Here's the thing... It is very hard to tell now if we've gotten our money's worth for the debt. Many things are much better today than 50 or 100 years ago. Longer lifespans, better health care, less pollution.... Was it worth the debt? Hard to say.
Also - debt is just one person owing money to another. Yes someone today funded their consumption at someone else's expense. But guess what - someone tomorrow will get the dollar back to consume it. We can argue that as a country we will be paying for the consumption of others in the future, but is that so awful for the world's richest place?
(And please note - this rant comes from someone who believes we should live within our means and balance the budget)
Debt is not “accumulating” in the way you imagine it is. Debt load remains fairly stable, and old debt is paid off as new debt is taken on in roughly equal rates as a percentage of GDP.
If the world would give you trillions of dollars at 2% and your return in that money exceeds 2% it would be pretty stupid to pass it up.
The viewpoint of bemoaning debt because just think of what we could have paid for with that interest is wrong because it completely discounts the immediate and long-term value of the things which the debt financed to begin with.
Bemoan whatever you perceive as wasteful government spending, but just like companies won’t achieve the highest returns by being debt free, neither do households and especially not governments.
It's debt in that we pay interest on it. Resources that could be spent on the here and now instead go to maintaining the idea that's not getting paid off.
You ask how any of this debt can ever be repaid. But is this really what we want to achieve? Repay the debt? If money is, like in the reddit post, an IOU (or a certain unit of debt), then the idea is to balance out the amount of money (debt) with the growth of the economy. Too much and we got inflation. Too little and we cripple the economy.
I'm very curious why debt should be repaid at all, care to explain?
(Note: I think one's own debt is different than the debt in an economic scale)
The problem is, as a debtor nation our currency is only good as long as we can make our debt payments. If we don't actually produce much of value, that won't be for much longer. We (the U.S.) are currently running an experiment to see how much we can run up our debt while simultaneously becoming more dependent on the rest of the world for just about everything and wondering what's the worst that could possibly happen? Sadly, this experiment has already been run repeatedly throughout history and it doesn't end well.
Debt is worth it if you think your economy is going to grow in the future. It multiplies growth of an economy. Unfortunately, this multiplier is a double edged sword, during times of shrinkage.
Most modern economies have done well with debt since WW2 because the economy has been growing on average. During times of economic expansion, countries who don't put on more debt get left behind during the boom. The bust hurts those who took more risks, but it seems like on average it has worked out well for the debt takers in the last few generations.
Only if the debt is going to be paid back. And I don't think it ever will.
Money is just a way of keeping track of how much of future output of civilization given entity deserves. If we decide that people who borrowed the money now don't deserve it then, puff, there's no debt, nothing to pay back, no burden on future taxpayers.
On the other hand the resources that we dig up now, burn, pollute... those are real theft robbing the future.
It’s frowned upon to talk about this as a generational thing, but it very much is. Debt is the instrument to have now and pay later, and the debt burden is rampant everywhere. Modern economics has essentially disregarded the role of debt in the economy.[1] All our government institutions seem hell bent on maintaining asset prices at any cost.[2] There’s no sensible plan to even remotely reign in government debt. The world’s stuck at zero percent interest rates, handing out money to the politically connected, and growth is still anemic. Even at low rates people can hardly afford to buy anything since asset prices are so inflated.
I would like to believe we can deal with this in a reasonable fashion, but am skeptical. As can already be seen by the U.S. elections and elsewhere, populism is rearing it’s head on both the left and the right. It feels like a storm is on the horizon and I only hope it doesn’t devolve into war.
If everyone in the world is in debt, why don’t we just collaborate and pardon the debt? A reset if you will and keep it going. Or do nothing and ignore it, I am not an economist so purely guessing here, but debt doesn’t seem to have negative impact on economies. Other things will but I haven’t seen one instance where the country is in bad shape of not because of debt.
EDIT: I get that debt is not the same for all countries. I was only talking about canceling the percentage of debt that is common across all countries.
Also, when I say ignore it, I am only talking from US centric view I guess. The US will probably never repay its debt and as long as the dollar is strong it keeps borrowing and the debt keeps increasing. So ignoring the debt is not done overtly to not repay but done so as to keep getting more debt and not getting forced to curtail growth plans.
Honestly this is pretty straight forward wishful thinking. It certainly isn't Keynes (who believed in paying debts down during upswings). Here is the article's point in his own words...
"The US government only has to make sure that the US debt growth rate doesn’t exceed the growth rate of our tax revenue. As long as we take in money faster than we borrow, we can always meet interest obligations and grow faster than we owe money."
Interest is, by definition, paying money for nothing. You received money in the past and are now paying for the privilege of having enjoyed whatever that money bought you back then. But in the present tense Interest is money for nothing.
The author foresees a world where we are constantly paying more and more money and getting nothing in return (because the previous generation enjoyed whatever that money bought them). While our debt continues to rise because we're putting nothing towards the principle and in all likelihood still spending more than we take in.
If we don't pay the national debt, the US economy would suffer enormously. Eventually people would lose trust in the US dollar itself causing hyperinflation which leads to the worst disasters in modern history.
People who make arguments against debt are ignoring a great deal of historical information. A person, or a nation, can clearly spend money on stupid things, but that doesn't mean that debt is bad. Many businesses take on debt to grow, or at least they seek a credit line to cushion themselves against variations in income.
The argument for debt goes like this: in the future "we" will be wealthier, so why don't we borrow against our future income to make the investments that will ensure that, in fact, in the future we will be wealthier.
"We" can refer to a person, business, or nation.
The careful and strategic use of debt has been used to build great empires. A quote:
"Chart 2 tells, in stark detail, the story of the British Empire. It was built on the National Debt. Throughout the 18th century the National Debt grew and grew, from nothing at the end of the 17th century to about 60 percent of GDP by the end of the War of Spanish Succession in 1715."
To win World War II, the USA drove up debt to 100% of GDP, a level much higher than what it faces today.
To finance business, an interesting difference has developed between the English speaking nations (I mean those who inherit their legal codes from English Common Law) and those nations of continental Europe. In the English speaking nations, it became common, by the 1800s, to finance growth by offering equity for sale at public auction. The continental nations developed along different lines -- banks played a larger role. In Germany, most firms operate with higher levels of debt that what would seem normal in English speaking nations.
To get an understanding of the importance of debt, and its history, I'd suggest you read Fernand Braudel:
As he points out, debt and civilization tend to go hand in hand. Debt was illegal in many European nations during the Dark Ages. Nations in the Mideast and India all had flourishing markets in debt, and flourishing trade, while Europe was sunk in poverty. When Europe revived and began to expand again, it helped itself along with the revival of credit, and credit markets. By the time the 1600s came around, Amsterdam was able to offer the world the full range of modern financial instruments: put and short and forward contracts, options of every kind (save for the exotic derivatives of recent vintage).
There is no civilization without debt, no advanced commerce without debt, no growth without debt. The wheels of commerce are greased with credit.
Wow, debt of 50+% assets is 'fine'?! Grab the nearest person who lived in the 50s, and ask them what they think of it. That we've grown accustomed to this sort of debt is the cause of all this mess.
Some argue that this debt that has to be repaid 'no matter what' is part of what is wrong in today's societies and economies. Here read this book Debt: The First 5,000 Years
https://www.goodreads.com/book/show/6617037-debt
Me personally? Try a lot harder to not get into that problem in the first place.
I don't mean that sarcastically or as a snap answer exactly. My views on debt are right now somewhat old fashioned, and they're getting older-fashioned pretty quickly, directly in response to current events. Humans have a long experience with debt, a lot of that experience has boiled down to "treat it as radioactive waste", and I'm increasingly unconvinced that all of our fancy financial tools have actually removed the underlying reasons for that millenia-old assessment, rather than pushing those reasons around with ever-more sophisticated tools into ever-more complicated cognitive blind spots, until one day it blows up even worse than it used to be able to.
A sober analysis of a lot of the debt in the world right now is that it simply isn't going to be repaid, for mathematical reasons, and that's been true for quite a while now. (The crisis merely revealed what should already have been obvious, and it is obvious that many people still don't think this is true even after that.) And a lot of that debt has been moved behind things like "guaranteed pensions" and other things that are amenable to various forms of jiggery-pokery on the accounting.
So, that's great and all, but what do we do now, right? Because no amount of wishing for changes in the past will cause them to manifest. To which my answer is basically sunk-cost fallacy, stop throwing good money after the bad. Political restructurings don't appear to be working, so stop that. But then, I'm an engineer, not a politician... "stop doing things that don't work" is very easy for me but might as well be a concept from the planet Vulcan for a politician, who is so full of nuance that they can talk themselves right out of reality and consider it not merely moral, but noble.
The level of debt we have is fine, and we could have a lot more and still be fine. The idea that the debt is a number worth minimizing is just bad economics.
Also - debt is just one person owing money to another. Yes someone today funded their consumption at someone else's expense. But guess what - someone tomorrow will get the dollar back to consume it. We can argue that as a country we will be paying for the consumption of others in the future, but is that so awful for the world's richest place?
(And please note - this rant comes from someone who believes we should live within our means and balance the budget)
reply