5 ms·

>But at the world level, it's just some of us choosing to consume more than we produce right now, and others of us choosing to consume less than we produce righ

>But at the world level, it's just some of us choosing to consume more than we produce right now, and others of us choosing to consume less than we produce right now. Isn't it the actual problem though ? When a small portion of people consume a lot less than what they "produce", and another big portion of people borrow from them to consume more than what they produce, isn't it an indicator of rising inequality ? This imbalance can't last forever, and either it provokes a cascade of default and threatens the stability of the economy, or it keeps the big portion of people in an interest rate paying spiral, slowing the growth of the economy. Either way, I don't see it as a good thing at all

panarky 8y ago
> This imbalance can't last forever Why not? Debt doesn't necessarily resolve itself by default. Most of it is just lifecycle timing differences. If I'm 40 years old, I'm saving for the future. I consume less than I produce, and I lend the surplus now so I can get it back later plus interest. > interest rate paying spiral, slowing the growth of the economy When I was 20 years old and early in my career, I didn't want to wait to pay cash for a house and car. Then I consumed more than I produced, and I'm thankful that debt allowed me to do that. So more debt actually increases the growth of the economy, since it allows people to buy houses and cars earlier in their lives. Reduce debt and the economy shrinks (which is basically what happens when central bank raises interest rates). > isn't it an indicator of rising inequality? At any given moment, some families, companies and governments want to save, and others want to consume. Debt lets us trade time preferences so we all get more of what we want, when we want it. In my example, I'm lending money to the United States so I can get it back 10 years from now. That's not causing inequality, it's giving me the freedom to produce now and consume later.
- simonh 8y ago
  Those are absolutely excellent arguments for why debt itself, as a mechanism, can be beneficial and useful. That isn't the questions. The question is how much debt is too much, and why, and what happens when the debt level becomes unsustainable. Greece is an extreme example. They borrowed far more than they could ever pay back and wasted it. When borrowing is spent on things that don't pay back a return higher than the cost of the borrowing, and when that's done on a large scale with no other credible source of income to pay back the debt, both the borrower and the lender get burned. The problem is that you don't always know the return you're going to get on the investment, and you don't always know the full cost of the borrowing to fund it because interest rates can go up.
  - chadcmulligan 8y ago
    The real problem with countries and debt is the people who take out the debt aren't the people who have to pay it off. This is a real flaw in the system.
  - belorn 8y ago
    A central concept in the book Debt: The First 5000 Years is that peasants' revolts occurred when dept level becomes unsustainable. The reason why is that as debt goes up the security of the loans go down, which forces the lender to impose harsher punishment to defaulters. In turn this resulted in usury laws regulating loaning, or in other places making loaning a monopoly right of the state, the church or completely illegal. Now days it seems that the risk of uprisings are low, and that when either whole countries or people en mass start to default, the governments simply steps in and shuffle tax money or print more in order to stabilize the economy. I don't think we actually know how far that strategy can work.
    - hnick 8y ago
      I enjoyed that book. I think another key point is it wasn't just uprisings, back in the day people literally fled to the hills out of the city to avoid their debts. Not only did this lead to bands of outlaws roaming the countryside (and eventually posing a risk to the cities), it meant that cities lost a sizable part of their labour force and were unable to function as well. Hence jubilees to let off steam and forgive all debt, welcoming people back into the cities every 7 years or so.
  - panarky 8y ago
    > when the debt level becomes unsustainable I'm arguing that you can't determine what the unsustainable level of debt is for the world in total. Yes, debt can be unsustainable for a family, or a company, or a nation. But if I, as a creditor, decide to risk my capital by lending to my neighbor, or to the United States, that increases total world debt, but it's not necessarily bad or dangerous. In the case of Greece's debt crisis, the important question is why creditors lent too much to a nation that couldn't pay it back. There are many answers from ignorance to failed governance to corruption, but none of the answers have anything to do with the general level of debt in the world as a whole.
- claydavisss 8y ago
  it doesnt matter how much you save if your native currency is debased into worthlessness lots of people in Weimar Germany had savings too, and Venezuela today
- ryanmercer 8y ago
  >Why not? A lot of the debt is based on real estate and physical goods. Realistically there exists a very finite amount of land (and a concrete limit with current materials on how high you can build) and raw materials. Without becoming a space-based civilization that can easily strip mine other planets and the asteroids... only so much of this debt can even be generated unless we move to some sort of society where everyone is like "I bet you 5 million dollars that bird drops a load on that car in the next 2 minutes" hey the bird didn't, pay up "hey man, can you just add it to my tab?". At some point you run out of goods or land to sell, at which point you have debt holders that want their money and debtors that can't buy more because they are now out of work from manufacturing the goods they, or their peers, were buying. Part of the reason we have such a disparity of wealth is because the owners (and lenders) of the resources and sellable goods are selling those things to the people making them. Instead of buying furniture from the local furniture maker, you buy Ikea. Instead of going to the neighborhood cobbler or sandlar you log on to Zappos or go to Finish Line. Instead of going to your local butcher you go to Kroger or Publix and buy meat that may have come from a massive corporate ranch thousands of miles away and in the case of ground meat might contain bits from a dozen animals. We've basically become somewhat like a 'company store' society and many people carry debt for just their consumer purchases. "Hey I want the new ninplaybox 720 so I can play MaddenBall 2099, charge" "Hey I need a car, hey that one is 1.2x my annual gross, let me get a 6 year loan please" "Hey I need a place to live, oh look this one is only 4x my annual gross, let me get that 30 year mortgage with 10% down that I'll probably refinance and/or get another mortgage and either spend 50 years paying off or move in 4 years and basically walk away with no equity pocketed". None of this is sustainable and it certainly isn't scalable for the few billion people currently not living this way. In 2016 China had 289 million registered drivers, in 2017 they had 316.58 million registered drivers... that's 27.58 million new drivers and even if only 10% of them purchased a vehicle do you really think they paid cash or do you think the bulk of them took on debt? So 2-27 million new debtors in a year. Not sustainable. --- >If I'm 40 years old, I'm saving for the future. I consume less than I produce, You spend less money than you earn. If you eat meat and aren't considerably overweight, it takes about 1/2 of an acre to produce the approximately 1996 pounds of food you consume a year. The average American consumes around 500 gallons of gasoline a year. The average American's household, work and transportation energy equals about 15,000 pounds of coal a year. The average American throws away approximately 185 pounds of plastic a year. The average American throws away about 4 pounds of trash a day. Without very cheap labor, automation, machinery, relatively cheap fossil fuels, government subsidies, etc become impossible and as all of the things (including resources) involved in enabling our lifestyles they are wholly unsustainable over any long-term time scale. With debt fueling a large part of this, increasing debt is also unsustainable.
pjc50 8y ago
You left out "right now": the key here is pensions. People spend a majority-but-shrinking proportion of their life as net producers and a growing part as consumers. Not to mention student debt.

panarky 8y ago

> This imbalance can't last forever Why not? Debt doesn't necessarily resolve itself by default. Most of it is just lifecycle timing differences. If I'm 40 years old, I'm saving for the future. I consume less than I produce, and I lend the surplus now so I can get it back later plus interest. > interest rate paying spiral, slowing the growth of the economy When I was 20 years old and early in my career, I didn't want to wait to pay cash for a house and car. Then I consumed more than I produced, and I'm thankful that debt allowed me to do that. So more debt actually increases the growth of the economy, since it allows people to buy houses and cars earlier in their lives. Reduce debt and the economy shrinks (which is basically what happens when central bank raises interest rates). > isn't it an indicator of rising inequality? At any given moment, some families, companies and governments want to save, and others want to consume. Debt lets us trade time preferences so we all get more of what we want, when we want it. In my example, I'm lending money to the United States so I can get it back 10 years from now. That's not causing inequality, it's giving me the freedom to produce now and consume later.

simonh 8y ago
Those are absolutely excellent arguments for why debt itself, as a mechanism, can be beneficial and useful. That isn't the questions. The question is how much debt is too much, and why, and what happens when the debt level becomes unsustainable. Greece is an extreme example. They borrowed far more than they could ever pay back and wasted it. When borrowing is spent on things that don't pay back a return higher than the cost of the borrowing, and when that's done on a large scale with no other credible source of income to pay back the debt, both the borrower and the lender get burned. The problem is that you don't always know the return you're going to get on the investment, and you don't always know the full cost of the borrowing to fund it because interest rates can go up.
- chadcmulligan 8y ago
  The real problem with countries and debt is the people who take out the debt aren't the people who have to pay it off. This is a real flaw in the system.
- belorn 8y ago
  A central concept in the book Debt: The First 5000 Years is that peasants' revolts occurred when dept level becomes unsustainable. The reason why is that as debt goes up the security of the loans go down, which forces the lender to impose harsher punishment to defaulters. In turn this resulted in usury laws regulating loaning, or in other places making loaning a monopoly right of the state, the church or completely illegal. Now days it seems that the risk of uprisings are low, and that when either whole countries or people en mass start to default, the governments simply steps in and shuffle tax money or print more in order to stabilize the economy. I don't think we actually know how far that strategy can work.
  - hnick 8y ago
    I enjoyed that book. I think another key point is it wasn't just uprisings, back in the day people literally fled to the hills out of the city to avoid their debts. Not only did this lead to bands of outlaws roaming the countryside (and eventually posing a risk to the cities), it meant that cities lost a sizable part of their labour force and were unable to function as well. Hence jubilees to let off steam and forgive all debt, welcoming people back into the cities every 7 years or so.
- panarky 8y ago
  > when the debt level becomes unsustainable I'm arguing that you can't determine what the unsustainable level of debt is for the world in total. Yes, debt can be unsustainable for a family, or a company, or a nation. But if I, as a creditor, decide to risk my capital by lending to my neighbor, or to the United States, that increases total world debt, but it's not necessarily bad or dangerous. In the case of Greece's debt crisis, the important question is why creditors lent too much to a nation that couldn't pay it back. There are many answers from ignorance to failed governance to corruption, but none of the answers have anything to do with the general level of debt in the world as a whole.
claydavisss 8y ago
it doesnt matter how much you save if your native currency is debased into worthlessness lots of people in Weimar Germany had savings too, and Venezuela today
ryanmercer 8y ago
>Why not? A lot of the debt is based on real estate and physical goods. Realistically there exists a very finite amount of land (and a concrete limit with current materials on how high you can build) and raw materials. Without becoming a space-based civilization that can easily strip mine other planets and the asteroids... only so much of this debt can even be generated unless we move to some sort of society where everyone is like "I bet you 5 million dollars that bird drops a load on that car in the next 2 minutes" hey the bird didn't, pay up "hey man, can you just add it to my tab?". At some point you run out of goods or land to sell, at which point you have debt holders that want their money and debtors that can't buy more because they are now out of work from manufacturing the goods they, or their peers, were buying. Part of the reason we have such a disparity of wealth is because the owners (and lenders) of the resources and sellable goods are selling those things to the people making them. Instead of buying furniture from the local furniture maker, you buy Ikea. Instead of going to the neighborhood cobbler or sandlar you log on to Zappos or go to Finish Line. Instead of going to your local butcher you go to Kroger or Publix and buy meat that may have come from a massive corporate ranch thousands of miles away and in the case of ground meat might contain bits from a dozen animals. We've basically become somewhat like a 'company store' society and many people carry debt for just their consumer purchases. "Hey I want the new ninplaybox 720 so I can play MaddenBall 2099, charge" "Hey I need a car, hey that one is 1.2x my annual gross, let me get a 6 year loan please" "Hey I need a place to live, oh look this one is only 4x my annual gross, let me get that 30 year mortgage with 10% down that I'll probably refinance and/or get another mortgage and either spend 50 years paying off or move in 4 years and basically walk away with no equity pocketed". None of this is sustainable and it certainly isn't scalable for the few billion people currently not living this way. In 2016 China had 289 million registered drivers, in 2017 they had 316.58 million registered drivers... that's 27.58 million new drivers and even if only 10% of them purchased a vehicle do you really think they paid cash or do you think the bulk of them took on debt? So 2-27 million new debtors in a year. Not sustainable. --- >If I'm 40 years old, I'm saving for the future. I consume less than I produce, You spend less money than you earn. If you eat meat and aren't considerably overweight, it takes about 1/2 of an acre to produce the approximately 1996 pounds of food you consume a year. The average American consumes around 500 gallons of gasoline a year. The average American's household, work and transportation energy equals about 15,000 pounds of coal a year. The average American throws away approximately 185 pounds of plastic a year. The average American throws away about 4 pounds of trash a day. Without very cheap labor, automation, machinery, relatively cheap fossil fuels, government subsidies, etc become impossible and as all of the things (including resources) involved in enabling our lifestyles they are wholly unsustainable over any long-term time scale. With debt fueling a large part of this, increasing debt is also unsustainable.

pjc50 8y ago

You left out "right now": the key here is pensions. People spend a majority-but-shrinking proportion of their life as net producers and a growing part as consumers. Not to mention student debt.