3 ms·

Debt is also how economies and a lot of companies grow

by nxm 3y ago

HideousKojima 3y ago
They could also grow by saving and reinvesting surpluses/profits
- intotheabyss 3y ago
  The entire point of debt is to bring future revenue to the present so that you don't have to wait for savings to trickle in every year.
  - HideousKojima 3y ago
    At the cost of some portion of your future revenue
    - airstrike 3y ago
      and if that future revenue is N times greater than you would otherwise get without debt, then it's still better to take on debt. Would you rather have 90% of $1M or 100% of $800k?
      - HideousKojima 3y ago
        >if That single word is doing all of the heavy lifting for you. "If" the housing market will never crash, then it's a surefire safe investment! Better buy tons of houses to flip on credit. There's no guarantee that your debt/investment will succeed, which is why banks try (and often enough, fail) to price in risk with things like varying interest rates, collateral, etc.
        airstrike 3y ago
        the 90% accounts for the "if". my point is there an expected value for the future revenue amount, subject to your own assumptions about the probability of each outcome and your discount rate for the value of that money over time in scenarios where your expected value discounted to present value is greater than the alternative, you make the investment. it's really finance 101... it's just NPV
- grotorea 3y ago
  AFAIK the standard economic opinion is that this is suboptimal and leads to underinvestment.
- scatters 3y ago
  No, they couldn't. One person's savings is another person's debt. If everyone tries to save then no one can; this is the paradox of thrift.
  - HideousKojima 3y ago
    https://en.m.wikipedia.org/wiki/Paradox_of_thrift#Criticisms https://en.m.wikipedia.org/wiki/Paradox_of_thrift#Criticisms Just because someone gives it a formal name doesn't mean it's true. >One person's savings is another person's debt. Only if you treat fiat currency (or bank deposits in general, the paradox you mention was formulated long before we got off the gold standard) as the only possible form of savings.
    - scatters 3y ago
      Sticking gold in a vault is only a means to saving if you have a reasonable expectation that when you take it out you can use it to obtain goods and services. It is thus a disguised claim on future production, and so relies on debt to exactly the same degree as bank money.

Debt is also how economies and a lot of companies grow

by nxm 3y ago

Debt is also how economies and a lot of companies grow

HideousKojima 3y ago

They could also grow by saving and reinvesting surpluses/profits

intotheabyss 3y ago
The entire point of debt is to bring future revenue to the present so that you don't have to wait for savings to trickle in every year.
- HideousKojima 3y ago
  At the cost of some portion of your future revenue
  - airstrike 3y ago
    and if that future revenue is N times greater than you would otherwise get without debt, then it's still better to take on debt. Would you rather have 90% of $1M or 100% of $800k?
    - HideousKojima 3y ago
      >if That single word is doing all of the heavy lifting for you. "If" the housing market will never crash, then it's a surefire safe investment! Better buy tons of houses to flip on credit. There's no guarantee that your debt/investment will succeed, which is why banks try (and often enough, fail) to price in risk with things like varying interest rates, collateral, etc.
      - airstrike 3y ago
        the 90% accounts for the "if". my point is there an expected value for the future revenue amount, subject to your own assumptions about the probability of each outcome and your discount rate for the value of that money over time in scenarios where your expected value discounted to present value is greater than the alternative, you make the investment. it's really finance 101... it's just NPV
grotorea 3y ago
AFAIK the standard economic opinion is that this is suboptimal and leads to underinvestment.
scatters 3y ago
No, they couldn't. One person's savings is another person's debt. If everyone tries to save then no one can; this is the paradox of thrift.
- HideousKojima 3y ago
  https://en.m.wikipedia.org/wiki/Paradox_of_thrift#Criticisms https://en.m.wikipedia.org/wiki/Paradox_of_thrift#Criticisms Just because someone gives it a formal name doesn't mean it's true. >One person's savings is another person's debt. Only if you treat fiat currency (or bank deposits in general, the paradox you mention was formulated long before we got off the gold standard) as the only possible form of savings.
  - scatters 3y ago
    Sticking gold in a vault is only a means to saving if you have a reasonable expectation that when you take it out you can use it to obtain goods and services. It is thus a disguised claim on future production, and so relies on debt to exactly the same degree as bank money.