Debt Worldwide Hits Record $86k per Person
bloomberg.com
bloomberg.com
I am not sure if some of the ideas about debt that Graeber argues are correct, but he does discuss a lot of interesting examples of debt from societies throughout history.
Can you just give the answers to these questions?
For example, instead of telling me to read a 500 page book, you can say "the Big Bang is this really crazy but suprisingly plausible theory that our universe just suddenly exploded from nothing into this really hot and dense and chaotic realm, and now everything is expanding and cooling down and getting farther apart but also clumping together because of gravity. Check it out!"
Becuase at least then you can say "oh wow, why is it clumping together? how do we know gravity is a thing?"
> or if some debts will ever be repaid, or wondering about "jubilees" where debts are forgiven,
Some things are complicated and take 200 pages. There's nothing more to it.
At least now the reader can ask, "what makes the orthography so interesting"? To which a deeper conversation can be had about its symbolic writing method and efforts to romanize and digitize it efficiently.
Now the reader has more reason to check out the book with just 4 or 5 sentences of info. Its like an outline vs a headline.
Perhaps the laziness, then, lies with those who will not duck.com !w debt the first 5000 years
Calling someone lazy and not understanding, because you want explanation for 5 year old and are not willing to engage with longer text and want him to do the work is hypocrisy and manipulation at its best.
I... kinda feel the opposite? if you feel like you can summarize something complex in 5 sentences to a person without any background, I think you probably aren't fully understanding the thing you are summarizing.
I think this is especially true in fields like economics where even the people at the top of the field who have studied for years don't 100% understand everything.
If you recommend me a dish from a restaurant, but you can't describe the flavors, texture, and quantity in a few sentences, then why are you recommending it?
"It's awesome, the flavor is spicy, salty, and smokey. It is charred on the outside and greasey and chewy inside. It is a very hearty and filling dish."
but... when they start going on about the various flavors? Yeah, I have a really hard time translating that into what a thing tastes like, because I lack the background, I lack the education.
The thing with topics like the ones covered in Debt, is that they have been weaponised by our leaders to facilitate social stratification and very unjust economic disparities. I believe this has largely been made possible through simplification of these concepts and making bite-sized claims about how "basic economics" works, where all the detail and nuance has been thrown out. These kinds of 3 sentence summaries can be very dangerous.
"A car is a small vehicle that has a motor that turns energy into motion".
"Ummm well ackshually there are smaller vehicles than that, and cars can be electric or oil, so clearly you don't understand the topic unless you start with the factory blueprints first instead of the dictionary definition."
That depends on the person on the receiving end. For an expert on the topic, it may be misleading. For average Joe on the street, it is completely fine.
Do you have a better 5-sentence explanation for what Big Bang is? Joe isn't going to read a book about it.
One thing he does point out, however, is that in recent decades, much of our debt has seemed to shift from a more useful tool for robust modern economies - as it was used in early 20th century for Keynesian stimulus and the likes - to more of a tool for subjugation, through new forms of debt peonage - e.g. with student debt in the USA or financial aid packages to former colonies - very similar to what we've seen in earlier times.
I think it's a fantastic book, offering a very compelling narrative of how our social systems have evolved around these notions of debt since civilisation began. Also, if anyone wants to dig into the book right away, there are free versions of the book online[0], including an audiobook[1]. Since Graeber is an anarchist, I'm sure he doesn't mind if not everyone is paying for it ;)
[0] https://libcom.org/files/__Debt__The_First_5_000_Years.pdf [1] http://www.unwelcomeguests.net/Debt,_The_First_5000_Years
> and ask her to contemplate the justice of insisting that the lenders be repaid, not by the dictator, or even by his cronies, but by literally taking food from the mouths of hungry children.
I'm still willing to give this book a chance, but it's not a good look when the third page already contains an emotionally manipulative and gross misuse of "literally".
In English language there's a clear separation between debt and guilt. Debt is used for money, guilt for (e.g.) the legal system when talking about criminal activities. Those are 2 different words with 2 different meanings.
But in Dutch language we don't have different words for debt and guilt. Both concepts are essentially translated to the Dutch word for guilt ("schuld") which has a much more negative connotation than debt when talking about money. The same is true for the German language for example. And this might impact policies when dealing with debt, see: https://www.ft.com/content/a2c51e14-1ded-11e0-badd-00144feab...
"And forgive us our debts, just as we also forgive our debtors." (Matt. 6:12)
A debt is a very natural thing for humans, because we feel compelled to provide value to people who can't pay us yet.
Even before money people had gifts and favors - we give with the expectation that we'll be given something in the future - or we say 'you owe me one' when someone has helped us through an issue without sending us an invoice.
So the genius of fiat currency is that you get to represent these IOUs as a standard, fungible currency, such that I can take the debt you owe me and transfer it to someone else, so now you owe them. Being able to trade debt like this essentially turns debt into the currency.
The benefit of this being that economic growth is not limited to how many gold coins we can mint -- we can become as indebted to each other as we like -- the more people go into debt, the more money we have to trade. Pretty neat.
Problems really only arise if debt is systemically expected, like a housing market that works only on a foundation of mortgages.
This may be true in some theoretical sense, but in practice, it is hard to believe. How would I go around to make the government accept my 20$ and give me some equivalent of that? What could government possibly give me for my 20$?
Dollar bills are for buying things. I could go to a store and buy a bottle of expensive wine for that bill. But I wouldn't say the store owes me.
As an example, British pound notes have the wording "I promise to pay the bearer on demand the sum of five [ten/twenty/fifty] pounds", which dates back to a time when you could actually exchange the notes themselves for gold.
That's a misunderstanding. A $20 bill is the government's liability, not the store's liability. You and a third party are using government liabilities as a currency. Every $20 bill is on the liability side of the central bank's balance sheet. Every entity accepts its own liabilities as a form of payment. Governments issue currency which they then must accept as payment for taxes. Banks issue credit which they then must accept as payment for debt service.
Debt can be money if the legal system is sound. But money doesn't need to be debt if the money issuer is trusted not to debase the currency.
As the book delves into, it may actually be the opposite. A bank borrows the original 20$ from the government. This allows the bank to create a 20$ bank note to be loaned out, and as long the government doesn't demand their money back, it can continue circulating in the economy. The bank notes get traded and becomes the currency, which is how many paper money currencies was created according to the book. The problem arrives then when a single nation has bank notes from several different banks, so in order to solve that problem the government then grants a single bank, let's call it a central bank, the monopoly of borrowing money from the government from which all the other banks then borrow from.
A key point here is that the central bank can not be part of government in this scheme since then it would be the government borrowing money from itself. When people talk about money as an illusion, this is one of the larger aspects to it.
That was true in the days of the gold standard (https://en.wikipedia.org/wiki/Gold_standard), but nowadays, i don’t think it is true anymore.
You can’t bring your 20$ bill to the government and get goods in return whenever you want to make such an exchange.
Also, a lot of money gets created by banks, not the government (in the USA, all the money, I think. Isn’t the Fed independent?)
Interesting, how does that work? Can a bank create money to pay its own taxes? That sounds too convenient...
A bank creates money when it borrows you money that isn’t fully backed by saving account(s). See https://en.m.wikipedia.org/wiki/Fractional-reserve_banking, which, a.o. says:
”Because banks hold reserves in amounts that are less than the amounts of their deposit liabilities, and because the deposit liabilities are considered money in their own right, fractional-reserve banking permits the money supply to grow beyond the amount of the underlying base money originally created by the central bank.”
The amount by which a bank can do that is regulated, and, in the end, under control of the central bank. The central bank won’t be involved in every minor fluctuation of the amount of money in circulation, though.
A pays $100 to B. B keeps $20 and pays $80 to C. C pays $80 to D. D adds $10 of his own money to pay $90 to E. Everyone's debt has been repaid, but only $110 of currency is needed for all these transactions to take place -- assuming all debts are paid in cash. All you need is sufficient liquidity.
I could loan you five quadrillion dollars provided that you also loan me five quadrillion dollars. No currency has changed hands, but we've just increased the world's total outstanding debt by ten quadrillion dollars!
When you have a group of subjects that are indebted to another, separate subject, then it makes sense to calculate the total debt.
In todays world, the promise is made to a lender (a bank), which then creates a fungible IOU, i.e standard currency for that promise, which can be exchanged for equivalent amount of work.
The whole system is a collective promise to work, and that keeps the society running.
Or you could say it's dual to money - creating debt creates money, paying debt destroys money. There's literally less money in the world when you make your mortgage payment (bank just sends much of your payment to /dev/null), and there's literally more money in the world when you take a mortgage (bank pulls it out of thin air).
If all debt would be repaid then almost all of the money as we know it today would disappear.
You need to explain why.
Also, I agree that the person you replied to was oversimplifying.
It's a very counter intuitive concept that underpins the entire economic system. It was even a subject of a (failed) Swiss referendum recently: https://en.wikipedia.org/wiki/2018_Swiss_sovereign-money_ini...
Mortgages make MBS, mortgaged backed securities, which are traded around. You can buy these, or SLABs, student loan backed securities.
Neither are money. M0 money can only be made by the US Fed. M1 or M2 money can be made by banks out of savings accounts or checking accounts, due to the fractional reserve system.
By lending money to a bank through the savings account mechanism, the bank owes YOU money, because the bank spends roughly 80% of it on other things.
That's why there is a distinction from M0 pure cash, and the M1 or M2 virtual 'nearly money' in the system. I think credit cards are a higher order of money as well...
Keeping those two in check is the main goal of any central bank, ever since the gold standard was generally abandoned and money became entirely abstract. In my opinion no one really knows how to do it (although it's been okay-ish so far), the FED for example often uses national unemployment rate to decide how much dollars should be thrown at the system.
By contrast, I found Graeber’s follow up collection “The Utopia of Rules” startlingly provocative and a super fun read - one of my favorite books. I think Graeber’s divergent writing style and argumentative form work better in the essay format.
Or perhaps this is a measure of the number of debts outstanding, divided per person, but not accounting for assets.
If you look at what happened during the Great Depression, assets were effectively worthless — demand vaporized and seemingly safe loans secured by valuable factories became junk.
edit: I don't think debt is exactly zero sum. When a loan is made, the person who took the load has a debt of the present value of future loan payments(ie with interest accrued and adjusted for inflation). The lender has an asset that is the present value of the loan payments times the probability the loan will be payed off. I might be missing something here though.
1 - http://archive.economonitor.com/lrwray/2013/08/15/banks-dont...
I'm guessing this is just all debts added together, and then divided by the number of people. And it's probably including national debt, which is ~$58k/person in the US (which is surprisingly slightly below average for countries with debt).
>"my house is worth significantly more than my debt"
You realize the value of your house dropping by 50% in a year would not be very surprising? And that would be mild, it is all up to which group of people the federal reserve chooses to benefit.
Most people don't buy houses, they buy mortgages worth $x00,000 on an "asset" that goes to being valued at $x00,000 / 2 when interests rates double…
That's crazy, does that happen often in the U.S.?
So if we say that the average liabilities per person in the world is X, it turns out that the average assets per person in the world is also X.
I'm guessing this is the second kind of debt, but the title makes it sound like the first.
I don't know about globally but in the US private debt is much bigger that government debt including local, state and federal.
In reality, when you look at how government debt is actually computed, you will find that government debt is the sum of all the coins and banknotes in circulation, all bank deposits at the central bank, and all treasuries. Basically it's the sum of all the savings denominated in that government's currency. It is purely an accounting illusion, governments could also create money out of nowhere without accounting for it as "debt", but that is the accounting standard we are currently using, mostly an heritage from the gold standard times. I'm not sure what the article accounted for exactly, but if they just did a sum of government debt divided by human population, what the article really means is that there are in circulation about 86k dollars for every human, so the average human has a monetary wealth of 86k (with the median being of course much much lower). We should cheer on that number increasing ,the only bad case is if inflation is higher, so that means in real terms we are on average getting poorer even if we have more dollars per capita.
In a country with a balanced trade deficit (exports are the same that imports), in order to keep the economy working at the same pace, if the public debt is reduced, the private debt have to grow. As you said, it's an accounting truth.
So, when they don't distinguish between private and public debt they are just confusing the issue.
This is not precisely correct. It is more correct to say that if the public net worth decreases, the private net worth increases. Or, in other words, if the public sector runs a deficit, the private sector runs a surplus. And the flow of funds is conserved.
And net worth is assets minus liabilities, or savings minus debt.
As far as I know, these two are the same.
In a fractional reserve banking system, when you borrow money from the bank for a car or a house, that money is then created from nothing. They just punch in the number in your account, and there you have it.
At the end of the day, the bank has to have a certain reserve, which is held in the banks account in the central bank. The central bank doesn't usually create the money itself, it lets the banks to it for them, as long as they stick within the limits.
I could be very wrong here. Not an expert. This is my laymans understanding.
This is why it's not really worrying on its own that there's a large amount of debt per person. Debt is how money is created in our system. As other countries get wealthier, you expect them to have more debt. Put another way: if you're living outside civilisation, you're not gonna get a loan for anything. But as soon as you live in a modern city with some steady income, you can borrow several times the amount you make a year, and that's generally OK as long as you expect to make that money back some time during your lifetime.
The difference is that on a large enough scale, you can make a $1 of real savings circulate as though it were $1.50 or (probably a lot more) of circulating currency and there's huge benefits to doing that (when it's backed by real productivity).
The source of things like the 2008 collapse was the dark side of that - trillions of dollars debts, backed by no possible amount of productivity that could repay them (and tons of fraud allowing these to exist on the books).
Quite a bit more, I think.
Like, banks only need about (I think) 9% actual money. So you can lend $9 off that one dollar.
But then that $9 gets deposited somewhere, and that bank can then lend $100-something... etc.
Though I could be mistaken about how fractional reserve banking works.
Banks do indeed make money "from nothing". If you get a loan of $1000 from a bank, they just add $1000 to your current account, and write down in another account that you owe them $1000. They don't have to "get" this money from somewhere.
This is all as it should be. Say I can make tables, and you want one, but don't have anything to give me in exchange. We can agree that you now owe me $100, say. You can write me an IOU and sign it. Suppose you are trustworthy enough that an IOU from you is considered acceptable as payment. I can now use your IOU as money - we have just "created" $100 money from nowhere (or, $100 debt, same thing).
When a government takes a loan from the reserve bank and puts it into circulation by giving the money to corporations to pay for public projects, the government is effectively diluting the value of everyone's money and giving it to corporations. This process creates public debt for which the government will need to take additional loans from the reserve bank to keep meeting the interest repayments; which will further dilute the value of everyone's wealth while increasing corporate wealth; and the cycle will keep repeating.
If you take money out of the equation and just consider that we have a large pool of labor to make use of, government's purpose in spending on projects is to allocate some of that labor towards long-term goals that no company would involve itself in as the pure profit potential is too risky, distant, or difficult to capitalize on.
If you have a large 401k on the other hand it deflates the value of your retirement savings. You may have to work in old age.
When the value of today-money goes down, the value of tomorrow-money goes up relatively. That explains why tech companies and speculative investments do well during expansionary monetary policy. It aslo explains why advertising and brand become so important. Because if the value of money goes up in the future, then the value of each customer will also go up; even if you have to make a net loss today to pay for advertising to get those customers.
Two things:
* Poor means less access to more expensive debt. Rich means more access to cheaper debt.
* Rich means one can use debt leverage to grow one's assets. How does that influence the value of necessities for the less rich...?
TIPS also provide a way to hedge against inflation in retirement funds.
Except in cases with extremely high inflation most contracts are not inflation adjusted. By the time a company is paid the merchandise sold is worth significantly more in fiat terms. In high inflation an entity is loathe to trade assets for dollars and so the economy will slow.
This is not a criticism of current fed policy with respect to its relatively low inflation targets. While the effects I mentioned still occur, they are vastly outweighed by other concerns at low inflation levels.
They give a loan to someone, which means someone owes them 10,000 dollars. Now they can trade that 10,000$ worth of debt to someone else. You could say "out of thin air", but its really "out of social expectations that you pay your debt eventually"
You missed that- Since its 'out of thin air', the interest on this debt is artificially low.
When interest rates around 0, things that would otherwise be a bad decision, become feasible. Or, things that are a good idea, are sold and the cronies who get the loans make even more money.
"Money creation in the modern economy" (Bank of England, PDF)
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
Quote:
In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money. The reality of how money is created today differs from the description found in some economics textbooks:
• Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.
• In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits.
First, it isn't false at all, commercial banks create money, just as they say in the paper. Second, if you make the bold claim that the people of the Bank of England wrote a paper that is false you should provide more than a single sentence - especially when commenting here on HN.
So, your original response is to someone who said their understanding was "that reserve banks create money out of thin air", so that is the foundation of our discussion at the moment. Your response on the surface feels like a refutation of that assertion, largely resting not on content necessarily but on the weight of authority that is the BoE. Essentially, what I was trying to say is that I don't think it refutes the person you were responding to, mostly because it is some very carefully crafted wording the obscures instead of reveals the truth of the matter.
A quick dissection would go as follows: while technically correct about loans showing up as deposits in accounts and thereby creating money, it ignores the basis for those loans, which is the fractional reserve system itself. It is FRB [1] that was what spawned the system of creating those deposits based on mathematical rules such as the fractional reserve rate [3] (which many people tend to think of as being 10%, though it is often not true these days). A very crude summary of that system is this; if all deposits (created money, as according to the BoE document) are 100% of a banks money, they are only required to actually have in reserve 10% of that. Therefore, the person you are responding to is essentially right. Banks create money out of thin air by entering it on systems, even when they don't actually "have" that money to lend. The reserve rate was thought of as a minimal protection required in order to assist in preventing runs on the bank if too many depositors requested their money at the same time (because, as per the reserve system, the bank doesnt actually have all that money at any one given time). So in America for example, this is the foundation of the Federal Reserve system, wherein member banks (not all banks are) then have promises of assistance from the regional reserve bank (of which there are 12, with NY Fed being the titular head of the system), so that if your local bank gets close to a "bank run" level, that regional reserve bank will inject funds to them temporarily in order to create stability, which was part of the original mandate of the Federal Reserve.
In the response you quote, the wording might lend one to understand otherwise, and that the fractional reserve system no longer works that way, especially with the patronizing ending sentence of the first paragraph about how "some economics textbooks" differ from how money is created today. I can practically hear some posh accent with an upturned nose dripping that sentence out with disdain. Silly plebs, trying to understand banking. The part about "distraction" is that it seems the bankers don't actually want people to understand how banking really works on the underside, as it is actually in their interest to obfuscate it for various reasons.
Given what I've said so far, I'm therefore not sure how the statement: "Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.", nor the ending of the following sentence, "or is central bank money ‘multiplied up’ into more loans and deposits" can be actually accurate. I assume there is some word trickery I am failing to understand, (see: NSA on what "collection" means) because otherwise it seems flat out wrong. I am better versed though in the American system, so perhaps there is some nuance of the English system I am unaware of. (but it is worth remembering that the American system was founded upon the British/European system, when post 1907 Knickerbocker crash congress sent a delegation to hobnob with the central bankers of Europe to learn how they did things, which was largely the basis for the Aldrich and later Federal Reserve bills)
[1] https://seekingalpha.com/instablog/25783813-peter-palms/4549...
[2] https://en.wikipedia.org/wiki/Fractional-reserve_banking
https://en.wikipedia.org/wiki/Money_creation#Credit_theory_o...
> The fractional reserve theory where the money supply is limited by the money multiplier has come under increased criticism since the financial crisis of 2007–2008. It has been observed that the bank reserves are not a limiting factor because the central banks supply more reserves than necessary[19] and because banks have been able to build up additional reserves when they were needed.[20] Many economists and bankers now realize that the amount of money in circulation is limited only by the demand for loans, not by reserve requirements.
> ...
> Banks first lend and then cover their reserve ratios: The decision whether or not to lend is generally independent of their reserves with the central bank or their deposits from customers; banks are not lending out deposits or reserves, anyway. Banks lend on the basis of lending criteria, such as the status of the customer's business, the loan's prospects, and/or the overall economic situation.
Why? The most indebted (how may have billions the bank) still need to have others work for them in order to repay their debt. Billionaires earned billions because "people" work for them (or buy from them, in the end that's the same thing).
In a sense rising corporate debt is a vote of confidence in the growth of the economy as lenders are expecting to be paid back with interest.
Government debt is somewhere in between IMO, since it has stimulative effects and the government captures some of that through taxes.
Well, no more than it is to spread the corporate and have government claims on debt across all people as assets.
Oh, wait, no one does that.
What you are suggesting is all debt is zeroed out 50 years after it’s issued? Then why would any borrower pay off any principle at all?
This whole jubilee thing makes no sense, may be a little bit if the jubilee happens unexpectedly so that people can’t just plan around it. But that kind of sort of happens after a war.
Is important to note that the jubilee was a measure against the worst case scenarios: Persons that sell themselves as slaves (or sons of slaves), people that lost the hereditary land and things like that.
This also means the society was based around this expectations.
Why? Why has the ability for debt-free self-sustaining decreased?
If you live in a rural area, even today, you will see that is normal and easy to share and get food free or very cheap (in fact, a lot of food will not get in the supermarket for lack of ways to fully utilize the capacity!).
Is kind of simply to maintain a live if your are friendly in the community.
89K per person - means we could buy them all an iPhone with 88.5K left over. Corporations and Governments have a huge role to play in this.
Sometimes, that debt would be higher than what could reasonably be paid back and so the debt would accumulate.
In other words, they'd rig the game from the start and then loosen the thumbscrews along the way.
The rationale of the jubilee-rule was probably to avoid multi-generational debt-slavery.
It's obvious this law would restrict economic development, but the Hebrews made that tradeoff for social stability.
The main feature of the Jubilee law was that land could not be permanently sold, it could only be leased for up to 50 years. This together with their inheritance laws guaranteed that each clan or family group would have an economic base in perpetuity.
I suppose that is why it doesnt exist anymore.
In the article this is the IMF talking, so we're talking about sovereign debt not commercial debt like credit cards or mortgages or car loans.
Sovereign debt is nominally repaid through the execution of the economy. A country borrows by selling debt securities, with fixed maturity dates and then redeems those securities once they mature.
Consider this really simple example in the US; The treasury department sells a note that has a face value of $10,000 and a maturity date 10 years from now, to Alice for $8,188. If you figure out what interest rate you would need to have $8,188 equal $10,000 in 10 years (monthly compounding) you would find that the "equivalent" interest rate or yield to be 2%. So they have "borrowed" $8,188 dollars from Alice, who, 10 years from now, will turn in her note and they will give her $10,000. They might end up selling two notes to Bob and Charlie just before Alice shows up at the window in order to have cash to give Alice but in either event the note that Alice bought gets "redeemed" (or retired) and it is off the books, it has been "repaid."
Over the course of the year revenues come in, and sometimes there is already enough cash in the drawer to pay off Alice without selling any more notes, in which case the total amount of notes out there goes down. The amount of revenue is proportional to the economic output or GDP of the country because, well everything gets taxed a bit. This is easiest to understand when looking at income taxes since the more income (the more people working the more people have incomes or more income) the more taxes you get. So more economic activity results in more revenue for the state, which means selling fewer notes. If spending levels are kept constant, and the economy grows, then you reach a point where you don't need any note sales to pay your bills.
So the IMF is responding to the news that the US deficit (which is that the US sold more notes than they had expected revenue) for the month of November was a record[1] to $205B. What does it mean to you and me? Well it probably means a some point someone in Washington DC will have to raise taxes if they want to keep the debt ceiling down.
[1] (warning autoplay video) http://fortune.com/2018/12/13/us-budget-deficit-record-novem...
"Mitchell and Friedberg warned that the pension hole will swallow public- and private-sector employees alike, because all income earners will pay for it. Mitchell ran a simple calculation to illustrate her point: If the shortfall were $5 trillion, divide that amount by the 158 million workers in the American labor force for an obligation of about $32,000 per worker."
http://knowledge.wharton.upenn.edu/article/the-time-bomb-ins...
These scare stories are solved by a modest rise in taxes. The obligations are summed over many decades and projected into the future.
Depending on how you go about this, you could create economic stagnation because of burdensome pension programs.
Alternatively, you could cut benefits, or privatize the investments rather than simple redistribution from one payroll tax payer to one pensioner.
I'm in favor of privatization combined with benefit reduction and increased minimum retirement age.
The combination of these three could easily solve any pension shortfall and generate long term wealth for every American.
What other ones do you think will be hardest to solve?
We also use other limited resources in unsustainable ways even if it won't deplete in the next 50 years it is obviously inevitable. I hear about usable sand for construction being depleted at a rate faster than it is replenished.
I look forward to our subterranean future. I think the combination of vehicle automation and tunneling technology will allow us to build massive underground systems. If things get too rough on land, we can go below the surface.
Why go to Mars to encounter an atmosphere hostile to life when we can all collectively experience right here at home?
Storms washed out your fiber optic cables? Starlink. No place to hide from the hostile surface? Boring Co. Need to remediate the atmosphere? Solar panels / Powersats -- I believe he's being reserved about Powersats. Need to move things around without easy access to transport? Electric vehicles. Need energy storage through the night time because the baseload power stations have all fallen into disrepair? Grid storage. Building your Gigafactory in a desert? Future-proofing.
The most effective answer is distance. While unlucky mobs can walk to your solar panels in the desert after civilization breaks down, how are they going to get to Mars? Get a good trampoline to jump on?
On some Mars colony with the foreseeable level of technology for the next 100-200 years you're even more prone to death and to worse climate than whatever might happen here on earth.
Beyond 200 years, Elon Musk could not care less about...
I believe that he wants to go down in history. And he wants there to be a history for him to go down in. True, he won't be there for that. But the thought of what it might be is a positive motivation for him.
Second, we don't have to worry about protecting acres of land-based solar panels from damage if we're beaming microwaves from orbit. The receiving arrays would be smaller, more defensible, and cheaper to maintain. The powersat could be weaponized to defend its own receiving array.
Third, regarding distance, it's really hard to dig more than a few meters underground without heavy equipment.
Fourth, in a total collapse scenario -- no food, air becomes unbreathable due to methane pollution from melting permafrost --, the people remaining on the surface will die off rapidly. The death squads may last longer, but aren't going to be able to present a significant risk to a deep underground military base protected by the members of the former government with a powersat on overwatch.
After the chaos of the collapse, these locations could quickly begin the effort to repair the atmosphere using all of those terraforming approaches that we would not tolerate being deploying today: ocean iron seeding, orbital shades, bioengineering.
Then the hardened survivors could return to a generally functioning planet, and then maybe go to Mars with their newfound skills.
EDIT: This might seem preposterous, but it's far more viable than shipping one million people to Mars and building up a manufacturing base under time pressure capable of keeping everyone alive and fed while also reproducing a supply chain capable of developing integrated circuits on a world with a different gravitational constant.
Also most collapses to worry about are not "the Earth just became immediately uninhabitable" but instead "there is a complete collapse in civil order". Think the power grid goes down like it did in 2003, but on a wider scale and doesn't come back up. As we go from inconvenience to mass starvation, what happens?
If you hide away, the survivors aren't just going to conveniently die off. They are going to remain, and WILL have a grudge.
If we had room to speculate on the wide variety of disasters that may befall the Earth within the next, say, 200 years, then perhaps hiding underground isn't the optimal best solution.
Aside: I'm sure you'll agree that it'll be easier for Elon to keep his family alive if he's adequately defended. Regardless, he might not have a choice. The third amendment was not always a thing.
As an example of the difference, consider "widespread crop failures followed by food riots causing a general breakdown of transportation networks". The social order is destroyed. But the air is still breathable. And where you live the local crops might even have been fine until pillaged by hungry people.
On a side note, the 3rd amendment has only come up in one legal case, and it was decided in that one that the violation of the 3rd amendment happened, but the government had a qualified immunity because a reasonable person would not have known of the rule. See https://en.wikipedia.org/wiki/Engblom_v._Carey for the bizarre case.
I have more assets than debt and I could pay off my mortgage but it's simply not the best way for me to spend my capital.
Additionally, I suspect this article is using a median value for "average income" but a mean value for "average debt." This paints a misleading picture.
In other words, $350k home = $300k mortgage + $50k in equity. You still have debt. Its just that the debt was exchanged for something. Its the same equation for credit card debt.
No one takes on debt without receiving something in return.
Or you buy a car. It quickly loses value, but you still have the debt based on the original purchase.
The formula still holds, but the "equity" part is negative, which leads many people to conclude that bankruptcy is a better option than paying for something they no longer have or is no longer worth what they owe.
Aside from perhaps the first year of owning a financed car, it is worth more than remaining principal on the loan for the majority of the loan's duration.
Second, while it is useful to think of debts in terms of things like mortgages and auto loans, most of this global debt is government debt. Think locally - your local town may need 50 million dollars to build a new school. They aren't increasing taxes for one year to build the school they instead take on 50 million dollars of debt in the form of bonds. So even if you have no personal debt you still have tens or hundreds of thousands of dollars in debt which the government has taken out which can reasonably be repaid overtime.
The anecdote about secured mortgage debt might apply equally well to government debt. Most debt is serviceable.
Either that, or cheap college tuition.
I don't understand why you would ask this question. On the individual level its obvious that some debts won't be. It happens all the time for a lot of reasons. So I assume you aren't talking about the individual level.
But on the macro level zero debt is a very bad idea and unless civilization collapses there will always be debt. Debt itself is a very good thing. Too much, and too little, of a good thing is bad.
So in either case all debts being paid off will almost certainly never happen.
> Does anyone even believe that the amount of debt will go down
In absolute terms due to inflation it always goes up.
> (that allows people to have negative amounts of currency)
You say this like its a bad thing. Debt isn't a bad thing. Debt allows people to own homes and cars and pay for education and invest in business. Debt means you are optimistic about the future.
I don't see debt as all that much different than insurance. Sure, society can get by without it, and you may never need it, but society in general benefits. If I run a business any large expenses would be amortized over the lifetime of that thing. I could pay for it upfront, but that might never happen and if I could it wouldn't be the best use of my resources. Ideally, I'd "pay rent" in order to borrow money upfront, now that I have that machine it's easier to pay back since that fixed cost will benefit me for the next 20 years. That's the scenario where all debt is never paid back.
Financial tools, like anything else can be good or bad depending on the circumstances and motivations at play. Payday loans (generally seen as bad) aren't all that different from micro-loans lauded in third-world countries. Let's say there's an older woman who walks out of town to buy goods and carries them back to town every day to sell (arbitrage). If she gets a small loan to buy more goods up front, invest in a wheelbarrow, or a booth at the market she can do more business and more easily pay off that loan benefiting; her, the person offering the loan, the sellers and the buyers--society in general. If she cannot pay back the loan she can get into a debit spiral. There are situations where that is beneficial to the person giving her the loan at the expense of her and the rest of society.
For a lot of America's history we used horses and sailing ships to get around. Are you suggesting we should return to that too? Otherwise this argument is empty.
If I do work for you, and you can't pay, and you give me an "IOU", that is debt, and if I agree to make that IOU transferable that that is money.
The Federal Reserve system is simply one specific kind of money that is only special because the US government accepts it for tax payments and certain other kinds of money at illegal.
How about having homes and cars and education without debt?
It's not like you need to be in debt to another and to steal from your feature to have nice things...
The only way a young person could be given a house without owing any debt would be if someone else bought it for them or if the government paid workers to build houses for everyone. However, if the government paid people to build houses without any payments in return the government would be collected the debt which it would then hold. This doesnt reduce any debt globally it just transfers it.
Maybe you could argue it is better for the debt to be on government than individuals but that doesnt address how no debt is good. No debt would just mean zero houses.
Our generation gets 25-year mortgages, and very little help from inflation.
As someone born in the 1980s in the USA, I don't think this is true. I believe that the 30 year mortgage has been the standard here since sometime in the mid 20th century.
Another thing to keep in mind is that there far fewer homes and people made a lot less money.
You don't need a new house for every young person.
You can reuse houses across generations. 100, 200 and even 500 year old houses are not uncommon in Europe for example, if you build them properly (and not the el-cheapo wood US construction). They're not any kind of ruin either, but highly coveted city and rural real estate.
Plus, there's an existing pool of a hundred million houses or close, so you wouldn't have to worry about getting them a house either.
Lastly, debt means money owed. A government can also money it actually has (e.g. form taxation, dropping military expenses and so on). Presumably there's still that.
Not to mention that the government could still ask for payments for the houses, but for a much smaller interest, and without expecting a profit, allowing people to repay them much earlier.
This is not some communism plot, places from England to Singapore, most of EU and beyond have done public housing in different degrees. England's public housing plan, for example, implemented for the most part of the 20th century, turned it from a country of extreme poverty slums (think L.A.'s seedier districts but in Dicken's London and Manchester and elsewhere) into an acceptable middle class (they'd call it "working class") existence.
So, sure, if a few people don't want to have any debt, that's great. But if everyone stopped borrowing we'd be in a lot of trouble.
There are other ideas about how we could grow the money supply of course. Perhaps the Federal Reserve could mail everyone some cash every month.
Why would we be in trouble. Explain it to me like I know nothing about economics?
Some people have to live with family for a while or build in stages. It’s a challenge, but it’s doable.
Yeah, sorry, the life you want might not be sustainable and could be detrimental to society.
There's a place for credit, but right now I think it does more harm than good.
If you only see these things as "nice", your should reevaluate what you value.
Housing and cars - I’d agree. But for me the problem with debt is it seems like a ploy to squeeze more and more out of people who don’t realize the deal, or who because of encroaching levels of debt don’t have a choice in society.
If debt were purely opt in and people could simply not get into it while still having a first world life then I wouldn’t disagree with you at all. But as it stands debt is a requirement that permanently endentures far too many of our citizens.
All of the above things have stopped worked for the majority of middle class and most working class people for the past 30+ years in the US (and lots of EU).
"a better education now" doesn't "means you can probably make more money over time", but leaves you straddled with a large debt, as just another person with a degree in a huge pool of people who might not even make as much as their parents did.
And the huge debt crisis shows that people and countries alike increasingly can't "out grow the costs of that borrowing".
https://www.forbes.com/sites/patrickwwatson/2018/03/08/the-m...
https://www.brookings.edu/blog/social-mobility-memos/2018/06...
http://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-...
However education for which you need to get into debt is something that I really don't think is a progress. It is still better than no education or education for which you have to join a political party or a religion, but it is actually a step back from free education.
At the same time I have the impression., independent what the environment-protection-movements want to achieve or actually did, the state of the planet did not improve.
Approximately no one, in all of history, has ever believed that all debt on the globe would be repaid, so “still” is inappropriate. This is why we have interest, debt jubilees, bankruptcy laws, legal provisions for discharge of certain debt separate from bankruptcy, negotiated debt modifications (and laws which facilitate them), security for debt (and in some cases limitations on collections beyond the security) and numerous other current and historical features of society.
> Does anyone even believe that the amount of debt will go down, rather than up, over the course of any length of time?
Why should it? The number of people is increasing, as is their average economic output, as is (globally, and in long-term trend) lifespan. So real (much less nominal) aggregate debt can increase over time with no meaningful change to what the average person owes (and is owed) as a proportion of their expected future output.
Think of it. A few centuries ago, there simply wasn't $80000 dollar in the whole world. You'd be quite wealthy for having a single dollar.
If those people then liquidate their scarce asset in order to acquire more fiat currency after a devaluation then the market glut will devalue that scarce asset too to some extent.
Good news is that it's not "real." It's numbers in a database. The stuff, knowledge, and experience that we have is real.
The interest rate (and hence service payments) on such debt tends to rise. The lenders just price the possibility of distant default and demand fatter checks upfront.
> Or does it eventually go kabloie?
I am not sure all scenarios are as drastic as you describe. A bunch of countries have a privilege to issue debt in the currencies they themselves control and can inflate their way out of it.
People who have paid up a portion of their mortgage can get interested in a HELOC, provided that the interest rates are attractive, or even buy a second house / rental property once the credit situation allows them. Their growing debt is not necessarily an indication of a bad balance sheet - they have tons of collateral and just choose to use the debt mechanisms when it makes sense for them.
As for the currency idea, that is already how dollars are created. A bank loans out money it owes other people and creates new money.
https://economics.stackexchange.com/questions/10007/will-maj...
Assets also increase monotonically. One cannot talk about debt without talking about assets. You should look at the whole balance sheet.
> debt has just become a standin for currency
debt IS money. If all the debt in the world is repaid there will be no money.
Also, debt is money. When you give me something of value, and I say I will pay you later for it, we have created money. A big part of the problem in down cycles is that lending drastically decreases, and there is therefore less money (broadly defined) in the system.
This kind of rhetoric involves essentially a misunderstanding of our present capitalist system.
Individual, organizations and government in the course of their existence, need to sometimes get access to more resources than they currently have. Borrowing for capital expenditures is the means to do this - issuing bonds, taking out mortgages and etc is the basic way this happens. This applies to houses, to bridges and to many other things.
Since new, large expenditures happen even as other others are paid-off, of course all the debt is never paid. There's no reason for all the debt to be repaid, paying it all would be counter-productive.
We could talk about the particular ways that debt and expenditures are done in this society (and boy there's a lot to talk about there). One big, problematic is imposing more debt on the personal level when it belongs on the state level (see student loans, "health care savings accounts" and other problems). But to begin the conversation, one has to understand how the broad economy works at all, how it's not equivalent personal values of honesty and thrift, etc.
I believe that all debts will be repaid. They will either be repaid by the borrow or by the lender, when the borrow can't pay and the lender has to bail them out.
Most of the debt is usually just rolled over. Think credit cards, treasury bills, commercial bonds etc.
At least thats how I see debt...
Government made promises to pay pensions/medical benefits to large quantity of people but doesn't have that kind of money from tax income. So they borrow from the future generation by printing more money promising to pay itself back. The net result is inflation like phenomenon which rises cost of services but not the income for the new folks who enter the job market. So this debt indicates amount of hardship future generations will encounter, at least at the start of their careers.
184 trillion divided by 7.7 billion = 23,896
I think it would be really interesting how the figure of $86,000 per person was calculated.
Though reading the article and comments did make it a lot clearer to me.
How much of the Worldwide debt is secured by collateral?
By writing off the debts? That's not so nice for those who are owed. A bunch of those are pension funds, for example. If peoples' pensions get wiped out by by all debts being forgiven, they won't be so happy.
By the government giving money to people? But where does the government get the money? By taking on debt? Then the government's even more deeply in debt, which means that we the people still are in debt, too.
Or does the government just create more money? This might be the least-bad way of doing it, but it would still be hugely inflationary.
But there are two things that might prevent this idea from winding up at hyperinflation. First, it is a one-off. The government prints money to pay off everyone's debt. Now nobody has debt, so the government doesn't need to do it again. Except that having no debt didn't give me enough money to buy a house, so I still have to take out a mortgage, and behold, I'm in debt again. And it didn't give my kid enough money to pay for college, so she's in debt again. And now there's cries for the government to do it again. And if they keep doing it, then we're probably going to wind up in hyperinflation. (Especially because of incentives. If the government paid off all debts, and I think they're going to do it again, my incentive is to borrow as much as I can to buy anything I think I want, because to me, it will be free.)
The second way this might not wind up in hyperinflation is because of deleveraging. A bank has $100 on deposit. They lend out $90 (fractional reserve banking), and now $190 exists, but someone owes $90, so the net is still $100. Now the government prints $90 and pays off the bank. Now $190 exists, which is no change, but the net is now $190 instead of $100, which is a change. Is that inflationary or not? I don't know.
But it's a lot easier to pay off, especially if you prioritize high risk debt to nationalize, so the government has a lower cost of borrowing (especially if the government, instead of paying off distressed debt, instead purchases it at current fair market value, since then the cost will be below the face value; “healthy” debts don't need a correction.)
I would like a theoretical answer ignoring the ethical part and the fact creditors will become less willing to lend money again if this happens.
People-Paying would love to start from zero.
People-Collecting would not want that.
If you think about it as two groups (theoretically): one group receives monthly, recurring payments from the other group.
In practice, individuals move from one group to another group and back, etc. based on life circumstances.
But here is a catch: Due to a bug or design, if an individual (or few individuals or families) could always stay in the receiving-group, he can live for free till end of time (or system halts/collapses.)
What will blow your mind is, are there such individuals or families in the system by design?