9 ms·

The idea of the "world debt level" being alarming doesn't make a lot of sense to me. There isn't anyone else we _could_ owe money to, right? I'm not educated en

by jxf 2y ago

The idea of the "world debt level" being alarming doesn't make a lot of sense to me. There isn't anyone else we _could_ owe money to, right? I'm not educated enough in global finance to have a useful opinion in this, but imagine the following scenario: * Country A owes $100M to Country B * Country B owes $100M to Country C * Country C owes $100M to Country A Here, the "world debt level" is $300M. But if country C pays $100M to country A, who then pays it to country B, who then pays it to country C, you'll have settled all three debts and no net money changed hands. If you multiplied all the debts here by a factor of 1,000,000, you'd get a "$100T fiscal timebomb" for each country. But how much of a big deal is that in this hypothetical scenario when they don't, on a net basis, actually owe any money at all?

mksreddy 2y ago
Some of the debt is even A holds B’s debt and B holds A debt. Example: US and Japan.
- dist-epoch 2y ago
  The debts can be in different currencies, or at different maturities, you can't just cancel them out.
spydum 2y ago
I'm kind of with you, but I think you may be leaving out the impact of defaults and the cascading effect when country B ends up not being able to satisfy that debt?
jordanb 2y ago
Yeah if you want to know what the net debt on earth at any one time, the answer is easy: $0. Until we start borrowing space dollars from aliens, every debt is someone else's credit, every liability is someone else's asset. The global debt must sum to zero.
- blackbear_ 2y ago
  That only works if you assume that all debts will eventually be repaid in full. But in reality some companies go bankrupt and some of their creditors will have lost money.
dist-epoch 2y ago
What's more important than the absolute debt levels is the various marginal financial flows they generate - interest payments, derivative trades, ... It's in a highly unstable meta-equilibrium.
nkmskdmfodf 2y ago
You're ignoring interest. If there is 100T of outstanding debt at 3% annual interest, that's 3T in interest per year. At a certain point it may be impossible to keep the overall interest payments going and the debt graph will collapse like dominoes. The great recession was also mainly caused by debts within the US economy.
- chgs 2y ago
  So country A pays 3% to country b, who pays 3% to country c who pays 3% to country A
  - nkmskdmfodf 2y ago
    What happens when country A can't pay?
    - cannonpr 2y ago
      Very bad things, or maybe very good things, depends on your perspective, a reset in any case and a restructuring of debt, usually just after a crash.
      - scott_w 2y ago
        Which isn’t free either. Consider the interest levels of countries considered unstable vs those considered stable (UK/US compared to Türkiye/Argentina for example). It massively changes what actions the respective governments can take.
    - deleted 2y ago
      [deleted]
    - selectodude 2y ago
      https://en.m.wikipedia.org/wiki/European_debt_crisis https://en.m.wikipedia.org/wiki/European_debt_crisis Everything old is new again. https://www.youtube.com/watch?v=OrhJcqgXrlw https://www.youtube.com/watch?v=OrhJcqgXrlw
lr4444lr 2y ago
National budgets are complicated. Part of that is revenue from interest on debt issuance. Another part is borrowing to make up for deficits. If all debtors stop paying, revenue has to be adjusted by the expected rate of return - this is not equal, even if the amounts borrowed are. In turn, creditors will stop buying debt if they cannot make a return on interest: that means either spending has to be reduced by the debtor nation, taxes have to go up, or money printing has to begin. In cases like the EU countries that gave up their sovereign currency, printing is not an option. It's not as simple as canceling out all the credits and debits. Flows matter.
deleted 2y ago
[deleted]
bluecalm 2y ago
Such debt would be cancelled and is not problematic. The problematic one is government owing money to citizens or institutions (domestic or foreign). If USA owes 100B to a pension fund in Japan and Japan owes 100B to pension fund in USA then there is no way to cancel it. Governments have to pay the money back with interest and at some point it becomes significant burden to tax payers. It's problematic especially when those tax payers aren't the ones who benefited from spending the debt was taken to finance.
- bugbuddy 2y ago
  The solution will always be inflation and devaluation. Your millions will start to feel like thousands and your billions will start to feel like millions. The first trillionaire will not be far off but because of unhappy circumstances.
  - aoeusnth1 2y ago
    Inflation is a middle ground between respecting the debt and canceling the debt. Depending on amount of inflation and time window, the government can reach any point in the (0%, 100%) debt cancelation interval.
- dh2022 2y ago
  There is no way to cancel these debts because the creditors and debtors are different. The parent comment assumed creditors and debtors are the same.
- spwa4 2y ago
  That debt represents a trade Japanese people made: they get to take away 100B of US production to enjoy their old age. In trade they gave the US government something. Oil. Toyotas. Whatever. The US government helpfully made that trade, promising US babies would, once grown up, deliver on that 100B of, say, labour. The real problem is that neither the US government nor (now grown up) US babies intend to hold up their end of the bargain. And vice-versa.
pa7x1 2y ago
The money is owed to our future selfs or generations to come, who pay the interests. If the money obtained through debt is well invested such that it creates growth that outpaces the interest rate then all is good, as future tax payers will have a larger economy to be taxed in order to pay that debt. But if it's not, we are just stealing from the future. When a country acquires debt to finance its pension system, that's just plain and simply inter-generational robbery. It's pensioners voting to give themselves money at the expense of the younger generations. It will become more and more pervasive across the west given our demographics and is crippling entire economies across Europe.
- SubiculumCode 2y ago
  This response does not address the parent's question, and ignores that issuing currency with a debt mechanism isn't anything but an artificial constraint (not an immutable law of nature).
- bryanlarsen 2y ago
  Money is the way we divide up the productive capacity of a country. To become richer as a nation, you increase the productive capacity of a country, you don't collect little pieces of paper.
  - snapplebobapple 2y ago
    Debt is not money though, debt is a future claim on some portion of that output and that claim is to the whole comingled basket of productive capacity that took out the debt so in a country's case itis a claim on all of it because a country can income tax and/or wealth tax up to 100 % of the income/wealth. So a coubtry can get richer by increasing capacity more than the claim on capacity or it can decrease the claim on capacity freeing up output for the country.
    - bryanlarsen 2y ago
      Which is why who holds the debt is more important than the existence of the debt. If the government owes the money to a pension fund that's a good thing. If they owe it to a foreign adversary, it's not.
sdenton4 2y ago
Turns out asymmetry plays an important role here...

by jxf 2y ago

mksreddy 2y ago

Some of the debt is even A holds B’s debt and B holds A debt. Example: US and Japan.

dist-epoch 2y ago
The debts can be in different currencies, or at different maturities, you can't just cancel them out.

spydum 2y ago

I'm kind of with you, but I think you may be leaving out the impact of defaults and the cascading effect when country B ends up not being able to satisfy that debt?

jordanb 2y ago

Yeah if you want to know what the net debt on earth at any one time, the answer is easy: $0. Until we start borrowing space dollars from aliens, every debt is someone else's credit, every liability is someone else's asset. The global debt must sum to zero.

blackbear_ 2y ago
That only works if you assume that all debts will eventually be repaid in full. But in reality some companies go bankrupt and some of their creditors will have lost money.

dist-epoch 2y ago

What's more important than the absolute debt levels is the various marginal financial flows they generate - interest payments, derivative trades, ... It's in a highly unstable meta-equilibrium.

nkmskdmfodf 2y ago

You're ignoring interest. If there is 100T of outstanding debt at 3% annual interest, that's 3T in interest per year. At a certain point it may be impossible to keep the overall interest payments going and the debt graph will collapse like dominoes. The great recession was also mainly caused by debts within the US economy.

chgs 2y ago
So country A pays 3% to country b, who pays 3% to country c who pays 3% to country A
- nkmskdmfodf 2y ago
  What happens when country A can't pay?
  - cannonpr 2y ago
    Very bad things, or maybe very good things, depends on your perspective, a reset in any case and a restructuring of debt, usually just after a crash.
    - scott_w 2y ago
      Which isn’t free either. Consider the interest levels of countries considered unstable vs those considered stable (UK/US compared to Türkiye/Argentina for example). It massively changes what actions the respective governments can take.
  - deleted 2y ago
    [deleted]
  - selectodude 2y ago
    https://en.m.wikipedia.org/wiki/European_debt_crisis https://en.m.wikipedia.org/wiki/European_debt_crisis Everything old is new again. https://www.youtube.com/watch?v=OrhJcqgXrlw https://www.youtube.com/watch?v=OrhJcqgXrlw

lr4444lr 2y ago

National budgets are complicated. Part of that is revenue from interest on debt issuance. Another part is borrowing to make up for deficits. If all debtors stop paying, revenue has to be adjusted by the expected rate of return - this is not equal, even if the amounts borrowed are. In turn, creditors will stop buying debt if they cannot make a return on interest: that means either spending has to be reduced by the debtor nation, taxes have to go up, or money printing has to begin. In cases like the EU countries that gave up their sovereign currency, printing is not an option. It's not as simple as canceling out all the credits and debits. Flows matter.

deleted 2y ago

[deleted]

bluecalm 2y ago

Such debt would be cancelled and is not problematic. The problematic one is government owing money to citizens or institutions (domestic or foreign). If USA owes 100B to a pension fund in Japan and Japan owes 100B to pension fund in USA then there is no way to cancel it. Governments have to pay the money back with interest and at some point it becomes significant burden to tax payers. It's problematic especially when those tax payers aren't the ones who benefited from spending the debt was taken to finance.

bugbuddy 2y ago
The solution will always be inflation and devaluation. Your millions will start to feel like thousands and your billions will start to feel like millions. The first trillionaire will not be far off but because of unhappy circumstances.
- aoeusnth1 2y ago
  Inflation is a middle ground between respecting the debt and canceling the debt. Depending on amount of inflation and time window, the government can reach any point in the (0%, 100%) debt cancelation interval.
dh2022 2y ago
There is no way to cancel these debts because the creditors and debtors are different. The parent comment assumed creditors and debtors are the same.
spwa4 2y ago
That debt represents a trade Japanese people made: they get to take away 100B of US production to enjoy their old age. In trade they gave the US government something. Oil. Toyotas. Whatever. The US government helpfully made that trade, promising US babies would, once grown up, deliver on that 100B of, say, labour. The real problem is that neither the US government nor (now grown up) US babies intend to hold up their end of the bargain. And vice-versa.

pa7x1 2y ago

The money is owed to our future selfs or generations to come, who pay the interests. If the money obtained through debt is well invested such that it creates growth that outpaces the interest rate then all is good, as future tax payers will have a larger economy to be taxed in order to pay that debt. But if it's not, we are just stealing from the future. When a country acquires debt to finance its pension system, that's just plain and simply inter-generational robbery. It's pensioners voting to give themselves money at the expense of the younger generations. It will become more and more pervasive across the west given our demographics and is crippling entire economies across Europe.

SubiculumCode 2y ago
This response does not address the parent's question, and ignores that issuing currency with a debt mechanism isn't anything but an artificial constraint (not an immutable law of nature).
bryanlarsen 2y ago
Money is the way we divide up the productive capacity of a country. To become richer as a nation, you increase the productive capacity of a country, you don't collect little pieces of paper.
- snapplebobapple 2y ago
  Debt is not money though, debt is a future claim on some portion of that output and that claim is to the whole comingled basket of productive capacity that took out the debt so in a country's case itis a claim on all of it because a country can income tax and/or wealth tax up to 100 % of the income/wealth. So a coubtry can get richer by increasing capacity more than the claim on capacity or it can decrease the claim on capacity freeing up output for the country.
  - bryanlarsen 2y ago
    Which is why who holds the debt is more important than the existence of the debt. If the government owes the money to a pension fund that's a good thing. If they owe it to a foreign adversary, it's not.

sdenton4 2y ago

Turns out asymmetry plays an important role here...