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Ideally, not in real terms: debt will be extinguished, but that debt has already been spent into the economy. The underlying asset equity (say, a house) will b
by recursivedoubts 4y ago
Ideally, not in real terms: debt will be extinguished, but that debt has already been spent into the economy. The underlying asset equity (say, a house) will be transferred to the debtor. Some non-debtors (not many, in todays economy) will get a big immediate cash influx, but most of them are wealthy and will save, rather than spend that cash.
Relatively, the wealth of the poor will increase more because, say, 100k, is life changing for a poor person but not as big a deal for a rich person.
The important part is reducing the total debt load and the exponent sitting on top of it.
Would it be perfect? Of course not, nothing is. But it's the fairest way I have heard of to broadly reduce the debt load in a manner that addresses the underlying issue of too much debt.
- jefftk 4y agoWhile many people have debt, most people with debt don't have that much. A large enough payment that, say, brings the 90th percentile debtor to debt-free would much more than pay off the debt of the 50th. Leaving most current debtors with large piles of cash that they would be enthusiastic to spend. Additionally people would take on more debt, after freed from their current monthly payments, so you would predict consumption would rise even if the only effect were debt cancellation.
- PuppyTailWags 4y agoI don't think people would take on more debt after being freed from current debt. Usually, the debt that is the most crushing is student, medical, mortgage debt-- it's unlikely people just go on to sign themselves up for more of that.
- jefftk 4y agoI agree that most people aren't going to voluntarily go out and pick up some medical debt, but freed of their monthly payments they might decide to go back to school (student debt) or buy a larger house (mortgage debt). Or they might buy a new car on credit. For the same reasons that people today with no debt often choose to go into debt to fund a purchase, if we wiped out existing debt and didn't change anything else about the financial system I'd expect many people who'd just had their debts erased would also make purchases with new debt.
- barumrho 4y agoHmm wait, what do you mean by “real terms” because that usually means inflation-adjusted.