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I'm ignorant on this, but to me there are two kinds of debt. 1) Personal debt, like I took out a car loan and I can get the car repossessed or the loan sold to

I'm ignorant on this, but to me there are two kinds of debt. 1) Personal debt, like I took out a car loan and I can get the car repossessed or the loan sold to debt collectors. 2) Debt that exists just to create more money i.e. the IMF or Fed Reserve decide to have an expansionary monetary policy and they lend from... what exactly? The purpose is to just control inflation. I'm guessing this is the second kind of debt, but the title makes it sound like the first.

bb2018 8y ago
I agree that the article conflates a lot of issues and I can't find a clear explanation on how government debt is calculated. Most of the global debt in the world is from governments and in this case it isnt the worst thing as is usually a relationship where a government owes its own people money but the people owe the government money every year in taxes too.
- guelo 8y ago
  > Most of the global debt in the world is from governments I don't know about globally but in the US private debt is much bigger that government debt including local, state and federal.
- licnep 8y ago
  The total government debt = total private sector savings, to the last cent. That is an accounting truth, for every debtor there is a creditor, and the creditor of the public sector as a whole is the private sector. In reality, when you look at how government debt is actually computed, you will find that government debt is the sum of all the coins and banknotes in circulation, all bank deposits at the central bank, and all treasuries. Basically it's the sum of all the savings denominated in that government's currency. It is purely an accounting illusion, governments could also create money out of nowhere without accounting for it as "debt", but that is the accounting standard we are currently using, mostly an heritage from the gold standard times. I'm not sure what the article accounted for exactly, but if they just did a sum of government debt divided by human population, what the article really means is that there are in circulation about 86k dollars for every human, so the average human has a monetary wealth of 86k (with the median being of course much much lower). We should cheer on that number increasing ,the only bad case is if inflation is higher, so that means in real terms we are on average getting poorer even if we have more dollars per capita.
  - RobertoG 8y ago
    I totally agree. In a country with a balanced trade deficit (exports are the same that imports), in order to keep the economy working at the same pace, if the public debt is reduced, the private debt have to grow. As you said, it's an accounting truth. So, when they don't distinguish between private and public debt they are just confusing the issue.
    - jganetsk 8y ago
      > In a country with a balanced trade deficit (exports are the same that imports), in order to keep the economy working at the same pace, if the public debt is reduced, the private debt have to grow. As you said, it's an accounting truth. This is not precisely correct. It is more correct to say that if the public net worth decreases, the private net worth increases. Or, in other words, if the public sector runs a deficit, the private sector runs a surplus. And the flow of funds is conserved. And net worth is assets minus liabilities, or savings minus debt.
audunw 8y ago
> 1) Personal debt, like I took out a car loan and I can get the car repossessed or the loan sold to debt collectors. 2) Debt that exists just to create more money i.e. the IMF or Fed Reserve decide to have an expansionary monetary policy and they lend from... what exactly? As far as I know, these two are the same. In a fractional reserve banking system, when you borrow money from the bank for a car or a house, that money is then created from nothing. They just punch in the number in your account, and there you have it. At the end of the day, the bank has to have a certain reserve, which is held in the banks account in the central bank. The central bank doesn't usually create the money itself, it lets the banks to it for them, as long as they stick within the limits. I could be very wrong here. Not an expert. This is my laymans understanding. This is why it's not really worrying on its own that there's a large amount of debt per person. Debt is how money is created in our system. As other countries get wealthier, you expect them to have more debt. Put another way: if you're living outside civilisation, you're not gonna get a loan for anything. But as soon as you live in a modern city with some steady income, you can borrow several times the amount you make a year, and that's generally OK as long as you expect to make that money back some time during your lifetime.
- XorNot 8y ago
  The money isn't created from "nothing" - it's definitely real money from real people's savings accounts. The difference is that on a large enough scale, you can make a $1 of real savings circulate as though it were $1.50 or (probably a lot more) of circulating currency and there's huge benefits to doing that (when it's backed by real productivity). The source of things like the 2008 collapse was the dark side of that - trillions of dollars debts, backed by no possible amount of productivity that could repay them (and tons of fraud allowing these to exist on the books).
  - scarecrowbob 8y ago
    "you can make a $1 of real savings circulate as though it were $1.50 or (probably a lot more) of circulating currency" Quite a bit more, I think. Like, banks only need about (I think) 9% actual money. So you can lend $9 off that one dollar. But then that $9 gets deposited somewhere, and that bank can then lend $100-something... etc. Though I could be mistaken about how fractional reserve banking works.
jondubois 8y ago
My understanding is that reserve banks create money out of thin air and then 'loan' it to governments. Then governments use the money to pay for public projects. A lot of the money ends up going to large corporations through significant government contracts, grants and subsidies. When a government takes a loan from the reserve bank and puts it into circulation by giving the money to corporations to pay for public projects, the government is effectively diluting the value of everyone's money and giving it to corporations. This process creates public debt for which the government will need to take additional loans from the reserve bank to keep meeting the interest repayments; which will further dilute the value of everyone's wealth while increasing corporate wealth; and the cycle will keep repeating.
- cecilpl2 8y ago
  The idea is that the public projects increase everyone's wealth by a greater amount than the interest on the debt. If you take money out of the equation and just consider that we have a large pool of labor to make use of, government's purpose in spending on projects is to allocate some of that labor towards long-term goals that no company would involve itself in as the pure profit potential is too risky, distant, or difficult to capitalize on.
  - spectrum1234 8y ago
    This might be true. However it's fact that poor people lose the most from inflation. Which is better?
    - slededit 8y ago
      The poor don’t have savings. If you spend as much or more than you make inflation benefits you by devaluing the debt you owe. If you have a large 401k on the other hand it deflates the value of your retirement savings. You may have to work in old age.
      - jondubois 8y ago
        But it also deflates the value of assets that generate monetary profits. If the value of cash goes down, then the value of cash-generating assets also goes down. When the value of today-money goes down, the value of tomorrow-money goes up relatively. That explains why tech companies and speculative investments do well during expansionary monetary policy. It aslo explains why advertising and brand become so important. Because if the value of money goes up in the future, then the value of each customer will also go up; even if you have to make a net loss today to pay for advertising to get those customers.

bb2018 8y ago

I agree that the article conflates a lot of issues and I can't find a clear explanation on how government debt is calculated. Most of the global debt in the world is from governments and in this case it isnt the worst thing as is usually a relationship where a government owes its own people money but the people owe the government money every year in taxes too.

guelo 8y ago
> Most of the global debt in the world is from governments I don't know about globally but in the US private debt is much bigger that government debt including local, state and federal.
licnep 8y ago
The total government debt = total private sector savings, to the last cent. That is an accounting truth, for every debtor there is a creditor, and the creditor of the public sector as a whole is the private sector. In reality, when you look at how government debt is actually computed, you will find that government debt is the sum of all the coins and banknotes in circulation, all bank deposits at the central bank, and all treasuries. Basically it's the sum of all the savings denominated in that government's currency. It is purely an accounting illusion, governments could also create money out of nowhere without accounting for it as "debt", but that is the accounting standard we are currently using, mostly an heritage from the gold standard times. I'm not sure what the article accounted for exactly, but if they just did a sum of government debt divided by human population, what the article really means is that there are in circulation about 86k dollars for every human, so the average human has a monetary wealth of 86k (with the median being of course much much lower). We should cheer on that number increasing ,the only bad case is if inflation is higher, so that means in real terms we are on average getting poorer even if we have more dollars per capita.
- RobertoG 8y ago
  I totally agree. In a country with a balanced trade deficit (exports are the same that imports), in order to keep the economy working at the same pace, if the public debt is reduced, the private debt have to grow. As you said, it's an accounting truth. So, when they don't distinguish between private and public debt they are just confusing the issue.
  - jganetsk 8y ago
    > In a country with a balanced trade deficit (exports are the same that imports), in order to keep the economy working at the same pace, if the public debt is reduced, the private debt have to grow. As you said, it's an accounting truth. This is not precisely correct. It is more correct to say that if the public net worth decreases, the private net worth increases. Or, in other words, if the public sector runs a deficit, the private sector runs a surplus. And the flow of funds is conserved. And net worth is assets minus liabilities, or savings minus debt.

audunw 8y ago

> 1) Personal debt, like I took out a car loan and I can get the car repossessed or the loan sold to debt collectors. 2) Debt that exists just to create more money i.e. the IMF or Fed Reserve decide to have an expansionary monetary policy and they lend from... what exactly? As far as I know, these two are the same. In a fractional reserve banking system, when you borrow money from the bank for a car or a house, that money is then created from nothing. They just punch in the number in your account, and there you have it. At the end of the day, the bank has to have a certain reserve, which is held in the banks account in the central bank. The central bank doesn't usually create the money itself, it lets the banks to it for them, as long as they stick within the limits. I could be very wrong here. Not an expert. This is my laymans understanding. This is why it's not really worrying on its own that there's a large amount of debt per person. Debt is how money is created in our system. As other countries get wealthier, you expect them to have more debt. Put another way: if you're living outside civilisation, you're not gonna get a loan for anything. But as soon as you live in a modern city with some steady income, you can borrow several times the amount you make a year, and that's generally OK as long as you expect to make that money back some time during your lifetime.

XorNot 8y ago
The money isn't created from "nothing" - it's definitely real money from real people's savings accounts. The difference is that on a large enough scale, you can make a $1 of real savings circulate as though it were $1.50 or (probably a lot more) of circulating currency and there's huge benefits to doing that (when it's backed by real productivity). The source of things like the 2008 collapse was the dark side of that - trillions of dollars debts, backed by no possible amount of productivity that could repay them (and tons of fraud allowing these to exist on the books).
- scarecrowbob 8y ago
  "you can make a $1 of real savings circulate as though it were $1.50 or (probably a lot more) of circulating currency" Quite a bit more, I think. Like, banks only need about (I think) 9% actual money. So you can lend $9 off that one dollar. But then that $9 gets deposited somewhere, and that bank can then lend $100-something... etc. Though I could be mistaken about how fractional reserve banking works.

jondubois 8y ago

My understanding is that reserve banks create money out of thin air and then 'loan' it to governments. Then governments use the money to pay for public projects. A lot of the money ends up going to large corporations through significant government contracts, grants and subsidies. When a government takes a loan from the reserve bank and puts it into circulation by giving the money to corporations to pay for public projects, the government is effectively diluting the value of everyone's money and giving it to corporations. This process creates public debt for which the government will need to take additional loans from the reserve bank to keep meeting the interest repayments; which will further dilute the value of everyone's wealth while increasing corporate wealth; and the cycle will keep repeating.

cecilpl2 8y ago
The idea is that the public projects increase everyone's wealth by a greater amount than the interest on the debt. If you take money out of the equation and just consider that we have a large pool of labor to make use of, government's purpose in spending on projects is to allocate some of that labor towards long-term goals that no company would involve itself in as the pure profit potential is too risky, distant, or difficult to capitalize on.
- spectrum1234 8y ago
  This might be true. However it's fact that poor people lose the most from inflation. Which is better?
  - slededit 8y ago
    The poor don’t have savings. If you spend as much or more than you make inflation benefits you by devaluing the debt you owe. If you have a large 401k on the other hand it deflates the value of your retirement savings. You may have to work in old age.
    - jondubois 8y ago
      But it also deflates the value of assets that generate monetary profits. If the value of cash goes down, then the value of cash-generating assets also goes down. When the value of today-money goes down, the value of tomorrow-money goes up relatively. That explains why tech companies and speculative investments do well during expansionary monetary policy. It aslo explains why advertising and brand become so important. Because if the value of money goes up in the future, then the value of each customer will also go up; even if you have to make a net loss today to pay for advertising to get those customers.