century youngin. ;) A couple thoughts. The first is that your top idea - "automation is coming, people are screwed" has been popular since the Industrial Revolution. Mary Shelley's Frankenstein was about automation. The term "Luddite" to refer to a technologically-unsavvy person came from this group: http://en.wikipedia.org/wiki/Luddite http://en.wikipedia.org/wiki/Luddite They actually attacked, broke, and destroyed automatic machinery. They're worth reading about. The reality is, automating things let humans get on to more and more interesting things. Being afraid of automation is like being afraid of Ruby and Python because now what will coders in C do? In reality, automating/streamling/improving one area of business opens opportunities for new things to do. Not too long ago, society was comprised of between 60% and 80% farmers - without machinery and automation, we'd be ploughing fields right now instead of discussing on Hacker News. As long as any human wants or needs are unfilfilled, there's a capacity for almost unlimited amounts of work. And we're nowhere close to automating/obsoleting things - today's manufacturing and shipping is going to look pretty primitative in 100-150 years. I won't hazard a guess of when it'll become available, but this is one of the most exciting new areas that'll come to bear in not-too-long: http://en.wikipedia.org/wiki/Molecular_engineering http://en.wikipedia.org/wiki/Molecular_engineering
deleted 16y ago
[deleted]
Tichy 16y ago
Is there any way to escape? What depresses me is that I really don't like the spending habits of my government (Germany). Already the "theoretical debt" (what the government owes per working citizen) I have is higher than what I own. I don't have any hopes of it getting any better. The problem is that the government can just confiscate everything I own to pay off their debts with my belongings, so saving or investing does not seem to provide a way out. By the time it might happen, I'll probably be too old to build something new. Otherwise I would say investing in skills would be a good idea (after the breakdown, capable people will still be in demand). Social networks might be good, too. Gold? But I don't really like it, as in theory it is useless. And the government will try to seize it, too. The logistics of hiding gold somewhere make it impractical.
- erikstarck 16y ago
  In Sweden we had our crash in the early 90s. The government was forced to borrow huge amounts of money but after a few rough years cleaning up the balance sheet the economy recovered. We now have probably the strongest balance sheet in Europe. Of course a weakened krona fueled the export sector in the late 90s, a luxury the euro countries don't have but still, recovery can be surprisingly fast if you avoid the fate of Japan.
  - akadien 16y ago
    Would you elaborate on how Swedes save and invest? I'm curious about behaviors of investors and savers in economies that don't seem to be on the brink of death.
    - erikstarck 16y ago
      Taxes in Sweden are extremely high so people tend not to save but rather rely on the government helping them out if things go south. You can probably find all the stats you need here: http://www.scb.se/default____2154.aspx http://www.scb.se/default____2154.aspx One thing to note is that the real estate market has not crashed in Sweden (yet) as in most other countries. Prices are high so this can still happen.
patio11 16y ago
It seems to me that debt is virtually a necessity created by prosperity: otherwise, the folks with all the capital end up with very lumpy mattresses. Take the Japanese government debt (please!): the reason they're able to sustain such a staggering amount of it is that the debt is owned mostly by older Japanese folks who spent a few decades with savings rates in the 20% plus region. I'd be more worried about pissing spending away than about debt-financed spending, per se. ($20k to get a degree, OK, $240k to get a master's degree in traditional dance... well, I hope you marry well. Buying houses on credit, OK, asset bubbles a little less OK. Constantly increasing QOL caused by expanding public services, ambivalence, capture of budgeting process by public service unions less OK.)
- varjag 16y ago
  It sounds great when you keep debt and lending in zero-sum. Problem is, the numbers don't add up anymore, and they haven't been for quite some time.
  - isamuel 16y ago
    What? Of course they do. For every dollar borrowed, a dollar is lent. U.S. debt is financed through the sale of Treasury bonds, for example. And for each bond sold there is a real investor on the other end who paid actual money for it.
- startuprules 16y ago
  "debt is virtually a necessity created by prosperity: otherwise, the folks with all the capital end up with very lumpy mattresses. Take the Japanese government debt..." Very incorrect. It was the Japanese government that decided that instead of demanding the banks to be responsible for their risky and ultimately bad real estate investments, they would prop the banks alive by stealing from their citizen's savings via massive borrowing. Fast forward to today: Japanese elders have their savings dwindled down, the government owes 200% GDP debt to its people, and the Japanese economy/innovation stalled because the 0% rate for 20 years policy drove all investments overseas. There are many people that think US will have the same fate as Japan, but they're also incorrect. Japan had the massive savings rate and a booming global economy to prop itself up. US will have no such luxury. And there are many other people in this thread who thinks debt is a good thing. Well, when the US government, having to pay out 65T in medicare and social security in the next 20 years, decides not to one day, you'll see why that's bad.
Ardit20 16y ago
"Falling property prices caused defaults and a liquidity crisis in the banking system so severe that the authorities feared the cash machines would stop working." Wow, that can happen? Wouldn't that mean that no one would have any money but the people who have kept cash and rather than a 1930s style depression, more of outright anarchy!
deleted 16y ago
[deleted]
mmt 16y ago
Since Earth is not borrowing money from Mars, does the debt explosion really matter, or is it just an accounting device? To me, this has always been the most crucial question to any discussino of "debt," but I don't believe the article actually answered it[1]. Perhaps more to the point, I don't believe I've encountered a concise explanation as to how debt, particularly sovereign debt, affects the real[2] worldwide economy. Would a country go to war over a sovereign default? [1] The section heading is "Why It Matters," so it's not really hiding that it's begging the question. [2] i.e. human behavior as it applies to production and trade

69 points by pg 16y ago

This is a useful interactive feature from the article that lets you look at various countries' debt over time and by type -- financial, government, household, etc.): http://www.economist.com/blogs/buttonwood/2010/06/indebtedness_after_financial_crisis http://www.economist.com/blogs/buttonwood/2010/06/indebtedne... Particularly interesting to me is the variation in debt mix amongst countries (click on the headers at the top of the image) and the changes over time (click on the countries on the map).

jbert 16y ago
Yes, thanks. That was very interesting. It also made me wonder. Looking at the UK, the largest proportion of debt was 'financial', which I assume is debt owned by businesses operating in the financial sector. If so, is this even a bad thing? For example, does a hedge fund (which borrows large amounts of money to amplify it's wins and losses) naturally have a large "base" debt? Does a large financial sector just mean large financial debt as a matter of course? UK household debt is also high. I'd expect a significant part of this to be mortgages. The combination of the culture of home-ownership (as opposed to renting) and high property prices (small island, lots of people) leads most people into a long-term mortgage quite early (and has for a long time). Does that mean the UK's position isn't perhaps as bad as the "overall" graph paints it?
- arethuza 16y ago
  As far as I understand it there is no fundamental reason why a hedge fund has to take on any debt at all - just that the investment strategies they often employ actually have very small returns so to make the overall returns to investors attractive they often borrow (or used to) large multiples of investors capital.

nostrademons 16y ago

Reminds me of the old software engineering maxim "All problems can be solved with another layer of indirection - except too many layers of indirection." Debt is not all that much unlike a layer of indirection - it's basically a pointer to the debtor who's actually doing something with your money. And just like a heavily-layered Java program, it's often difficult to figure out exactly where the work is getting done. Add enough layers of indirection, and it's possible to have the appearance of a very complex system where no real work is getting done at all. Maybe the financial crisis and associated bailouts were the equivalent of throwing out the old codebase and starting anew. "We don't understand the system anymore, so, err, let's throw it all out and rewrite everything!" With all the associated loss of institutional learning.

Maro 16y ago
I like your analogy, so I'll extend and maybe fix it. The economy is like a heavily layered enterprise Java program, where little useful work is performed by lots and lots of expensive layers of abstractions. There are so many abstractions that virtually nobody understands the program or where problems come from. The bailout is not equivalent to throwing out the old codebase and starting anew. Just the opposite, it's the government saying do not abondon the old codebase, here's a $800 billion dollars, hire another 10.000 Java programmers to maintain it. If the government would let you abondon the old codebase, all the programmers who had jobs maintaining it would be unemployed, which is political suicide.
brc 16y ago
Thowing out the old codebase is exactly the correct solution. It's also the most politically unpalatable, which is why it won't happen while the politicals still have some control. Depressions and Recessions are not allowed to happen anymore. They are actually healthier for an economy, as the bad debts get written off, lending practices get rewritten, consumers and companies learn the dangerous side of debt. Like a forest needs fire, economies need blow off periods where the bad decisions and investments get cleared off. By shifting private losses to the public balance sheet, and producing shifty numbers which don't say 'depression', politicans dance around like project managers and keep the old codebase going. But, as we all now, you eventually have to toss it all in the bin and get going again. The negatives, of course, is that people will lose jobs, homes and all that goes with it. The positives is that once you're bankrupt, you can't get any more bankrupt and can work your way back - this applies to companies and individuals. Old industries and practices die, and new ones rise up to take their place. It's the placing of old industries on life support that kill the economy in the long run. Keeping GM on life support through public money diverts that money away from worthwhile investments (either public or private) and keeps subsidising a smaller group of people at the expense of society at large. The damage is already done, and the chips need to lay where they fall. Papering over the cracks with phony statistics and bailout after bailout will eventually fail with the same result, but it will take much longer to happen, and much longer to recover. The irony in all this is that the only avenue left for governments (and being actively pursued) is inflation. Money printing through quantitative easing is going ahead in big numbers. Eventually all this fake new money will be lent out under fractional reserve by banks, and inflation will roar ahead. The only people left standing after that will be the ones with real assets (housing, factories and machinery, farmland) bought with debt denominated in 2010 dollars. People will turn off debt and onto saving just as savings become decimated by inflation. The smart thing right now is to buy real, worthwhile assets with locked-in low interest rates and just ride out the deflationary period until the inflation spark catches in the tinder-dry monetary world. It's quite likely that another stagflationary period will be with us in the next 10 years. If you don't believe inflation will happen just tell me which paper currency is older than 150 years. All paper currencies eventually reach their intrinsic value - which is nothing. It's just the timeframe that varies.

mmaunder 16y ago

It's worth reading a history of Usury if you're interested in more on the history and morality of debt. http://en.wikipedia.org/wiki/Usury http://en.wikipedia.org/wiki/Usury

_delirium 16y ago
Not sure it was correct, but it's interesting how much of the focus traditionally was on the lending side of the equation, whereas today it's mostly on the borrowing side. Today people will look disapprovingly on someone who borrows more than they can repay, but traditionally people would look disapprovingly on someone who lent to someone who couldn't repay it. Regular debt amnesties every N years also seem to have been a common traditional feature, making it impossible for debt to persist beyond short-term loans (and discouraging lending to someone who you weren't very sure was going to repay it soon). It does seem that approach has some structural benefits, in that it doesn't produce long-term webs of debt that will never actually be resolved, but with everyone carrying on as if they will. Forcing a debt reset every 7 years or 20 years or whatever keeps things somewhat honest, making sure people are really talking about assets they have, as opposed to assets they supposedly are promised but will in reality never get.
- yummyfajitas 16y ago
  I think you are confusing two separate issues. One is the probability of debt repayment, and the other is debt lifetime. The two are not necessarily related. Payday loans have a relatively low level of debt repayment (necessitating high interest rates) and also a very low debt lifetime (days to months). In contrast, many AAA corporate and govt bonds have long lifetimes and high repayment rates (until recently, mortgages did as well). There are also low repayment probability, long term debts (subprime mortgages) and high probability, short term debt (commercial paper). I don't think debt lifetime is that important a factor. Long term debt makes sense to finance long term investments.

david927 16y ago

I wouldn't be comforted by the Debt as a % of GDP figures. The GDP is a washy figure that shouldn't be relied on; it can easily be overstated. And just like with a person, the big question is future income -- whether a country can pay back that debt as things change. Germany and Switzerland have similar debt levels to the U.S., but the former two are going to do fine; I wish I could be so confident of the latter.

roel_v 16y ago
How so? What kind of productive capacity does Switzerland have? Their have cheese, watches and cuckoo's clocks. And the finance industry obviously, but only because of their secrecy towards the tax agencies of other countries, which is going to go away in the next decade or so. So what kind of logical reasoning can lead to the conclusion that a country whose only asset is a bunch of mountains where people can ski is going to fare so much better than a country that has everything it needs to be self-sufficient (arable land, oil and other resources, 2 coasts, the most advanced technology in the world, a huge work force), plus a government that actually supports rather than just pays lip service to capitalism, the only system proven to lead to economic prosperity? (I'm not an American and I won't say that all that the US does is great and fine but come on, if you're going to make outrageous statements you'll have to at least back them up a little, especially on a site where (I hope) people pride themselves on their rationality).
- david927 16y ago
  I am American and it's not outrageous, just not (yet) conventional wisdom. Switzerland has banking and stability. That will soon come at a premium. It has self-sustaining energy and perfect transportation systems. This will all be very valuable in the near future. Sure the US has arable land. It has oil. The problem is, it doesn't have enough oil. (You probably weren't around in the 1970's, but there was a big crisis as America switched to depending foreign oil and OPEC took advantage.) It's been a net importer ever since. Two coasts? Really? Greece has more. It's not going to help them. The most advanced technology? That's China. In fact, China and oil are the big elephants in the room. I can happily write more about why, if you're interested. a government that actually supports rather than just pays lip service to capitalism, the only system proven to lead to economic prosperity Sweden is doing much better than America by every account and it's Socialist.

cwp 16y ago

Interesting, but I was disappointed. This article seem to promise a lot, but then peter out at the end without coming to a strong conclusion. One little image I did like was government debt as a ponzi scheme based on population growth. If population starts to decline, we'll need some fundamental changes to the economic system.

mmt 16y ago
If population starts to decline, we'll need some fundamental changes to the economic system. It's actually worse than that, since it's not the population as a whole, but, rather, the productive, working-age population. The US (and perhaps the "West" as a whole) is already on the precipice, if not already tipping over, with Baby Boomers hitting retirement age. Even when the more patent Ponzi scheme of Social Security collapses, it won't solve the underlying economic problem, that so few will have to support so many.

jimmyjim 16y ago

From all angles the situation manifests itself as a gridlock. The article seems to have very concretely taken the harrowing position that the future is either default or inflation. Now, let's consider the average American Joe in this new world. Things are looking pretty grim for him -- corporations are inevitably looking forward to even more automation (as opposed to manual labor), because it's in their best interest, so as far as I see, there just aren't going to be very many jobs for the larger majority of the people in the times ahead. What then? By application of the original position, a radical rethinking of the fundamentals of governing bodies and economic systems is called for. Unlike centuries ago, when all mechanical work had to have been purely supplied by the raw muscles of humans, we now have technology. We can do so, so much more than we could have imagined with only a limited amount of man's mechanical power. We are actually in a very technical sense within our capability to feed every hungry mouth in the world today. And by any reasonable ethical framework, this free capability absolutely bounds to service this obligation. Thoughts? And please go easy on me here, these are just the late-night musings of a 21st century youngin. ;)

lionhearted 16y ago
> Things are looking pretty grim for him -- corporations are inevitably looking forward to even more automation (as opposed to manual labor), because it's in their best interest, so as far as I see, there just aren't going to be very many jobs for the larger majority of the people in the times ahead. > Thoughts? And please go easy on me here, these are just the late-night musings of a 21st century youngin. ;) A couple thoughts. The first is that your top idea - "automation is coming, people are screwed" has been popular since the Industrial Revolution. Mary Shelley's Frankenstein was about automation. The term "Luddite" to refer to a technologically-unsavvy person came from this group: http://en.wikipedia.org/wiki/Luddite http://en.wikipedia.org/wiki/Luddite They actually attacked, broke, and destroyed automatic machinery. They're worth reading about. The reality is, automating things let humans get on to more and more interesting things. Being afraid of automation is like being afraid of Ruby and Python because now what will coders in C do? In reality, automating/streamling/improving one area of business opens opportunities for new things to do. Not too long ago, society was comprised of between 60% and 80% farmers - without machinery and automation, we'd be ploughing fields right now instead of discussing on Hacker News. As long as any human wants or needs are unfilfilled, there's a capacity for almost unlimited amounts of work. And we're nowhere close to automating/obsoleting things - today's manufacturing and shipping is going to look pretty primitative in 100-150 years. I won't hazard a guess of when it'll become available, but this is one of the most exciting new areas that'll come to bear in not-too-long: http://en.wikipedia.org/wiki/Molecular_engineering http://en.wikipedia.org/wiki/Molecular_engineering

deleted 16y ago

[deleted]

Tichy 16y ago

Is there any way to escape? What depresses me is that I really don't like the spending habits of my government (Germany). Already the "theoretical debt" (what the government owes per working citizen) I have is higher than what I own. I don't have any hopes of it getting any better. The problem is that the government can just confiscate everything I own to pay off their debts with my belongings, so saving or investing does not seem to provide a way out. By the time it might happen, I'll probably be too old to build something new. Otherwise I would say investing in skills would be a good idea (after the breakdown, capable people will still be in demand). Social networks might be good, too. Gold? But I don't really like it, as in theory it is useless. And the government will try to seize it, too. The logistics of hiding gold somewhere make it impractical.

erikstarck 16y ago
In Sweden we had our crash in the early 90s. The government was forced to borrow huge amounts of money but after a few rough years cleaning up the balance sheet the economy recovered. We now have probably the strongest balance sheet in Europe. Of course a weakened krona fueled the export sector in the late 90s, a luxury the euro countries don't have but still, recovery can be surprisingly fast if you avoid the fate of Japan.
- akadien 16y ago
  Would you elaborate on how Swedes save and invest? I'm curious about behaviors of investors and savers in economies that don't seem to be on the brink of death.
  - erikstarck 16y ago
    Taxes in Sweden are extremely high so people tend not to save but rather rely on the government helping them out if things go south. You can probably find all the stats you need here: http://www.scb.se/default____2154.aspx http://www.scb.se/default____2154.aspx One thing to note is that the real estate market has not crashed in Sweden (yet) as in most other countries. Prices are high so this can still happen.

patio11 16y ago

It seems to me that debt is virtually a necessity created by prosperity: otherwise, the folks with all the capital end up with very lumpy mattresses. Take the Japanese government debt (please!): the reason they're able to sustain such a staggering amount of it is that the debt is owned mostly by older Japanese folks who spent a few decades with savings rates in the 20% plus region. I'd be more worried about pissing spending away than about debt-financed spending, per se. ($20k to get a degree, OK, $240k to get a master's degree in traditional dance... well, I hope you marry well. Buying houses on credit, OK, asset bubbles a little less OK. Constantly increasing QOL caused by expanding public services, ambivalence, capture of budgeting process by public service unions less OK.)

varjag 16y ago
It sounds great when you keep debt and lending in zero-sum. Problem is, the numbers don't add up anymore, and they haven't been for quite some time.
- isamuel 16y ago
  What? Of course they do. For every dollar borrowed, a dollar is lent. U.S. debt is financed through the sale of Treasury bonds, for example. And for each bond sold there is a real investor on the other end who paid actual money for it.
startuprules 16y ago
"debt is virtually a necessity created by prosperity: otherwise, the folks with all the capital end up with very lumpy mattresses. Take the Japanese government debt..." Very incorrect. It was the Japanese government that decided that instead of demanding the banks to be responsible for their risky and ultimately bad real estate investments, they would prop the banks alive by stealing from their citizen's savings via massive borrowing. Fast forward to today: Japanese elders have their savings dwindled down, the government owes 200% GDP debt to its people, and the Japanese economy/innovation stalled because the 0% rate for 20 years policy drove all investments overseas. There are many people that think US will have the same fate as Japan, but they're also incorrect. Japan had the massive savings rate and a booming global economy to prop itself up. US will have no such luxury. And there are many other people in this thread who thinks debt is a good thing. Well, when the US government, having to pay out 65T in medicare and social security in the next 20 years, decides not to one day, you'll see why that's bad.

Ardit20 16y ago

"Falling property prices caused defaults and a liquidity crisis in the banking system so severe that the authorities feared the cash machines would stop working." Wow, that can happen? Wouldn't that mean that no one would have any money but the people who have kept cash and rather than a 1930s style depression, more of outright anarchy!

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mmt 16y ago

Since Earth is not borrowing money from Mars, does the debt explosion really matter, or is it just an accounting device? To me, this has always been the most crucial question to any discussino of "debt," but I don't believe the article actually answered it[1]. Perhaps more to the point, I don't believe I've encountered a concise explanation as to how debt, particularly sovereign debt, affects the real[2] worldwide economy. Would a country go to war over a sovereign default? [1] The section heading is "Why It Matters," so it's not really hiding that it's begging the question. [2] i.e. human behavior as it applies to production and trade