4 ms·

Being able to do things on credit is good, that’s where most of growth comes from and is a feature, not a bug.

• SkyMarshal 4y ago
  Well there are two general ways of financing economic growth - debt-based and equity-based. Equity-based is the main way that the startup ecosystem works, for example, though debt is also a part of it. With little or no debt, economic growth would no doubt be slower in the short/medium term. But an equity-only system with slower growth might be comparable in the long-run, due to continuous growth with no principle drawdowns and setbacks from periodic financial collapses. I don’t know of any research attempting such comparisons, everyone assumes debt is inevitable and doesn’t bother thinking about this.
  • ivalm 4y ago
    Equity based growth (eg startups) is much much smaller in $ amounts. There are like $140B in equity investment vs trillions in debt financing.
    • SkyMarshal 4y ago
      True, though you have to include the stock market too, that's equity. US Bond market cap is roughly $120 trillion, stock market cap is ~$45trillion. So the equity market is about half the debt market, if you exclude govt debt. That said, if somehow you had a similar hypothetical economy but with little or no debt, the equity side might be larger.
      • ivalm 4y ago
        Vast majority of stock market cap does not contribute to company capitalization. Primary equity offerings on the market are rare and use only a fraction of total equity. Most trades are secondary and don’t capitalize the company. The entire bond market value is a capital raise for the companies.