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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 ind

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
        Interest rates for savers are record low. That's the opportunity cost for the savers. And a central bank of a sovereign country can arbitrarily increase liquidity, pushing down the non-risk part of the interest rate. But interest rates for borrowers, as I said, can be high, depending upon the risk profile.
imtringued 6y ago
>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. Actually, this is wrong. If you can borrow money and spend the money in a way that you will get more money in the future then you can take on an infinite amount of debt. This applies to households, small businesses, large businesses and governments. Households get into trouble because debt can be used to overspend on consumer goods. Nigeria is in this situation. Oil exports made importing food very cheap. Now that oil is worth less they suffer from a trade deficit and the government has to borrow foreign currency so that companies can import food. Inflation is the expected result because you have exceeded the production capacity of your economy. The ideal choice would be to invest the borrowed money into agriculture and eliminate the deficit.

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
      Interest rates for savers are record low. That's the opportunity cost for the savers. And a central bank of a sovereign country can arbitrarily increase liquidity, pushing down the non-risk part of the interest rate. But interest rates for borrowers, as I said, can be high, depending upon the risk profile.

imtringued 6y ago

>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. Actually, this is wrong. If you can borrow money and spend the money in a way that you will get more money in the future then you can take on an infinite amount of debt. This applies to households, small businesses, large businesses and governments. Households get into trouble because debt can be used to overspend on consumer goods. Nigeria is in this situation. Oil exports made importing food very cheap. Now that oil is worth less they suffer from a trade deficit and the government has to borrow foreign currency so that companies can import food. Inflation is the expected result because you have exceeded the production capacity of your economy. The ideal choice would be to invest the borrowed money into agriculture and eliminate the deficit.