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I think the author doesn't appreciate that the debt is being repaid, perhaps because that happens in a very un- conventional manner, different from ways most pe

I think the author doesn't appreciate that the debt is being repaid, perhaps because that happens in a very un- conventional manner, different from ways most people think debt is repaid. #1 we are doing gargantuan "stimulus" transfers of money. This money will serve 1 thing only: The US will become a net exporter (and to some degree, it always was) of inflation. All the world economies that can get away doing so will do so. Since all debt that matters is denominated in USD, then that debt is effectively being repaid thru the loss of purchasing power of every single dollar holder. At some point it may be true that debtholders may experience a debt "shock". This brings me to repayment #2 IF any issuer of debt, like a bank, gets in trouble, like in 2008 or March 2020, they are bailed out. Sometimes directly (TARP) sometimes indirectly (CARES). So due to the bailout, a huge amount of debt is transferred to the federal balance sheet. Its true that did not liquidate the private debt - govt debt still needs to be repaid. But that can happen via #1, or via taxation. So the circle is closed and the debt is repaid. Note that taxation can involve individuals not yet born, too. So while I agree that this is zombie (bad) debt, i don't agree that it won't be repaid. Its just that the time horizon for repayment is so long, and hard to observe, that it may lead to the conclusion that the debt is not being repaid.

cryptica 6y ago
Taxation is not enough to pay back the entire public or private debt since all the new money which is injected into the economy enters via the banking system as loans or via government bonds (also backed by debt at a 1 to 1 ratio); so no amount of taxation against those dollars is sufficient to cover the debt which was created as a consequence of injecting those dollars into the economy in the first place... Unless the tax rate was 100% - But that would be impossible for other very obvious reasons. The only real purposes of taxation are to force people to keep using the fiat currency as a means of payment (maintain currency monopoly) and also to maintain scarcity of the currency as this helps to keep inflation under control (at least for consumables). But it doesn't actually prevent inflation in absolute terms because the government usually ends up spending more than it collects in taxes anyway (take loans from the Fed by creating new bonds); they mostly care about having inflation lower or proportional to other countries, not about preventing inflation. The only way to pay off the debt would be to change the mechanism via which money enters the economy so that it is no longer tied to a debt as it does so. But then the question would be who should receive all that new debt-free money? Probably it will be big corrupt megacorporations via insanely large government contracts.
- vkou 6y ago
  > The only way to pay off the debt would be to change the mechanism via which money enters the economy so that it is no longer tied to a debt as it does so. Yes, all money is created in the form of debt, which implies that it has to be paid back with interest. There is no way for everyone to pay off all outstanding debt. However, you are forgetting that not all debt is paid off. Some of it defaults, which destroys money.
  - cryptica 6y ago
    True, and I guess private banks just sell all that toxic debt to the reserve banks. But it's not the money which is being destroyed by defaults, it's only the debt component which is wiped clean. The credit component of the loan was already spent into the economy by the now-insolvent borrower and cannot be recovered by creditors so it's still circulating and adding to inflation. It really sucks. What a horrible society we live in. The current system monetizes bankruptcies. Bankruptcy is the only mechanism which allows debts to be wiped clean without simultaneously adding more debts.
    - D13Fd 6y ago
      >Bankruptcy is the only mechanism which allows debts to be wiped clean without simultaneously adding more debts. This is untrue. There is also repayment, which is the way the system is designed to work. There is also voluntary/negotiated forgiveness by lenders. More than that, how is bankruptcy a bad thing in this context? Isn't bankruptcy exactly what should happen when repayment becomes impossible? Our system of bankruptcy organizes the process of default, and was actually the solution to the older problem of things like debtor's prisons.
      - arithmomachist 6y ago
        The invention of credit scores and their use to screen people for renting apartments and getting jobs brought in a coercive system of similar magnitude to debtors' prisons. Credit scores should be only used for evaluating potential loans, not for anything else.
carbonguy 6y ago
> I think the author doesn't appreciate that the debt is being repaid... #1 we are doing gargantuan "stimulus" transfers of money... #2... IF any issuer of debt, like a bank, gets in trouble, like in 2008 or March 2020, they are bailed out. Changing who's holding the hot potato is not the same as repayment of debt. In both of your examples, it's the government who's assuming the debt from corporate debtholders who have (presumably) milked it for return already in the way the article describes. But, as you point out: > ...govt debt still needs to be repaid. But that can happen via #1 ["The US will become a net exporter (and to some degree, it always was) of inflation."], or via taxation. Taxation is a no-go - even if the political will could be mustered in the US to increase taxes, who are you as the government going to tax? The companies who were so indebted you had to bail them out, or the private individuals who've already been put through the wringer by the companies? So we have to export the debt in some way - but it stays debt, and it has to be paid. > Its just that the time horizon for repayment is so long, and hard to observe, that it may lead to the conclusion that the debt is not being repaid. I suspect that if it takes long enough then it doesn't really matter whether the debt is "repaid" in some technical sense because the negative outcomes associated with default will have already taken place.
vkou 6y ago
> #1 we are doing gargantuan "stimulus" transfers of money. This money will serve 1 thing only: The US will become a net exporter (and to some degree, it always was) of inflation. This is incorrect, for two reasons. Firstly, because there are two ways that new money is created (which is what causes inflation). Those ways are fractional reserve banks issuing loans, and the printing presses at the Fed. In normal situations, the printing presses aren't running, and most new money is created through the fractional reserve banking system. In a recession, like the one we are in, fractional reserve banks stop lending, and thereby creating money - and the printing presses at the Fed fulfil that function, instead. We didn't go from 'no money being printed' to 'a lot of money being printed'. We went from 'a lot of money being printed by banks' to 'a lot of money being printed by the Fed.' The difference between those two things is not very large. Secondly, stimulus money isn't magical printed money that was just parachuted onto the economy, with no strings attached. It's money that the government borrowed - and will have to be paid back by taxpayers - like any other loan.
- candiodari 6y ago
  The printing presses have been on an exponentially increasing printing spree since before the LAST century started. After WW2 it was a pretty decent percentage per year as well.
solresol 6y ago
> Since all debt that matters is denominated in USD, Actually, most major economies borrow in either their own currency or in Euros (if they are in Europe).

cryptica 6y ago

Taxation is not enough to pay back the entire public or private debt since all the new money which is injected into the economy enters via the banking system as loans or via government bonds (also backed by debt at a 1 to 1 ratio); so no amount of taxation against those dollars is sufficient to cover the debt which was created as a consequence of injecting those dollars into the economy in the first place... Unless the tax rate was 100% - But that would be impossible for other very obvious reasons. The only real purposes of taxation are to force people to keep using the fiat currency as a means of payment (maintain currency monopoly) and also to maintain scarcity of the currency as this helps to keep inflation under control (at least for consumables). But it doesn't actually prevent inflation in absolute terms because the government usually ends up spending more than it collects in taxes anyway (take loans from the Fed by creating new bonds); they mostly care about having inflation lower or proportional to other countries, not about preventing inflation. The only way to pay off the debt would be to change the mechanism via which money enters the economy so that it is no longer tied to a debt as it does so. But then the question would be who should receive all that new debt-free money? Probably it will be big corrupt megacorporations via insanely large government contracts.

vkou 6y ago
> The only way to pay off the debt would be to change the mechanism via which money enters the economy so that it is no longer tied to a debt as it does so. Yes, all money is created in the form of debt, which implies that it has to be paid back with interest. There is no way for everyone to pay off all outstanding debt. However, you are forgetting that not all debt is paid off. Some of it defaults, which destroys money.
- cryptica 6y ago
  True, and I guess private banks just sell all that toxic debt to the reserve banks. But it's not the money which is being destroyed by defaults, it's only the debt component which is wiped clean. The credit component of the loan was already spent into the economy by the now-insolvent borrower and cannot be recovered by creditors so it's still circulating and adding to inflation. It really sucks. What a horrible society we live in. The current system monetizes bankruptcies. Bankruptcy is the only mechanism which allows debts to be wiped clean without simultaneously adding more debts.
  - D13Fd 6y ago
    >Bankruptcy is the only mechanism which allows debts to be wiped clean without simultaneously adding more debts. This is untrue. There is also repayment, which is the way the system is designed to work. There is also voluntary/negotiated forgiveness by lenders. More than that, how is bankruptcy a bad thing in this context? Isn't bankruptcy exactly what should happen when repayment becomes impossible? Our system of bankruptcy organizes the process of default, and was actually the solution to the older problem of things like debtor's prisons.
    - arithmomachist 6y ago
      The invention of credit scores and their use to screen people for renting apartments and getting jobs brought in a coercive system of similar magnitude to debtors' prisons. Credit scores should be only used for evaluating potential loans, not for anything else.

carbonguy 6y ago

> I think the author doesn't appreciate that the debt is being repaid... #1 we are doing gargantuan "stimulus" transfers of money... #2... IF any issuer of debt, like a bank, gets in trouble, like in 2008 or March 2020, they are bailed out. Changing who's holding the hot potato is not the same as repayment of debt. In both of your examples, it's the government who's assuming the debt from corporate debtholders who have (presumably) milked it for return already in the way the article describes. But, as you point out: > ...govt debt still needs to be repaid. But that can happen via #1 ["The US will become a net exporter (and to some degree, it always was) of inflation."], or via taxation. Taxation is a no-go - even if the political will could be mustered in the US to increase taxes, who are you as the government going to tax? The companies who were so indebted you had to bail them out, or the private individuals who've already been put through the wringer by the companies? So we have to export the debt in some way - but it stays debt, and it has to be paid. > Its just that the time horizon for repayment is so long, and hard to observe, that it may lead to the conclusion that the debt is not being repaid. I suspect that if it takes long enough then it doesn't really matter whether the debt is "repaid" in some technical sense because the negative outcomes associated with default will have already taken place.

vkou 6y ago

> #1 we are doing gargantuan "stimulus" transfers of money. This money will serve 1 thing only: The US will become a net exporter (and to some degree, it always was) of inflation. This is incorrect, for two reasons. Firstly, because there are two ways that new money is created (which is what causes inflation). Those ways are fractional reserve banks issuing loans, and the printing presses at the Fed. In normal situations, the printing presses aren't running, and most new money is created through the fractional reserve banking system. In a recession, like the one we are in, fractional reserve banks stop lending, and thereby creating money - and the printing presses at the Fed fulfil that function, instead. We didn't go from 'no money being printed' to 'a lot of money being printed'. We went from 'a lot of money being printed by banks' to 'a lot of money being printed by the Fed.' The difference between those two things is not very large. Secondly, stimulus money isn't magical printed money that was just parachuted onto the economy, with no strings attached. It's money that the government borrowed - and will have to be paid back by taxpayers - like any other loan.

candiodari 6y ago
The printing presses have been on an exponentially increasing printing spree since before the LAST century started. After WW2 it was a pretty decent percentage per year as well.

solresol 6y ago

> Since all debt that matters is denominated in USD, Actually, most major economies borrow in either their own currency or in Euros (if they are in Europe).