4 ms·

Borrowing from the future is not a good strategy.

by tantalor 9y ago

pessimizer 9y ago
You always borrow from the future.
- toomuchtodo 9y ago
  This is a profound comment, even if off the cuff. Consider tens of trillions of fiat in worldwide liabilities, and how the entire world is relying on people yet to be born to carry the torch through taxes to pay for the debts we’ve amassed.
  - dindumuffin 9y ago
    Thankfully, those who are yet to be born will be many more numerous and possess better technology with which to pay the debt we charge up.
    - cc439 9y ago
      "Thankfully, those who are yet to be born will be many more numerous" The 3rd world will be more numerous, the current citizens of the first world will not. We're already seeing societal strains rising from the introduction of 3rd world peoples intended to make up for the missing offspring of existing 1st world peoples so I highly doubt things will work out as easily (and peacefully) as you assume they will.
    - Bud 9y ago
      It had better be a lot better technology, since we have permanently reduced Earth's carrying capacity and ruined the climate.
  - tedsanders 9y ago
    A fascinating digression. I conceptualize borrowing oppositely. When you borrow, you borrow from someone else's past/present labor and obligate your future labor. (Where 'you' can be an individual, organization, or society.) In my view, borrowing is always from the past. You cannot borrow that which has not yet been created.
    - sgc 9y ago
      Actually most of the money that is borrowed (approx 90% AFAIK) is invented and injected into the economy. You borrow against the future because this new creation of currency must later be paid by labor or investments.
      - tedsanders 9y ago
        In my conceptualization, money is not the thing that is borrowed. Money is just the measuring stick. What's actually borrowed is the stuff bought with the money. And that stuff is made in the past or present, not the future. For example, imagine I take a loan to buy a house. The people who built the house invested their labor with the expectation of future payment. Or if they spent their wages, then the firm that fronted their wages invested labor into building the firm with the expectation of future payment. Generally, if one borrows, someone else must loan. This means that if you are consuming before producing, then at some point in the economic chain, there is someone who has produced but not yet consumed. It is in this sense that I conceptualize borrowing as coming from the past. This notion is reflected in the GDP equation of a closed economy: GDP = C + I. Any consumption over production must be balanced by investment, which is itself past production. Of course, if we are to conceptualize literally, then borrowers do not borrow from either the future or the past. They borrow from banks.
        sgc 9y ago
        The entire economy is a system designed to encourage human activity, and is not based in truth of value. That builder borrowed the funds to build. It actually is turtles all the way down to the Central Bank, which dictates that money exists. Controlling assets is not the same thing as consuming, and money is designed to designate control rather than consumption. I can borrow money to buy stocks, which are nothing more than a promise of a corporate future. etc. People and entities do not have control because they have produced, but because they have controlled, or are part of the system that magnifies control to create more of it (through the banking system). We elect to accept this system of the government determining who can control assets based on a vision of human society, or simply because we cannot object in a meaningful way. We borrow almost exclusively from money created by the government. In the end we borrow from nobody, but borrow by means of a de facto authority. The mutual agreement of human wills is more powerful than any sort of temporal precedence. In that sense we borrow from neither the past nor the future. Of course you are correct that a large portion of borrowed funds are used to control tings that have already been produced. But the money is created at the same instant the loan is made. And it must be repaid by future labor or returns. Since it is not necessary for the money to be used to purchase something that already exists (and another large portion of borrowed funds are used for futures of myriad kinds), but it is always true that future results must be used for repayment, I think it is more accurate to say we borrow from the future.
  - ekianjo 9y ago
    It's rather delayed bankruptcy in our case. The idea that these trillions are going to be paid back one day is preposterous and we all know it.
    - JumpCrisscross 9y ago
      > The idea that these trillions are going to be paid back one day is preposterous Our debt is around 1x GDP and 1/5th American households' and non-profits nominal wealth [1]. (This excludes public sector assets, corporate assets, and foreigners' assets in the United States.) All of that is subject to future taxation. I don't like big deficits. (They imply future taxation, service cuts or inflation.) But our debt burden is easily manageable, particularly considering our suboptimal inflation attainment. [1] https://en.wikipedia.org/wiki/Wealth_in_the_United_States https://en.wikipedia.org/wiki/Wealth_in_the_United_States
    - garmaine 9y ago
      Why? Debt is paid back over time. New debit is also acquired so the balance is never zero. But are you saying you expect T-bills to be in default? That’s a rather big statement.
  - 0x445442 9y ago
    And now you know why the big push for open boarders.
rdl 9y ago
Borrowing from the future is an excellent strategy in a lot of cases, you just need to explicit that you're doing so and make sure it makes sense.
- cc439 9y ago
  It's an excellent strategy (when executed correctly) in times of unparalleled stability and economic predictability like those of 1948 to ~1976 and ~1982-2008 but it's a terrible strategy when returns on pension fund investments are virtually guaranteed. Even in those times it didn't make logical sense to assume everything over the next 30 years would play out exactly how everyone assumed it would. That and the "stickiness" problem of new pensions being based off the terms of old pensions (negotiated when retirees didn't live into their mid 80's on average) is what will doom most state governments over the next 10-15 years,
  - rdl 9y ago
    Yeah, in the case of pensions I agree having disproportionately high pension comp vs. current comp makes no sense -- particularly bad when a city declines in size. There are plenty of non-pension cases where debt is an effective tool, i.e. borrowing to make efficiency/productivity improvements which exceed the cost of servicing and repaying the debt. Imbalanced pensions are more like borrowing to pay for operational expenses.
- saosebastiao 9y ago
  No, it's never a good strategy when the person paying the bill isn't even close to the same generation of the person receiving the benefit. That's a recipe for disaster, for every party involved.
ojbyrne 9y ago
Much of western civilization is built on borrowing from the future. Actually I believe that the words “credit”,”mortgage”, “financing”, and actually “borrowing” are all synonyms for “borrowing from the future.”
- cam_l 9y ago
  Money too!

Borrowing from the future is not a good strategy.

pessimizer 9y ago

You always borrow from the future.

toomuchtodo 9y ago
This is a profound comment, even if off the cuff. Consider tens of trillions of fiat in worldwide liabilities, and how the entire world is relying on people yet to be born to carry the torch through taxes to pay for the debts we’ve amassed.
- dindumuffin 9y ago
  Thankfully, those who are yet to be born will be many more numerous and possess better technology with which to pay the debt we charge up.
  - cc439 9y ago
    "Thankfully, those who are yet to be born will be many more numerous" The 3rd world will be more numerous, the current citizens of the first world will not. We're already seeing societal strains rising from the introduction of 3rd world peoples intended to make up for the missing offspring of existing 1st world peoples so I highly doubt things will work out as easily (and peacefully) as you assume they will.
  - Bud 9y ago
    It had better be a lot better technology, since we have permanently reduced Earth's carrying capacity and ruined the climate.
- tedsanders 9y ago
  A fascinating digression. I conceptualize borrowing oppositely. When you borrow, you borrow from someone else's past/present labor and obligate your future labor. (Where 'you' can be an individual, organization, or society.) In my view, borrowing is always from the past. You cannot borrow that which has not yet been created.
  - sgc 9y ago
    Actually most of the money that is borrowed (approx 90% AFAIK) is invented and injected into the economy. You borrow against the future because this new creation of currency must later be paid by labor or investments.
    - tedsanders 9y ago
      In my conceptualization, money is not the thing that is borrowed. Money is just the measuring stick. What's actually borrowed is the stuff bought with the money. And that stuff is made in the past or present, not the future. For example, imagine I take a loan to buy a house. The people who built the house invested their labor with the expectation of future payment. Or if they spent their wages, then the firm that fronted their wages invested labor into building the firm with the expectation of future payment. Generally, if one borrows, someone else must loan. This means that if you are consuming before producing, then at some point in the economic chain, there is someone who has produced but not yet consumed. It is in this sense that I conceptualize borrowing as coming from the past. This notion is reflected in the GDP equation of a closed economy: GDP = C + I. Any consumption over production must be balanced by investment, which is itself past production. Of course, if we are to conceptualize literally, then borrowers do not borrow from either the future or the past. They borrow from banks.
      - sgc 9y ago
        The entire economy is a system designed to encourage human activity, and is not based in truth of value. That builder borrowed the funds to build. It actually is turtles all the way down to the Central Bank, which dictates that money exists. Controlling assets is not the same thing as consuming, and money is designed to designate control rather than consumption. I can borrow money to buy stocks, which are nothing more than a promise of a corporate future. etc. People and entities do not have control because they have produced, but because they have controlled, or are part of the system that magnifies control to create more of it (through the banking system). We elect to accept this system of the government determining who can control assets based on a vision of human society, or simply because we cannot object in a meaningful way. We borrow almost exclusively from money created by the government. In the end we borrow from nobody, but borrow by means of a de facto authority. The mutual agreement of human wills is more powerful than any sort of temporal precedence. In that sense we borrow from neither the past nor the future. Of course you are correct that a large portion of borrowed funds are used to control tings that have already been produced. But the money is created at the same instant the loan is made. And it must be repaid by future labor or returns. Since it is not necessary for the money to be used to purchase something that already exists (and another large portion of borrowed funds are used for futures of myriad kinds), but it is always true that future results must be used for repayment, I think it is more accurate to say we borrow from the future.
- ekianjo 9y ago
  It's rather delayed bankruptcy in our case. The idea that these trillions are going to be paid back one day is preposterous and we all know it.
  - JumpCrisscross 9y ago
    > The idea that these trillions are going to be paid back one day is preposterous Our debt is around 1x GDP and 1/5th American households' and non-profits nominal wealth [1]. (This excludes public sector assets, corporate assets, and foreigners' assets in the United States.) All of that is subject to future taxation. I don't like big deficits. (They imply future taxation, service cuts or inflation.) But our debt burden is easily manageable, particularly considering our suboptimal inflation attainment. [1] https://en.wikipedia.org/wiki/Wealth_in_the_United_States https://en.wikipedia.org/wiki/Wealth_in_the_United_States
  - garmaine 9y ago
    Why? Debt is paid back over time. New debit is also acquired so the balance is never zero. But are you saying you expect T-bills to be in default? That’s a rather big statement.
- 0x445442 9y ago
  And now you know why the big push for open boarders.

rdl 9y ago

Borrowing from the future is an excellent strategy in a lot of cases, you just need to explicit that you're doing so and make sure it makes sense.

cc439 9y ago
It's an excellent strategy (when executed correctly) in times of unparalleled stability and economic predictability like those of 1948 to ~1976 and ~1982-2008 but it's a terrible strategy when returns on pension fund investments are virtually guaranteed. Even in those times it didn't make logical sense to assume everything over the next 30 years would play out exactly how everyone assumed it would. That and the "stickiness" problem of new pensions being based off the terms of old pensions (negotiated when retirees didn't live into their mid 80's on average) is what will doom most state governments over the next 10-15 years,
- rdl 9y ago
  Yeah, in the case of pensions I agree having disproportionately high pension comp vs. current comp makes no sense -- particularly bad when a city declines in size. There are plenty of non-pension cases where debt is an effective tool, i.e. borrowing to make efficiency/productivity improvements which exceed the cost of servicing and repaying the debt. Imbalanced pensions are more like borrowing to pay for operational expenses.
saosebastiao 9y ago
No, it's never a good strategy when the person paying the bill isn't even close to the same generation of the person receiving the benefit. That's a recipe for disaster, for every party involved.

ojbyrne 9y ago

Much of western civilization is built on borrowing from the future. Actually I believe that the words “credit”,”mortgage”, “financing”, and actually “borrowing” are all synonyms for “borrowing from the future.”

cam_l 9y ago
Money too!