4 ms·

Paying back all debt would mean there was no more money! What would that even look like? It was years since I saw 'Money as Debt' but I remember it as quite fl

Paying back all debt would mean there was no more money! What would that even look like? It was years since I saw 'Money as Debt' but I remember it as quite flawed in its arguments. Let's say there's a silly town with a single evil bank. The good people borrow a hundred dollars in total. Horror! The evil bank is now owed one hundred and ten dollars. This can never be repayed, there is not enough money! Except the good janitor at the bank has his wage of ten dollars credited to his account by the bank for the value created by his labour. He pays the grocer, the landlord and so on and now the silly town people can pay all their loans, should they ever want to. And then the old grocer dies and his estate defaults on its debts. And it turns out the bank overvalued his house. The banks is now down ten dollars on its loan assets. But the bank still has its liabilities to the other good town people the grocer paid when he took out the loan. Suddenly the town can pay back all their debts and still have ten dollars left owed to them by the bank! The evil bankers are foiled. 'Money as Debt' goes to all this trouble to explain that money is debt. Then we are supposed to be shocked by the fact that debt can be created by no more than signing a paper! It's stupid.

jonplackett 6y ago
Well I, like many people. was very surprised money is created that way. And your fictional town doesn’t seem to work much like anywhere else. All the banks seem to be doing fine just fine. Houses usually go up in value not down so when someone defaults on a loan the bank makes money rather than loses it. With the exception of the credit crunch (where we all just gave the banks our hard earned money instead)
- rags2riches 6y ago
  Yes, it's quite strange at first when you come to this topic with the understanding of money as something more tangible. I really struggled with the concept at first, but there are good resources to help with this. It clicked for me with the help of Khan Academy unit on Money, banking and central banks. The Bank of England paper linked elsewhere in this thread is also good. I had to draw up balance sheets and make examples for myself to really get it. And regarding the silly example, don't sweat the details. Try to think of the concept of what my example is trying to get across. Let's say the grocer died and a house fire and he hadn't payed for his insurance.
  - jonplackett 6y ago
    Hey thanks for the extra reading. I understand the example, but surely these are outliers? Banks won’t give you a mortgage without insurance, and most people do pay their insurance. So banks can’t be taking that much of a hit except under extreme circumstances. Most of the time they do pretty well out of defaults. They just take the house and sell it. They’ll only lend to you in the first place if you have reasonable collateral (again 2008 housing crisis is a lesson they learned on that) but they still ultimately got the asset + all the money paid in interest up to that point. Am I missing something?
    - rags2riches 6y ago
      No, you're not missing anything. The point is just that it's not a vice of mathematically assured doom because of the fact that money is debt. Banking can be a really good business and bankers have been really good at lobbying, but that is not what the Money as Debt scare is about. In the end, debt is a type of relation between people. And banking is a business with its own costs and risks.

jonplackett 6y ago

Well I, like many people. was very surprised money is created that way. And your fictional town doesn’t seem to work much like anywhere else. All the banks seem to be doing fine just fine. Houses usually go up in value not down so when someone defaults on a loan the bank makes money rather than loses it. With the exception of the credit crunch (where we all just gave the banks our hard earned money instead)

rags2riches 6y ago
Yes, it's quite strange at first when you come to this topic with the understanding of money as something more tangible. I really struggled with the concept at first, but there are good resources to help with this. It clicked for me with the help of Khan Academy unit on Money, banking and central banks. The Bank of England paper linked elsewhere in this thread is also good. I had to draw up balance sheets and make examples for myself to really get it. And regarding the silly example, don't sweat the details. Try to think of the concept of what my example is trying to get across. Let's say the grocer died and a house fire and he hadn't payed for his insurance.
- jonplackett 6y ago
  Hey thanks for the extra reading. I understand the example, but surely these are outliers? Banks won’t give you a mortgage without insurance, and most people do pay their insurance. So banks can’t be taking that much of a hit except under extreme circumstances. Most of the time they do pretty well out of defaults. They just take the house and sell it. They’ll only lend to you in the first place if you have reasonable collateral (again 2008 housing crisis is a lesson they learned on that) but they still ultimately got the asset + all the money paid in interest up to that point. Am I missing something?
  - rags2riches 6y ago
    No, you're not missing anything. The point is just that it's not a vice of mathematically assured doom because of the fact that money is debt. Banking can be a really good business and bankers have been really good at lobbying, but that is not what the Money as Debt scare is about. In the end, debt is a type of relation between people. And banking is a business with its own costs and risks.