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Comment by enraged_camel | Hacker News Reader

I find it very scary that huge portions of our economy are basically houses of cards built upon more houses of cards. We're so desperate to generate circulation for money that we've invented an intricate set of rules where it's OK to pretend that you have money, as long as you promise to actually have it at some point in the future. And then of course another set of rules has to be invented to manage the risk of that particular future not coming to fruition.

My mind bends, but cannot wrap around why this game is necessary.

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Well, lending is a very important function in an economy. Without lending, you could never invest more capital than you had on hand... If you had a handmade widget that you were producing for $10, and could only sell for $5, but a million-dollar factory would let you produce 100,000 widgets a day for $2 each, lending is the only way to get into business.

It's not the use of debt that's a problem, it's the misuse of debt.

That's not actually how it works. Money is not a thing. Money is a decision and a means of social punishment/reward.

Lending is either an executive function based on (supposed) faith in the future, or it's gambling, or it's client patronage, or it's extortion.

There is no financial business model which does not reduce to these relationships.

In your example, the factory gets built if someone important decides it should be built. They charge 'interest' based on justifications assembled from some combination of gambling, extortion, or patronage.

It's an entirely imaginary and delusional system, and completely faith-based.

PwC put together one of the more comprehensive reports regarding the 'value of collection agencies in the U.S.'

http://healpay.com/assets/2007_pwc_collection_industry_study...

It's probably less of a house of cards than ever before. From kings mixing more nickel in with their currency, to giving loans based on reputation rather than earnings, that stuff is fading fast.

The game has been around as long as civilization has been around. The conventional view is that money came first, then debt, when actually it was the other way around. Rather than being a modern invention, debt and the management thereof was what led to the creation of money and accounting.

Debt: The First 5000 Years [1] is an excellent book I'd recommend if you're interested in the history. It's very well researched and a fascinating read (even if you don't agree with the author's politics.)

[1] https://www.librarything.com/work/9530527

That's the essence of loaning money; the central difference between medieval and modern economies.

But I would have thought the rationale was that lenders accepted some risk (that borrower would default) for a chance to realize some profit (when the borrower pays). What the NYT article sketches out is a system where debts are created seemingly without the intention that they be repaid; the only way I can wrap my head around it is that those losses are calculated, and that overall lending and selling on is profitable. But it does seem like turtles all the way down - real people used imaginary money to buy real things (or services from other real people), and then the imaginary money (mostly) disappeared. All that's solid melts to air.

Well, that doesn't mean there can't be fraud involved. There often is, and that's when things tend to fail spectacularly.

Watch "The Century of the self".

It makes the point that it's necessary because the government wants to control people's subconscious behavior through consumerism, which necessitates (I guess?) this skew in currency that you pointed out.

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