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Good point, but this type of math always puzzles me. We owe ourselves 356% of what we produce every year? We don't owe this money to some foreign planet with a

Good point, but this type of math always puzzles me. We owe ourselves 356% of what we produce every year? We don't owe this money to some foreign planet with a death-star pointing at us. So at what point should we be concerned? What is the worst that can happen? We don't get our own money back from ourselves?

BurningFrog 6y ago
> "We owe ourselves..." That's a bit of a hostile "we". I and my bank don't have any debt, considered as a group. Technically true, but doesn't make my mortgage go away. > What is the worst that can happen? When governments can't/won't pay their debts, the way out is printing money to pay with. This has in at least one case led to the Holocaust. Low sample size, but still.
- selimthegrim 6y ago
  Next up from HN hot takes - how cowrie shells led to the Cambodian genocide. You heard it here first.
  - BurningFrog 6y ago
    It's unknowable how Germany would have developed without the 1923 hyperinflation, but my guess is it would have muddled along as a semi stable democracy, instead of what happened. https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_R...
    - orwin 6y ago
      Printing money don't lead to hyperinflation unless you also can't sell anything (either because you don't produce or because nobody is buying). Again, since i don't know why people believe that (even orthodox economists agree on that): printing money alone don't cause inflation to run away. It can cause a big inflation and make people who have money in the bank/ on the side loose a lot, sure. No hyperinflation, not alone at least. Hyperinflation have confounding factors, one being being unable to sell (Venezuela, Zimbabwe) another being unable to produce enough (Weimar republic in 23). Also my country not invading the Weimar republic for fun and giggles would have helped much more against Nazi propaganda than preventing hyperinflation. Hyperinflation did not cause a famine in Germany. Lack of food caused a famine in Germany, and also in Austria, Poland, USSR, probably Greece and Ottoman Empire (i'm mostly focused in Northern europe history so if someone that extensively studied this area during this time period can correct me, i'd like that, i know a lot of people studied the rise and fall of the Ottomans). Because its what a lack of food does. Incidentally, my late grandfather was born in august 23 and he was told this was the first good harvest year since 1914. I have to look into it but the French government probably decided to store excess grain to refurbish the depleted stocks, and did not help their neighbors much. Anyway, printing money does not cause hyperinflation. This is a usefull myth for the masses since printing money reduce "our" asset size (mine too, i'm rich now!).
      - selimthegrim 6y ago
        You might want to check the book by Fromkin, Peace to End All Peace (1989)
- OscarCunningham 6y ago
  > I and my bank don't have any debt, considered as a group. The way this figure is calculated, the amount of debt you and your bank have between you is your mortgage + your bank account.
riffraff 6y ago
creditors and debtors are not the same set of entities.
lightgreen 6y ago
The worst thing can happen is rich people get even more rich, poor people become more poor, then the recession starts, then poor people overthrow the government and set up some destructive authoritarian regime, and then China will conquer the western world.
tuatoru 6y ago
Good questions, and you are right to be puzzled. Countries are not households, and the world as a whole is not a household either. Heuristics that work for individual households fail when applied to countries or the world. Debt hysteria is promoted by lenders, who will go to extremes to try to ensure they are repaid. Even if their actions cause a general depression that impoverishes themselves as well as borrowers.
- orra 6y ago
  Indeed. Lenders conveniently forget the reason they can charge interest is because there's a risk they won't be paid back. Yet when these private investments go back, they always go to the government to be subsidised with a bailout.
  - dragonwriter 6y ago
    > Lenders conveniently forget the reason they can charge interest is because there's a risk they won't be paid back. No, the reason they can charge interest is that they have the money now, and other people want it, and are willing.to pay interest to get it. The reason they need to charge interest if they don't want to go broke is that there is a risk they won't be paid back.
    - orra 6y ago
      Sure, yes. But OTOH I'm not sure the distinction you make is meaningful. If there was no risk, the cost to borrow would tend towards zero. Any liquidity issues could be addressed by the central bank, again at low interest if no risk.
      - tjs8rj 6y ago
        Private banks charge interest in general because that’s the opportunity cost of that money.
        orra 6y ago
chii 6y ago
it's a future you (i.e., decendents) who pays back the debt. The expectation is that they can, because of the investment _you're_ making right now by using this debt. Future productivity is expected to grow. Now, whether this is actually the case remains to be seen...
- bubbleRefuge 6y ago
  Not true for gov debt. Its complicated. But its an infinite cycle of issuing new treasury securities to 'fund' the accounts to service existing debt. Those funds are then spend back into the economy and then used to purchase new treasuries again.
nine_zeros 6y ago
> We owe ourselves 356% of what we produce every year? This assumes that people think of the world as a single unit. Last 4 years should reveal our primitive minds.
cmehdy 6y ago
The reality of it shows up when you zoom in: overall during the pandemic richer people got richer and poorer people got poorer. The "world" doesn't owe the "world" that amount, it's people in already tight situations owing that to people in pretty comfortable ones. The ones borrowing to get by are paying more money than what they borrowed to people who already had money to lend out. What we'll see is yet another rise in inequality, yet another wave of the bigger businesses surviving over the smaller ones, and more debates within each government regarding how much intervention is wanted to try and save people from the consequences of those inequalities.
- PragmaticPulp 6y ago
  This headline number includes private sector debt, such as small business loans and mortgages. I can assure you that the comfortably rich are not getting richer by loaning money to the average person to buy houses and cars with 2.5% interest rates, while inflation is arguably significantly higher than that number. The rich get richer in this scenario because low interest rates increase the buying power for everyone, which means they can buy more expensive houses or pay less for the mortgage on the house they already own, which in turn means they can buy more things from Amazon, which means Amazon does more business, which means the stock price goes up, and so on. The populist narrative likes to simplify complex economic topics into rich versus poor narratives as if this was a zero-sum game, but it’s not. I’m not sure how your final points about inequality relate to increasing total global debt, but it’s obvious that this isn’t as simple as funneling money from the poor to the rich.
  - cmehdy 6y ago
    You can call it populist if you want, it's just mechanically true. For money to be lent out it's coming from somewhere where the money is existing or the risk can be handled, and in both of those cases where money exists or risk can be handled you're typically looking at richer rather than poorer. If you're a shareholder, you are more able to afford risk than if you're just throwing your money at paying the bills. If you're in that situation and borrowing from a bank, the bank's shareholders mechanically are benefiting from your activity. You're borrowing to get by and people who have a better cushion are doing better for it, I don't see what's so shameful to point out. Your explanation doesn't explain anything away but to try and put some sort of weird blame on poorer people for borrowing, it's just as usual of a narrative as the populist thing to be infantilizing poorer people. There's however a pretty big difference between borrowing at your limit or sometimes beyond because you're trying to get through a pandemic or have a place to live, and borrowing at high risk because you're playing with huge sums and can in fact afford the loss. The latter as a group made more money during the pandemic from any possible source you could look at, the former as a group lost money and jobs. I won't insult you by throwing Oxfam reports at the situation, especially since you might be keen on calling it populist too and calling it a day.
JumpCrisscross 6y ago
> We don't owe this money to some foreign planet with a death-star pointing at us One, not all that debt is termed to one year. And two, it’s an internal transmission mechanism. If two people produce $50 a year, and one owes the other $100 in four years and the other owes the one $100 in five years, that’s a perfectly fine 200% debt to annual production ratio. For years 1, 2, 3 and 5, their positions will be equal. In year 4, there will be inequality. If one or the other defaults, that inequality would persist even though aggregate indebtedness went down.
snemvalts 6y ago
Most of money today is from issued loans. The worst that happens is like the fears in 2008, where the loans (or the assets bought for those loans) are worth a lot less, and hence a lot of money will be as well.
cgh 6y ago
Read Stephanie Kelton’s book “The Deficit Myth” for an elaboration on your questions. It’s a non-technical introduction to Modern Monetary Theory. Spoiler: you are correct, the rules are different for nations that control their sovereign currencies (eg the UK, Canada, Japan, the US, China, etc., but not EU countries).
- bubbleRefuge 6y ago
  Thank you. I always try to call out a fellow MMT'ers. Amazing how far this has come. Mossler said he thought it would take a hundred years to get to the point that the framework could be used pro-actively to create policy on a grand scale. Although, small scale stuff did come to fruition such as the Bush stimulus checks of 2007(i think) which I believe was MMT inspired.
- bubbleRefuge 6y ago
  She has truly brought MMT to the mainstream. She's why I supported Bernie Sanders ( and I am a former republican) who is clueless about MMT and thinks we have to tax the rich to fund Federal programs. Allot of people don't know this, but MMT intellectuals have said we don't need federal income tax at all. State taxes are enought to maintain demand for the currency. This from left leaning/progressive economists.
- RobertoG 6y ago
  I wish more people understood what is explained in that book. It's almost impossible to have a rational discussion about this subjects when most people (including the writer of the article, I'm afraid) don't understand the difference between private debt and the public debt of a country with its own currency.
- sdfin 6y ago
  Read it, but please also read it's critics[1] and form your own opinion knowing about the two sides. [1] https://mises.org/wire/review-stephanie-keltons-deficit-myth https://mises.org/wire/review-stephanie-keltons-deficit-myth
  - 6y ago
bob33212 6y ago
Everyone cannot be repaid at the same time. So there is a risk of a scenario where many lenders get scared and try to get their loans repaid and stop making new loans. If that happens is becomes much more difficult for people to buy a house, car, college tuition, construction loan. That could cause a recession which causes businesses to do layoffs and spend less because they are worried about future income.
PragmaticPulp 6y ago
This article is about total global debt, which includes the private sector. Many of the comments here have misinterpreted this as government-only debt, which is not correct. Only about 1/3 of the debt is government debt right now (a little under $100 trillion globally). If you look up where your federal tax dollars go, there is a significant line item for servicing debt. Those interest payments go to holders of the government debt, which range from US citizens to foreign countries. You can find charts and estimates of who holds that debt if you want to understand where it goes. The popular narrative about governments printing free money isn’t really true in the simplified meme-style presentation that we hear online.
- rsync 6y ago
  "Those interest payments go to holders of the government debt, which range from US citizens to foreign countries." ... and also the fed[1] which, currently, holds more than 10% of the US debt[2]. "The popular narrative about governments printing free money isn’t really true in the simplified meme-style presentation that we hear online." Perhaps - but it is getting more true all the time. In the case of the ECB it is getting more true all the time in the absence of any oversight, transparency, adherence to constitutional law or democratic processes[3]. [1] https://www.nytimes.com/2020/12/16/business/economy/fed-december-meeting.html https://www.nytimes.com/2020/12/16/business/economy/fed-dece... [2] http://www.crfb.org/blogs/fed-buying-our-new-debt http://www.crfb.org/blogs/fed-buying-our-new-debt [3] https://www.lrb.co.uk/the-paper/v43/n01/perry-anderson/ever-closer-union https://www.lrb.co.uk/the-paper/v43/n01/perry-anderson/ever-...
EGreg 6y ago
Let me explain. The PUBLIC SECTOR is in debt. It won’t be able to continue borrowing on the same terms unless it prints more money (leading to inflation unless done during a crunch of the money supply due to defaulting private sector loans etc). Even before this pandemic, by cutting taxes the US Government got larger deficits under Trump (after Bush’s $1.5T a year deficit, Obama era got it down to $500B only, and then Trump’s and Republican budgets ran it up again.) The public sector deficits add up to the debts. The northern cities - forget about it, they can’t even print their own money, and they shus down their businesses - they are screwed. Now, everything is relative, so US sovereign debt instruments compete against, say, China’s in the open marketplace. But, there are alternatives to US treasuries - like Bitcoin and cryptos and gold etc. If banks start to keep those as reserves, then the public sector and central banks will have decreasing power unless they FORCE the banks to have higher reserve requirements of base money that they print. Btw in the USA, the vast majority of dollars is issued by banks (to businesses whose cashflows back this money supply, so bailing out businesses is a priority for the economy). People are taking all that fiat money being sent by the government created by banks and plowing it into assets, which the government doesn’t have laws to seize, dilute the value of, etc.
fuoqi 6y ago
One's debt is other's asset. In my understanding, such large ratio of debt to GDP means that the world's economic system is highly interconnected without enough slack in it, which increases risks of avalanche effects. Meaning that someone's failure to service his debt with increasing probability will cause a ripple effect of bankruptcies throughout the system. Note that this view does not include the existence of the money printing press, which currently runs at full throttle. In theory it would mean destruction of the debt via inflation (i.e. debt yield will be smaller than inflation), thus preventing the avalanche effect, but this approach is by no means a free lunch.
- AlanSE 6y ago
  But is inflation a realistic debt-reducing tool in the modern economy? Inflation rates are very low, particularly when considering the debt load. We could quite simply increase the target inflation rate from 2% to 4% inflation, but this would only affect the servicing of the current loans, and the next round to refinancing will correspondingly increase the borrowing rates. There's still the matter of principal. The US government, for instance, could absolve itself of almost all debt liability by going into high-inflation mode, erasing the burden of most T-bills. Again though, this is a one-shot thing. It could eliminate most of the current debt, but would do nothing about the deficits. As long as large deficits remain (and are politically intractable), it doesn't seem workable in any meaningful sense. The working quantity of cash out there is also fairly small. The entire point of a bank is that it minimizes the cash in the system by balancing deposits against loans. That means that changing the cash supply will affect the price levels more violently than what would otherwise be expected. That just means that there's less cushion to absorb large amounts of new cash that government issues, again, kind of reducing the benefit of "free" money.
  - runako 6y ago
    > But is inflation a realistic debt-reducing tool in the modern economy? Yes, when you consider that we don't need actual CPI inflation in order to reduce the debt. Economic growth works just as well. In hard terms, we can inflate money so the debt is smaller. We could also all get richer so the debt is proportionally smaller. Pro-growth policies like the strengthened safety net we in the US are experimenting with as pandemic response could have the impact of increasing overall growth to make debts more easily serviceable.
Cthulhu_ 6y ago
You say "we" and "our", but both you and the article assume the world is one whole; looking a bit further, it's countries that are indebted to one another. Now, I'm no economist or anything so this is all armchair stuff and bits I've picked up over the year. One concern: Being indebted means favors. China could offer to waive some of the US's debts in return for a favor, e.g. Chinese companies having more of a presence in the US (or the other way around). The US owes China nearly 1 trillion, Japan 1.2 trillion. (https://howmuch.net/articles/foreign-holders-of-us-debt-2020 https://howmuch.net/articles/foreign-holders-of-us-debt-2020) Another concern: Credit worthiness / rating. Currently, the US is looking very good and they have a AAA credit rating with various organizations that measure it (http://www.worldgovernmentbonds.com/credit-rating/united-states/ http://www.worldgovernmentbonds.com/credit-rating/united-sta...). But, if the US fails to pay interest and down payments because they're too deep in debt or their GDP drops for whatever reason, these companies may opt to lower the credit rating (which actually happened in 2011: https://www.bbc.com/news/world-us-canada-14428930 https://www.bbc.com/news/world-us-canada-14428930). A lower credit rating means that they will have to pay higher interest rates, and that requests for loans may actually be rejected. If the US depends on loan to e.g. pay for government employees (and they do, given that the US's expenses are higher than their income: https://en.wikipedia.org/wiki/United_States_federal_budget https://en.wikipedia.org/wiki/United_States_federal_budget, revenue is $3.5T, expenses are $4.4T, so they're borrowing $900B from somewhere to make ends meet). Mind you, I get the impression most countries have a budget deficit and compensate by taking out loans: https://en.wikipedia.org/wiki/List_of_countries_by_government_budget https://en.wikipedia.org/wiki/List_of_countries_by_governmen... has a good chart. The US tops the list though, in terms of deficit. The countries that aren't running a deficit - only ten of them - are pretty small countries, who I think may not have the same credit rating as others. TL;DR I have no clue what is going on or what I'm talking about. It's a big borrowing circlejerk that is probably self-balancing.
snarfy 6y ago
We will get the money back. It won't have the same value though. 100% of work results in 356% money = inflation.
oconnor663 6y ago
My understanding is that the mortgage crisis of 2007 is an example of something like this going bad. Technically it was just Americans owing money to other Americans right? But I think how these things go bad is something like: - Some loans start to default. Either randomly, or because the easy availability of credit encourages riskier projects. - Conservative lenders get spooked and exit. Credit becomes a bit scarcer. - This repeats in a cycle. Each round wipes out more businesses. At first it's mostly the obviously risky ones, but increasingly it's normal business with unlucky timing. - People start to see the writing on the wall, credit markets lock up, and panic sets in. Major corporations find themselves unable to make payroll. Ordinary financial stuff like currency exchanges stop working, while everyone scrambles to figure out which intermediary banks might be insolvent.
- metalliqaz 6y ago
  the 2007 crisis wasn't caused by debt. it was caused by huge structures of derivatives based on that debt.
  - imnotlost 6y ago
    Obviously a lot of that debt couldn't be serviced and a lot of it was extended to people who just couldn't afford it. The derivatives were a multiplier.
    - metalliqaz 6y ago
      yeah a multiplier, so instead of a steep correction in the housing market, there was a global financial meltdown
  - oconnor663 6y ago
    This isn't my field, so I should be clear that I'm making stuff up based on podcasts I've listened to :) The way I understand it is that things like MBS's and CDS's were the low-level details of that specific crisis, which we might not expect to happen again in exactly the same way. But the high-level picture was that the failure of major institutions had ripple effects that both 1) directly caused other institutions to fail and 2) indirectly created a lot of uncertainty about who might fail next. Importantly, (2) can cause more failures, by freezing up the markets that a lot of businesses depend on for everyday transactions. This cycle between (1) and (2) can be a general effect, that we might expect to see again in future crises, regardless of what specific low-level details set it off.
lr4444lr 6y ago
The repayment of the debt for each year is usually by law a required set aside in budgeting before the rest of the revenue can be allocated. If there is less and less left for annual operation costs because we keep increasing our debt reliance, that will hurt people who rely on public services. If the laws are changed to make timely repayment on these bonds and treasuries optional, that will affect their credit rating, and the cost of borrowing, which means we have to pay more each year to get the same debt financing. It's not a good place to be.
Swizec 6y ago
I like the “velocity of money” concept to think about this. You lend me $10. I then lend $10 to my friend who lends $10 to his mom. We just created $30 of debt. But it’s gonna take just $10 to repay all $30.
- bjarneh 6y ago
  > who lends $10 to his mom Poor mom, who needs to lend $10 from her son :-)
  - Swizec 6y ago
    Maybe she just didn’t have her wallet on hand to buy that burrito lol
- tastyfreeze 6y ago
  That becomes a real problem when mom cant pay back the loan.
  - spurgu 6y ago
    This is the whole gist of the (potential) problem.
    - tastyfreeze 6y ago
      Yes, just trying to point out the flaw in the "velocity of money" idea as it relates to debt. Multiple layers of lending on a single dollar is building a house of cards. When everything works out you get a nice house. When one of the legs fails the whole house comes tumbling down. This is not a good way to build an economy.
      - kube-system 6y ago
        The bright side is that it only takes $10 of stimulus to fix that potential $30 economic disaster.... if you give it to the right person.
mbar84 6y ago
Debt is a promise. A promise you make is based on expectations about the future, including promises that others have made to you. The more promises we make to each other, the more likely we are to be in a chain where somebody cannot keep their promise, which means that we are vulnerable to a cascade of failed promises. When such promises pervade the economy, once we see that they have been broken, we have to reorganize ourselves. This happens by closing businesses, by liquidating assets, switching jobs and eating cat food because the pension is now worthless. In financial terms, such cascades are typically mopped up by central banks through dilution of the money supply and/or taxpayer financed bailouts. Long story short: more debt means more risk of a financial crisis. p.s. I think it is not helpful to use terms such as "our own", "ourselves" when trying to understand these issues.
- munificent 6y ago
  > The more promises we make to each other, the more likely we are to be in a chain where somebody cannot keep their promise, which means that we are vulnerable to a cascade of failed promises. You can think of a promise as an edge between nodes in a graph. A failure cascade occurs when removing a single edge causes many nodes to become unreachable. Whether adding edges increases that change depends entirely on the topology of the graph. A long linear chain increases the risk. (But you have to implicitly create new nodes—new lenders—in order to maintain that topology while adding edges.) But if you just add edges without increasing nodes, the result is that the graph becomes more connected and thus more resilient to edge loss. In other words, if you owe me $100 and don't pay, I'm out $100. But if five people owe me $20 and one doesn't pay, I still get $80 back.
ddalex 6y ago
> We don't owe this money to some foreign planet with a death-star pointing at us It's borrowed from the future. Literally, we owe the money to our future selves, like in human race. To oversimplify it, we expect that the productivity (ie. the amounts of material possessions and services that are available to humanity as a whole) will grow in a geometric rate. Those future money are an instrument on how this growth is to be directed, basically relying on the wisdom of the crowds to determine investment strategies. The opposite - direct planning of growth - was vastly tested (in communist countries) but it didn't go anywhere.
deleted 6y ago
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betterunix2 6y ago
"We" do not owe "ourselves." Governments, businesses, and individuals owe other individuals, banks, and governments. What is the worst that can happen? A government defaults on its debts, and then cannot secure the loans needed for some other very important work. Large numbers of defaults will cause interest rates to rise, and everyone suffers as a result. The "contagion" effect is also possible: a bank sees too many defaults from its clients, and then finds itself unable to repay its own loans, triggering more defaults elsewhere. If the obvious answer is, "Can't we just forgive the debt," the answer is, "Sure, but we need to be careful." Forgiving all debt would break the markets, because it would remove the negative consequences of investing in bad ideas. Sometimes a business has to be allowed to fail. So the better answer is that central banks would have to buy some of the bad debt, just enough to prevent a cascade of defaults and other worst-case scenarios, but leave creditors holding enough bad debt to feel some "pain" when the defaults happen (in some cases, allowing creditors to fail entirely -- as long as it is not too many too quickly).
neonological 6y ago
Wealth can't be produced out of thin air. The best way to think of it is 356% inflation that will hit us slowly. I'm this case because the printed money is going to people with lower income it can be thought of as wealth transfer from richer people to poorer people. Poor people get printed cash, wealth people lose more due to inflation. Most of us as software engineers should be losing money if our wealth is stored as cash.
- hfsp 6y ago
  Anyone claiming money printing helps the poorer part of the population is uninformed or virtue signaling. Money printing transfers wealth overall to the asset owning class, not the bottom ~40% of Americans who do not hold assets. Research from the NY Fed and impact of money printing: https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr959.pdf https://www.newyorkfed.org/medialibrary/media/research/staff...
  - neonological 6y ago
    Good point. Didn't think about it from this perspective. Essentially this applies to UBI as well, which is where I derived my argument.
nateberkopec 6y ago
Most people owe at least 400% of their yearly earnings on their house, at least initially.
- minkeymaniac 6y ago
  Not any different than taking yearly rent, multiplying by 30 and see if it is 4 times yearly salary. At least with a house you will have something after 30 years. In ten years.. your mortgage will be the same (property taxes won't be) Rent will for sure be higher after 10 years in the same place. But there are benefits to both renting and owning
- ivanche 6y ago
  Unfortunately that's true. I also read somewhere that the most expensive house one can afford is yearly_salary * 3.
mattchew 6y ago
I think this is a sincere question. It's quite possible this ends in a global depression that's worse than what we had in 2008, maybe even worse than what we had in the 1930s. There are a lot of states that are not very solvent: states collapsing financially is also a possibility. Very bad for the people who live there, and sometimes their neighbors.
dragonwriter 6y ago
> We owe ourselves Well, no. Yes, this is the sum of what everybody owes, which is also the sum of what everybody is owed. But not everyone is equally on both sides of that equation.
michael1999 6y ago
Debt is the other side of savings. Some fraction of this debt is the current savings of people older than you. As the last boomers retire over the next 5 years and start to draw down their savings instead of accumulating, we'll see how it all shakes out. "Keep government hands off my medicare!" protest signs are only the start.
nly 6y ago
You're forgetting the variable of time. The current generation is borrowing from the next generation.
- nomercy400 6y ago
  Exactly this. A loan of 30 years isn't paid off in a year.
connectsnk 6y ago
We owe this money to the central banks
goatinaboat 6y ago
What is the worst that can happen? We don't get our own money back from ourselves? Our future selves find that the cupboard is bare because our present selves squandered it all. Printing money now is a gamble that the real economy of goods and services will expand at that rate over the long term. It’s not by any means certain that it will.
odiroot 6y ago
Countries (governments) have to service the debt, that is pay interest on it. More money into that, means less money into regular spending (infrastructure etc). This in turn may mean austerity.
csomar 6y ago
> We don't get our own money back from ourselves? More like some people don't get their money back from some other people. It can manifest in many ways: Higher taxes, Inflation, or Bonds defaults.
Whiskie 6y ago
Basically a circle jerk where people borrowing money and not paying it back, business taking loans on leverage they don’t actually have and going bust. Banks defaulting and no way to payout their customers in that branch because they lent it out. When you have a bank account your money moves, your bank give you iou and they gamble / invest or lend out mortgages which go bad as much or more then good.
quickthrowman 6y ago
> We owe ourselves 356% of what we produce every year? The debt is not all due next year, so why not? As long as it’s serviceable, the amount of outstanding debt is kind of meaningless.
- ejb999 6y ago
  >>As long as it’s serviceable, the amount of outstanding debt is kind of meaningless. Serviceable now or serviceable forever? its not the same thing, and its the kind of thinking that convinces someone who just got a small bump in pay to go out and lease a new $800/month car because they can affords the payments today, or buy an expensive house at the top of the market, because in their opinion house prices only go up, and their job will only ever pay more - neither of those things are always true, and when the conditions change, they can change fast and have a huge domino effect.
  - quickthrowman 6y ago
    Corporations and governments are responsible for nearly all the debt, via bond issuance. Most bonds have a fixed coupon, not adjustable rates. When a household can sell bonds to investors, then you can logically compare household debt vs corporate/government debt. I know I can’t issue bonds, nobody will buy them! Also, one persons debt is another person’s asset. Yea, some consumers make bad purchasing decisions, that has nothing to do with the ability of corporations and governments to service bond interest payments.
User23 6y ago
This is a good example of how one dimensional thinking won't get you very far. Let's add a dimension and see what happens. We'll divide "we" into "usurers" (U) and "exploited" (E) where the former are defined to receive net positive interest income and the latter are defined as those who bear that net negative cost. By definition we know these sets of persons must exist and together with nonparticipants in the ledger game, who we can ignore, they are exhaustive. Now if membership in U and E is randomly distributed and ergodic then an argument can be made that there is no cause for concern and the system is basically "fair." On the other hand if membership in U is restricted to a tiny and mostly hereditary minority one can see why members of E might not be quite so pleased with the arrangement. Which of these scenarios more closely approximates reality and who the typical members of U and E are is something folks should draw their own conclusions on.
eyelidlessness 6y ago
What else happens when you borrow from yourself on a smaller scale, or someone else borrows from you? You take stock of what you have available and anticipate coming in and evaluate what kind of pain you’d experience on default. Taking the national debt example, that’s asking: can I reasonably and safely bet on four years of comparable value generation? When you need to worry is if anything you’re extending debt that you can’t say that about.
httpsterio 6y ago
if person A owes 10 dollars to B, B owes 10 to C and C owes 10 to A, there's a total of a $30 debt that can be paid off with a single $10. A lot of countries and companies have a lot of debt, but at the same time they're also often owed. So, from those numbers alone it's impossible to know what the actual situation is.
kamaal 6y ago
>>We owe ourselves 356% of what we produce every year? Ourselves is a strange thing to say, the whole world isn't exactly one country. When you have visa restriction preventing movements, and wars for resources. We are not one entity. No country is going to forgive defaults on money borrowed from it.
deleted 6y ago
[deleted]
midjji 6y ago
Its better to think of it as we borrowed from ourselves in the future, so as long as growth exceeds rent, we are fine.
8bitsrule 6y ago
Is that debt interest-free? If not, then at 5% interest that's 18% interest that's 1/6 of the GDP going into paying that interest. Nice for those on the receiving end.
sifar 6y ago
We don't owe it just to ourselves. We owe it to our descendants and our future self, primarily to those who will inherit after us.
southerntofu 6y ago
> this type of math always puzzles me Yeah, it's really counter-intuitive. That's because economics is not just based on maths. The only schools of economics with pure-mathematical analysis are neo-liberal schools with game-theory axioms (which are provably wrong). Mathematics fail to prevent economic crashes of the capitalist system, as they have for more than a century: 1929 was going to be the last crash ever, or so they said. To understand economics, we have to study social/political context. That's why economists that actually make sense are studying it as a social science, not a branch of mathematics (though mathematical principles apply). > We don't get our own money back from ourselves? Debt is a complex topic. But many NGOs and economists over the years have argued it's a system designed to keep the poor and the third world in check. That's evidence by the fact that rich nations/people owe [m,b]illions without any concern for their safety, while poor people will have their property seized for minor debts, and entire countries will be wreaked just to pay off a handful of greedy banks (Greece). And that's assuming the debt is legitimate in the first place. See concept of odious debt in international accords/law, which applies to most country's debt, which has been contracted not to help the people but eg. to develop the military or give away money to private companies through dubious public-private partnerships.

BurningFrog 6y ago

> "We owe ourselves..." That's a bit of a hostile "we". I and my bank don't have any debt, considered as a group. Technically true, but doesn't make my mortgage go away. > What is the worst that can happen? When governments can't/won't pay their debts, the way out is printing money to pay with. This has in at least one case led to the Holocaust. Low sample size, but still.

selimthegrim 6y ago
Next up from HN hot takes - how cowrie shells led to the Cambodian genocide. You heard it here first.
- BurningFrog 6y ago
  It's unknowable how Germany would have developed without the 1923 hyperinflation, but my guess is it would have muddled along as a semi stable democracy, instead of what happened. https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_R...
  - orwin 6y ago
    Printing money don't lead to hyperinflation unless you also can't sell anything (either because you don't produce or because nobody is buying). Again, since i don't know why people believe that (even orthodox economists agree on that): printing money alone don't cause inflation to run away. It can cause a big inflation and make people who have money in the bank/ on the side loose a lot, sure. No hyperinflation, not alone at least. Hyperinflation have confounding factors, one being being unable to sell (Venezuela, Zimbabwe) another being unable to produce enough (Weimar republic in 23). Also my country not invading the Weimar republic for fun and giggles would have helped much more against Nazi propaganda than preventing hyperinflation. Hyperinflation did not cause a famine in Germany. Lack of food caused a famine in Germany, and also in Austria, Poland, USSR, probably Greece and Ottoman Empire (i'm mostly focused in Northern europe history so if someone that extensively studied this area during this time period can correct me, i'd like that, i know a lot of people studied the rise and fall of the Ottomans). Because its what a lack of food does. Incidentally, my late grandfather was born in august 23 and he was told this was the first good harvest year since 1914. I have to look into it but the French government probably decided to store excess grain to refurbish the depleted stocks, and did not help their neighbors much. Anyway, printing money does not cause hyperinflation. This is a usefull myth for the masses since printing money reduce "our" asset size (mine too, i'm rich now!).
    - selimthegrim 6y ago
      You might want to check the book by Fromkin, Peace to End All Peace (1989)
OscarCunningham 6y ago
> I and my bank don't have any debt, considered as a group. The way this figure is calculated, the amount of debt you and your bank have between you is your mortgage + your bank account.

riffraff 6y ago

creditors and debtors are not the same set of entities.

lightgreen 6y ago

The worst thing can happen is rich people get even more rich, poor people become more poor, then the recession starts, then poor people overthrow the government and set up some destructive authoritarian regime, and then China will conquer the western world.

tuatoru 6y ago

Good questions, and you are right to be puzzled. Countries are not households, and the world as a whole is not a household either. Heuristics that work for individual households fail when applied to countries or the world. Debt hysteria is promoted by lenders, who will go to extremes to try to ensure they are repaid. Even if their actions cause a general depression that impoverishes themselves as well as borrowers.

orra 6y ago
Indeed. Lenders conveniently forget the reason they can charge interest is because there's a risk they won't be paid back. Yet when these private investments go back, they always go to the government to be subsidised with a bailout.
- dragonwriter 6y ago
  > Lenders conveniently forget the reason they can charge interest is because there's a risk they won't be paid back. No, the reason they can charge interest is that they have the money now, and other people want it, and are willing.to pay interest to get it. The reason they need to charge interest if they don't want to go broke is that there is a risk they won't be paid back.
  - orra 6y ago
    Sure, yes. But OTOH I'm not sure the distinction you make is meaningful. If there was no risk, the cost to borrow would tend towards zero. Any liquidity issues could be addressed by the central bank, again at low interest if no risk.
    - tjs8rj 6y ago
      Private banks charge interest in general because that’s the opportunity cost of that money.
      - orra 6y ago

chii 6y ago

it's a future you (i.e., decendents) who pays back the debt. The expectation is that they can, because of the investment _you're_ making right now by using this debt. Future productivity is expected to grow. Now, whether this is actually the case remains to be seen...

bubbleRefuge 6y ago
Not true for gov debt. Its complicated. But its an infinite cycle of issuing new treasury securities to 'fund' the accounts to service existing debt. Those funds are then spend back into the economy and then used to purchase new treasuries again.

nine_zeros 6y ago

> We owe ourselves 356% of what we produce every year? This assumes that people think of the world as a single unit. Last 4 years should reveal our primitive minds.

cmehdy 6y ago

The reality of it shows up when you zoom in: overall during the pandemic richer people got richer and poorer people got poorer. The "world" doesn't owe the "world" that amount, it's people in already tight situations owing that to people in pretty comfortable ones. The ones borrowing to get by are paying more money than what they borrowed to people who already had money to lend out. What we'll see is yet another rise in inequality, yet another wave of the bigger businesses surviving over the smaller ones, and more debates within each government regarding how much intervention is wanted to try and save people from the consequences of those inequalities.

PragmaticPulp 6y ago
This headline number includes private sector debt, such as small business loans and mortgages. I can assure you that the comfortably rich are not getting richer by loaning money to the average person to buy houses and cars with 2.5% interest rates, while inflation is arguably significantly higher than that number. The rich get richer in this scenario because low interest rates increase the buying power for everyone, which means they can buy more expensive houses or pay less for the mortgage on the house they already own, which in turn means they can buy more things from Amazon, which means Amazon does more business, which means the stock price goes up, and so on. The populist narrative likes to simplify complex economic topics into rich versus poor narratives as if this was a zero-sum game, but it’s not. I’m not sure how your final points about inequality relate to increasing total global debt, but it’s obvious that this isn’t as simple as funneling money from the poor to the rich.
- cmehdy 6y ago
  You can call it populist if you want, it's just mechanically true. For money to be lent out it's coming from somewhere where the money is existing or the risk can be handled, and in both of those cases where money exists or risk can be handled you're typically looking at richer rather than poorer. If you're a shareholder, you are more able to afford risk than if you're just throwing your money at paying the bills. If you're in that situation and borrowing from a bank, the bank's shareholders mechanically are benefiting from your activity. You're borrowing to get by and people who have a better cushion are doing better for it, I don't see what's so shameful to point out. Your explanation doesn't explain anything away but to try and put some sort of weird blame on poorer people for borrowing, it's just as usual of a narrative as the populist thing to be infantilizing poorer people. There's however a pretty big difference between borrowing at your limit or sometimes beyond because you're trying to get through a pandemic or have a place to live, and borrowing at high risk because you're playing with huge sums and can in fact afford the loss. The latter as a group made more money during the pandemic from any possible source you could look at, the former as a group lost money and jobs. I won't insult you by throwing Oxfam reports at the situation, especially since you might be keen on calling it populist too and calling it a day.

JumpCrisscross 6y ago

> We don't owe this money to some foreign planet with a death-star pointing at us One, not all that debt is termed to one year. And two, it’s an internal transmission mechanism. If two people produce $50 a year, and one owes the other $100 in four years and the other owes the one $100 in five years, that’s a perfectly fine 200% debt to annual production ratio. For years 1, 2, 3 and 5, their positions will be equal. In year 4, there will be inequality. If one or the other defaults, that inequality would persist even though aggregate indebtedness went down.

snemvalts 6y ago

Most of money today is from issued loans. The worst that happens is like the fears in 2008, where the loans (or the assets bought for those loans) are worth a lot less, and hence a lot of money will be as well.

cgh 6y ago

Read Stephanie Kelton’s book “The Deficit Myth” for an elaboration on your questions. It’s a non-technical introduction to Modern Monetary Theory. Spoiler: you are correct, the rules are different for nations that control their sovereign currencies (eg the UK, Canada, Japan, the US, China, etc., but not EU countries).

bubbleRefuge 6y ago
Thank you. I always try to call out a fellow MMT'ers. Amazing how far this has come. Mossler said he thought it would take a hundred years to get to the point that the framework could be used pro-actively to create policy on a grand scale. Although, small scale stuff did come to fruition such as the Bush stimulus checks of 2007(i think) which I believe was MMT inspired.
bubbleRefuge 6y ago
She has truly brought MMT to the mainstream. She's why I supported Bernie Sanders ( and I am a former republican) who is clueless about MMT and thinks we have to tax the rich to fund Federal programs. Allot of people don't know this, but MMT intellectuals have said we don't need federal income tax at all. State taxes are enought to maintain demand for the currency. This from left leaning/progressive economists.
RobertoG 6y ago
I wish more people understood what is explained in that book. It's almost impossible to have a rational discussion about this subjects when most people (including the writer of the article, I'm afraid) don't understand the difference between private debt and the public debt of a country with its own currency.
sdfin 6y ago
Read it, but please also read it's critics[1] and form your own opinion knowing about the two sides. [1] https://mises.org/wire/review-stephanie-keltons-deficit-myth https://mises.org/wire/review-stephanie-keltons-deficit-myth
- 6y ago

bob33212 6y ago

Everyone cannot be repaid at the same time. So there is a risk of a scenario where many lenders get scared and try to get their loans repaid and stop making new loans. If that happens is becomes much more difficult for people to buy a house, car, college tuition, construction loan. That could cause a recession which causes businesses to do layoffs and spend less because they are worried about future income.

PragmaticPulp 6y ago

This article is about total global debt, which includes the private sector. Many of the comments here have misinterpreted this as government-only debt, which is not correct. Only about 1/3 of the debt is government debt right now (a little under $100 trillion globally). If you look up where your federal tax dollars go, there is a significant line item for servicing debt. Those interest payments go to holders of the government debt, which range from US citizens to foreign countries. You can find charts and estimates of who holds that debt if you want to understand where it goes. The popular narrative about governments printing free money isn’t really true in the simplified meme-style presentation that we hear online.

rsync 6y ago
"Those interest payments go to holders of the government debt, which range from US citizens to foreign countries." ... and also the fed[1] which, currently, holds more than 10% of the US debt[2]. "The popular narrative about governments printing free money isn’t really true in the simplified meme-style presentation that we hear online." Perhaps - but it is getting more true all the time. In the case of the ECB it is getting more true all the time in the absence of any oversight, transparency, adherence to constitutional law or democratic processes[3]. [1] https://www.nytimes.com/2020/12/16/business/economy/fed-december-meeting.html https://www.nytimes.com/2020/12/16/business/economy/fed-dece... [2] http://www.crfb.org/blogs/fed-buying-our-new-debt http://www.crfb.org/blogs/fed-buying-our-new-debt [3] https://www.lrb.co.uk/the-paper/v43/n01/perry-anderson/ever-closer-union https://www.lrb.co.uk/the-paper/v43/n01/perry-anderson/ever-...

EGreg 6y ago

Let me explain. The PUBLIC SECTOR is in debt. It won’t be able to continue borrowing on the same terms unless it prints more money (leading to inflation unless done during a crunch of the money supply due to defaulting private sector loans etc). Even before this pandemic, by cutting taxes the US Government got larger deficits under Trump (after Bush’s $1.5T a year deficit, Obama era got it down to $500B only, and then Trump’s and Republican budgets ran it up again.) The public sector deficits add up to the debts. The northern cities - forget about it, they can’t even print their own money, and they shus down their businesses - they are screwed. Now, everything is relative, so US sovereign debt instruments compete against, say, China’s in the open marketplace. But, there are alternatives to US treasuries - like Bitcoin and cryptos and gold etc. If banks start to keep those as reserves, then the public sector and central banks will have decreasing power unless they FORCE the banks to have higher reserve requirements of base money that they print. Btw in the USA, the vast majority of dollars is issued by banks (to businesses whose cashflows back this money supply, so bailing out businesses is a priority for the economy). People are taking all that fiat money being sent by the government created by banks and plowing it into assets, which the government doesn’t have laws to seize, dilute the value of, etc.

fuoqi 6y ago

One's debt is other's asset. In my understanding, such large ratio of debt to GDP means that the world's economic system is highly interconnected without enough slack in it, which increases risks of avalanche effects. Meaning that someone's failure to service his debt with increasing probability will cause a ripple effect of bankruptcies throughout the system. Note that this view does not include the existence of the money printing press, which currently runs at full throttle. In theory it would mean destruction of the debt via inflation (i.e. debt yield will be smaller than inflation), thus preventing the avalanche effect, but this approach is by no means a free lunch.

AlanSE 6y ago
But is inflation a realistic debt-reducing tool in the modern economy? Inflation rates are very low, particularly when considering the debt load. We could quite simply increase the target inflation rate from 2% to 4% inflation, but this would only affect the servicing of the current loans, and the next round to refinancing will correspondingly increase the borrowing rates. There's still the matter of principal. The US government, for instance, could absolve itself of almost all debt liability by going into high-inflation mode, erasing the burden of most T-bills. Again though, this is a one-shot thing. It could eliminate most of the current debt, but would do nothing about the deficits. As long as large deficits remain (and are politically intractable), it doesn't seem workable in any meaningful sense. The working quantity of cash out there is also fairly small. The entire point of a bank is that it minimizes the cash in the system by balancing deposits against loans. That means that changing the cash supply will affect the price levels more violently than what would otherwise be expected. That just means that there's less cushion to absorb large amounts of new cash that government issues, again, kind of reducing the benefit of "free" money.
- runako 6y ago
  > But is inflation a realistic debt-reducing tool in the modern economy? Yes, when you consider that we don't need actual CPI inflation in order to reduce the debt. Economic growth works just as well. In hard terms, we can inflate money so the debt is smaller. We could also all get richer so the debt is proportionally smaller. Pro-growth policies like the strengthened safety net we in the US are experimenting with as pandemic response could have the impact of increasing overall growth to make debts more easily serviceable.

Cthulhu_ 6y ago

You say "we" and "our", but both you and the article assume the world is one whole; looking a bit further, it's countries that are indebted to one another. Now, I'm no economist or anything so this is all armchair stuff and bits I've picked up over the year. One concern: Being indebted means favors. China could offer to waive some of the US's debts in return for a favor, e.g. Chinese companies having more of a presence in the US (or the other way around). The US owes China nearly 1 trillion, Japan 1.2 trillion. (https://howmuch.net/articles/foreign-holders-of-us-debt-2020 https://howmuch.net/articles/foreign-holders-of-us-debt-2020) Another concern: Credit worthiness / rating. Currently, the US is looking very good and they have a AAA credit rating with various organizations that measure it (http://www.worldgovernmentbonds.com/credit-rating/united-states/ http://www.worldgovernmentbonds.com/credit-rating/united-sta...). But, if the US fails to pay interest and down payments because they're too deep in debt or their GDP drops for whatever reason, these companies may opt to lower the credit rating (which actually happened in 2011: https://www.bbc.com/news/world-us-canada-14428930 https://www.bbc.com/news/world-us-canada-14428930). A lower credit rating means that they will have to pay higher interest rates, and that requests for loans may actually be rejected. If the US depends on loan to e.g. pay for government employees (and they do, given that the US's expenses are higher than their income: https://en.wikipedia.org/wiki/United_States_federal_budget https://en.wikipedia.org/wiki/United_States_federal_budget, revenue is $3.5T, expenses are $4.4T, so they're borrowing $900B from somewhere to make ends meet). Mind you, I get the impression most countries have a budget deficit and compensate by taking out loans: https://en.wikipedia.org/wiki/List_of_countries_by_government_budget https://en.wikipedia.org/wiki/List_of_countries_by_governmen... has a good chart. The US tops the list though, in terms of deficit. The countries that aren't running a deficit - only ten of them - are pretty small countries, who I think may not have the same credit rating as others. TL;DR I have no clue what is going on or what I'm talking about. It's a big borrowing circlejerk that is probably self-balancing.

snarfy 6y ago

We will get the money back. It won't have the same value though. 100% of work results in 356% money = inflation.

oconnor663 6y ago

My understanding is that the mortgage crisis of 2007 is an example of something like this going bad. Technically it was just Americans owing money to other Americans right? But I think how these things go bad is something like: - Some loans start to default. Either randomly, or because the easy availability of credit encourages riskier projects. - Conservative lenders get spooked and exit. Credit becomes a bit scarcer. - This repeats in a cycle. Each round wipes out more businesses. At first it's mostly the obviously risky ones, but increasingly it's normal business with unlucky timing. - People start to see the writing on the wall, credit markets lock up, and panic sets in. Major corporations find themselves unable to make payroll. Ordinary financial stuff like currency exchanges stop working, while everyone scrambles to figure out which intermediary banks might be insolvent.

metalliqaz 6y ago
the 2007 crisis wasn't caused by debt. it was caused by huge structures of derivatives based on that debt.
- imnotlost 6y ago
  Obviously a lot of that debt couldn't be serviced and a lot of it was extended to people who just couldn't afford it. The derivatives were a multiplier.
  - metalliqaz 6y ago
    yeah a multiplier, so instead of a steep correction in the housing market, there was a global financial meltdown
- oconnor663 6y ago
  This isn't my field, so I should be clear that I'm making stuff up based on podcasts I've listened to :) The way I understand it is that things like MBS's and CDS's were the low-level details of that specific crisis, which we might not expect to happen again in exactly the same way. But the high-level picture was that the failure of major institutions had ripple effects that both 1) directly caused other institutions to fail and 2) indirectly created a lot of uncertainty about who might fail next. Importantly, (2) can cause more failures, by freezing up the markets that a lot of businesses depend on for everyday transactions. This cycle between (1) and (2) can be a general effect, that we might expect to see again in future crises, regardless of what specific low-level details set it off.

lr4444lr 6y ago

The repayment of the debt for each year is usually by law a required set aside in budgeting before the rest of the revenue can be allocated. If there is less and less left for annual operation costs because we keep increasing our debt reliance, that will hurt people who rely on public services. If the laws are changed to make timely repayment on these bonds and treasuries optional, that will affect their credit rating, and the cost of borrowing, which means we have to pay more each year to get the same debt financing. It's not a good place to be.

Swizec 6y ago

I like the “velocity of money” concept to think about this. You lend me $10. I then lend $10 to my friend who lends $10 to his mom. We just created $30 of debt. But it’s gonna take just $10 to repay all $30.

bjarneh 6y ago
> who lends $10 to his mom Poor mom, who needs to lend $10 from her son :-)
- Swizec 6y ago
  Maybe she just didn’t have her wallet on hand to buy that burrito lol
tastyfreeze 6y ago
That becomes a real problem when mom cant pay back the loan.
- spurgu 6y ago
  This is the whole gist of the (potential) problem.
  - tastyfreeze 6y ago
    Yes, just trying to point out the flaw in the "velocity of money" idea as it relates to debt. Multiple layers of lending on a single dollar is building a house of cards. When everything works out you get a nice house. When one of the legs fails the whole house comes tumbling down. This is not a good way to build an economy.
    - kube-system 6y ago
      The bright side is that it only takes $10 of stimulus to fix that potential $30 economic disaster.... if you give it to the right person.

mbar84 6y ago

Debt is a promise. A promise you make is based on expectations about the future, including promises that others have made to you. The more promises we make to each other, the more likely we are to be in a chain where somebody cannot keep their promise, which means that we are vulnerable to a cascade of failed promises. When such promises pervade the economy, once we see that they have been broken, we have to reorganize ourselves. This happens by closing businesses, by liquidating assets, switching jobs and eating cat food because the pension is now worthless. In financial terms, such cascades are typically mopped up by central banks through dilution of the money supply and/or taxpayer financed bailouts. Long story short: more debt means more risk of a financial crisis. p.s. I think it is not helpful to use terms such as "our own", "ourselves" when trying to understand these issues.

munificent 6y ago
> The more promises we make to each other, the more likely we are to be in a chain where somebody cannot keep their promise, which means that we are vulnerable to a cascade of failed promises. You can think of a promise as an edge between nodes in a graph. A failure cascade occurs when removing a single edge causes many nodes to become unreachable. Whether adding edges increases that change depends entirely on the topology of the graph. A long linear chain increases the risk. (But you have to implicitly create new nodes—new lenders—in order to maintain that topology while adding edges.) But if you just add edges without increasing nodes, the result is that the graph becomes more connected and thus more resilient to edge loss. In other words, if you owe me $100 and don't pay, I'm out $100. But if five people owe me $20 and one doesn't pay, I still get $80 back.

ddalex 6y ago

> We don't owe this money to some foreign planet with a death-star pointing at us It's borrowed from the future. Literally, we owe the money to our future selves, like in human race. To oversimplify it, we expect that the productivity (ie. the amounts of material possessions and services that are available to humanity as a whole) will grow in a geometric rate. Those future money are an instrument on how this growth is to be directed, basically relying on the wisdom of the crowds to determine investment strategies. The opposite - direct planning of growth - was vastly tested (in communist countries) but it didn't go anywhere.

deleted 6y ago

[deleted]

betterunix2 6y ago

"We" do not owe "ourselves." Governments, businesses, and individuals owe other individuals, banks, and governments. What is the worst that can happen? A government defaults on its debts, and then cannot secure the loans needed for some other very important work. Large numbers of defaults will cause interest rates to rise, and everyone suffers as a result. The "contagion" effect is also possible: a bank sees too many defaults from its clients, and then finds itself unable to repay its own loans, triggering more defaults elsewhere. If the obvious answer is, "Can't we just forgive the debt," the answer is, "Sure, but we need to be careful." Forgiving all debt would break the markets, because it would remove the negative consequences of investing in bad ideas. Sometimes a business has to be allowed to fail. So the better answer is that central banks would have to buy some of the bad debt, just enough to prevent a cascade of defaults and other worst-case scenarios, but leave creditors holding enough bad debt to feel some "pain" when the defaults happen (in some cases, allowing creditors to fail entirely -- as long as it is not too many too quickly).

neonological 6y ago

Wealth can't be produced out of thin air. The best way to think of it is 356% inflation that will hit us slowly. I'm this case because the printed money is going to people with lower income it can be thought of as wealth transfer from richer people to poorer people. Poor people get printed cash, wealth people lose more due to inflation. Most of us as software engineers should be losing money if our wealth is stored as cash.

hfsp 6y ago
Anyone claiming money printing helps the poorer part of the population is uninformed or virtue signaling. Money printing transfers wealth overall to the asset owning class, not the bottom ~40% of Americans who do not hold assets. Research from the NY Fed and impact of money printing: https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr959.pdf https://www.newyorkfed.org/medialibrary/media/research/staff...
- neonological 6y ago
  Good point. Didn't think about it from this perspective. Essentially this applies to UBI as well, which is where I derived my argument.

nateberkopec 6y ago

Most people owe at least 400% of their yearly earnings on their house, at least initially.

minkeymaniac 6y ago
Not any different than taking yearly rent, multiplying by 30 and see if it is 4 times yearly salary. At least with a house you will have something after 30 years. In ten years.. your mortgage will be the same (property taxes won't be) Rent will for sure be higher after 10 years in the same place. But there are benefits to both renting and owning
ivanche 6y ago
Unfortunately that's true. I also read somewhere that the most expensive house one can afford is yearly_salary * 3.

mattchew 6y ago

I think this is a sincere question. It's quite possible this ends in a global depression that's worse than what we had in 2008, maybe even worse than what we had in the 1930s. There are a lot of states that are not very solvent: states collapsing financially is also a possibility. Very bad for the people who live there, and sometimes their neighbors.

dragonwriter 6y ago

> We owe ourselves Well, no. Yes, this is the sum of what everybody owes, which is also the sum of what everybody is owed. But not everyone is equally on both sides of that equation.

michael1999 6y ago

Debt is the other side of savings. Some fraction of this debt is the current savings of people older than you. As the last boomers retire over the next 5 years and start to draw down their savings instead of accumulating, we'll see how it all shakes out. "Keep government hands off my medicare!" protest signs are only the start.

nly 6y ago

You're forgetting the variable of time. The current generation is borrowing from the next generation.

nomercy400 6y ago
Exactly this. A loan of 30 years isn't paid off in a year.

connectsnk 6y ago

We owe this money to the central banks

goatinaboat 6y ago

What is the worst that can happen? We don't get our own money back from ourselves? Our future selves find that the cupboard is bare because our present selves squandered it all. Printing money now is a gamble that the real economy of goods and services will expand at that rate over the long term. It’s not by any means certain that it will.

odiroot 6y ago

Countries (governments) have to service the debt, that is pay interest on it. More money into that, means less money into regular spending (infrastructure etc). This in turn may mean austerity.

csomar 6y ago

> We don't get our own money back from ourselves? More like some people don't get their money back from some other people. It can manifest in many ways: Higher taxes, Inflation, or Bonds defaults.

Whiskie 6y ago

Basically a circle jerk where people borrowing money and not paying it back, business taking loans on leverage they don’t actually have and going bust. Banks defaulting and no way to payout their customers in that branch because they lent it out. When you have a bank account your money moves, your bank give you iou and they gamble / invest or lend out mortgages which go bad as much or more then good.

quickthrowman 6y ago

> We owe ourselves 356% of what we produce every year? The debt is not all due next year, so why not? As long as it’s serviceable, the amount of outstanding debt is kind of meaningless.

ejb999 6y ago
>>As long as it’s serviceable, the amount of outstanding debt is kind of meaningless. Serviceable now or serviceable forever? its not the same thing, and its the kind of thinking that convinces someone who just got a small bump in pay to go out and lease a new $800/month car because they can affords the payments today, or buy an expensive house at the top of the market, because in their opinion house prices only go up, and their job will only ever pay more - neither of those things are always true, and when the conditions change, they can change fast and have a huge domino effect.
- quickthrowman 6y ago
  Corporations and governments are responsible for nearly all the debt, via bond issuance. Most bonds have a fixed coupon, not adjustable rates. When a household can sell bonds to investors, then you can logically compare household debt vs corporate/government debt. I know I can’t issue bonds, nobody will buy them! Also, one persons debt is another person’s asset. Yea, some consumers make bad purchasing decisions, that has nothing to do with the ability of corporations and governments to service bond interest payments.

User23 6y ago

This is a good example of how one dimensional thinking won't get you very far. Let's add a dimension and see what happens. We'll divide "we" into "usurers" (U) and "exploited" (E) where the former are defined to receive net positive interest income and the latter are defined as those who bear that net negative cost. By definition we know these sets of persons must exist and together with nonparticipants in the ledger game, who we can ignore, they are exhaustive. Now if membership in U and E is randomly distributed and ergodic then an argument can be made that there is no cause for concern and the system is basically "fair." On the other hand if membership in U is restricted to a tiny and mostly hereditary minority one can see why members of E might not be quite so pleased with the arrangement. Which of these scenarios more closely approximates reality and who the typical members of U and E are is something folks should draw their own conclusions on.

eyelidlessness 6y ago

What else happens when you borrow from yourself on a smaller scale, or someone else borrows from you? You take stock of what you have available and anticipate coming in and evaluate what kind of pain you’d experience on default. Taking the national debt example, that’s asking: can I reasonably and safely bet on four years of comparable value generation? When you need to worry is if anything you’re extending debt that you can’t say that about.

httpsterio 6y ago

if person A owes 10 dollars to B, B owes 10 to C and C owes 10 to A, there's a total of a $30 debt that can be paid off with a single $10. A lot of countries and companies have a lot of debt, but at the same time they're also often owed. So, from those numbers alone it's impossible to know what the actual situation is.

kamaal 6y ago

>>We owe ourselves 356% of what we produce every year? Ourselves is a strange thing to say, the whole world isn't exactly one country. When you have visa restriction preventing movements, and wars for resources. We are not one entity. No country is going to forgive defaults on money borrowed from it.

deleted 6y ago

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midjji 6y ago

Its better to think of it as we borrowed from ourselves in the future, so as long as growth exceeds rent, we are fine.

8bitsrule 6y ago

Is that debt interest-free? If not, then at 5% interest that's 18% interest that's 1/6 of the GDP going into paying that interest. Nice for those on the receiving end.

sifar 6y ago

We don't owe it just to ourselves. We owe it to our descendants and our future self, primarily to those who will inherit after us.

southerntofu 6y ago

> this type of math always puzzles me Yeah, it's really counter-intuitive. That's because economics is not just based on maths. The only schools of economics with pure-mathematical analysis are neo-liberal schools with game-theory axioms (which are provably wrong). Mathematics fail to prevent economic crashes of the capitalist system, as they have for more than a century: 1929 was going to be the last crash ever, or so they said. To understand economics, we have to study social/political context. That's why economists that actually make sense are studying it as a social science, not a branch of mathematics (though mathematical principles apply). > We don't get our own money back from ourselves? Debt is a complex topic. But many NGOs and economists over the years have argued it's a system designed to keep the poor and the third world in check. That's evidence by the fact that rich nations/people owe [m,b]illions without any concern for their safety, while poor people will have their property seized for minor debts, and entire countries will be wreaked just to pay off a handful of greedy banks (Greece). And that's assuming the debt is legitimate in the first place. See concept of odious debt in international accords/law, which applies to most country's debt, which has been contracted not to help the people but eg. to develop the military or give away money to private companies through dubious public-private partnerships.