Debt

[fiveworlds]

Why is it that most of the countries in the world are in debt?

[iNow]

Because they spend more than they take in and borrow in order to do so.

Edited June 10, 2015 by iNow

[Ten oz]

All growth is debt. If you have a population of 1 million that grows to 1.5 million services, home, jobs, and etc all must be expanded. Those are purchases made in advance. Schools get built, roads get expanded, new police departments for new communities stood up, and etc, etc, etc, all organized in advance of the expanded population be able to create value. It is a neccessary evil.

[overtone]

A government that operates in long term surplus is either removing more resources from its citizens than it needs to perform its functions, or shorting its functions.

[iNow]

Instead of thinking of it as a cost or a debt, it's helpful to recognize it as an investment with a potential ROI and to reframe your question to instead ask, "Which countries invest their debt most wisely and enjoy the biggest ROI as a result?"

[Roamer]

Because people(and politicians) enjoy spending money.

[michel123456]

Why is it that most of the countries in the world are in debt?

Some argue that credit/debt is the same thing with money.

http://en.wikipedia.org/wiki/Credit_theory_of_money

 

Under this POV, debt equals creation of money, and the creation of money is something wanted under the capitalistic system we live in.

So one could say that debt is not something that one has to avoid, but that debt is a motor for the economy. Every time a company wants to invest, the company takes a loan and debt is created. The same goes for countries.

 

Edited June 11, 2015 by michel123456

[Sensei]

Because people(and politicians) enjoy spending money.

You missed suffix: "...money of other people"..

[michel123456]

You missed suffix: "...money of other people"..

If I am not abused it is untrue.

 

When you ask for a loan from the bank, the loan is in fact a negative amount as considered from the bank. IOW it is not regular positive money from someone, it is negative money created out of thin air. When the loan is agreed and you see the important increase on your bank account, it does not mean that you took "money of other people", it means in fact that the bank has created money on your shoulders. You will work hard thinking that you have to give the money back with interests while in fact you are enslaved to the bank creating money not from thin air anymore, but from hard work. I am not 100% sure of what I say but if you ask a friend banker after drinking some wine he may admit that.

[Roamer]

As i understand it, banks are obliged to keep in stock/safe a percentage of the money they loan out.

[swansont]

Banks do not create money by lending it, they lend money that has been deposited with them*. Most governments don't create money, either. They sell bonds and promise to repay them. People purchase the bonds, and that's where the money comes from. In their budget, this is an obligation, so it is a negative amount.

 

That's not to say a government can't create money by having its treasury print it. But that probably doesn't count as debt.

 

 

*see below

[Prometheus]

Banks, in the simplest form, are simply forums in which people with money meet people without money. By dealing with a bank creditors are able to mitigate risks and debtors are free from the risk of broken legs (or any other unlawful reproach) for defaulting.

 

Governments borrow money from creditors in the anticipation that the economy will grow exponentially. As i understand this exponential growth is integral to the system - at least it has a central place in econometric models.

[Endy0816]

As i understand it, banks are obliged to keep in stock/safe a percentage of the money they loan out.

 

Basically this for Fractional Reserve System(US). Federal Reserve.

[michel123456]

Banks do not create money by lending it, they lend money that has been deposited with them. Most governments don't create money, either. They sell bonds and promise to repay them. People purchase the bonds, and that's where the money comes from. In their budget, this is an obligation, so it is a negative amount.

 

That's not to say a government can't create money by having its treasury print it. But that probably doesn't count as debt.

Not exactly. The deposits at the bank are only a few percentage of the amounts managed.

As i understand it, banks are obliged to keep in stock/safe a percentage of the money they loan out.

Yes.

This below is quite informative

 

http://demonocracy.info/infographics/usa/fdic/fdic.html

----------------------

And from this below the following quote

 

A World in Debt

The world is in debt - A whole city of sky-scrapers of cash.

The countries together face a $7600 Billion USD (7.6 Trillion) dollar debt repayment/refinance tab in 2012.

The towers are maxed-out at 100 stories of $10 billion dollar platforms.

 

To understand how we got in this borrowing mess, you must trace the path of money, where it comes from and how it is created. For starters: Money is "created" at the Central Banks of the World.

 

Money creation is never taught in school, while being one of the most important things deciding your

well being. In USA it comes from the Central Bank (private organization) dubbed the Federal Reserve.

You owe to yourself to understand the fundamentals of money, since money controls you,

just like your boss controls you with money.

If you want to be a free person... you must understand the forces that control you.

 

from http://demonocracy.info/infographics/usa/world_debt/world_debt.html

 

Fascinating human world.

[swansont]

Not exactly. The deposits at the bank are only a few percentage of the amounts managed.

 

Not sure what you mean here. Can you explain? (but "managed" ≠ "loaned") Most countries have reserve/liquidity requirements.

 

edit:

 

I found this, which is contrary to most of the ways it's explained

http://www.forbes.com/sites/francescoppola/2014/01/21/banks-dont-lend-out-reserves/

 

That's messed up.

[michel123456]

The reserve is only a few percentage of the money managed by the banks. The reserve acts as a backup in case something goes wrong with some particular loans. When everything goes wrong, it appears in full light that the bank has not enough money in reserve, people lose his deposits but not only : loans are lost, enterprises close, people lose jobs, other banks face bankruptcy, and so on.

 

Searching for a source, found this diagram from here.

There must be better information but cannot find it right now.

 

Not sure what you mean here. Can you explain? (but "managed" ≠ "loaned") Most countries have reserve/liquidity requirements.

 

edit:

 

I found this, which is contrary to most of the ways it's explained

http://www.forbes.com/sites/francescoppola/2014/01/21/banks-dont-lend-out-reserves/

 

That's messed up.

 

From your link

 

Firstly, here’s a short explanation of bank lending. Under normal circumstances, deposits and loans are more-or-less equal across the banking system as a whole. This is because when a bank creates a new loan, it also creates a new balancing deposit. It creates this “from thin air”, not from existing money: banks do not “lend out” existing deposits, as is commonly thought. You can see this clearly on the chart. Until 2009, deposits and loans were roughly equal.

 

 

Now, in this article it is said that roughly reserves equal the loans. From what I know the exposure of the banks is a multiple of reserves. Have to dig more.

[dimreepr]

That's not to say a government can't create money by having its treasury print it. But that probably doesn't count as debt.

 

 

However, I think, it does count as future/potential debt.

Edited June 16, 2015 by dimreepr

[michel123456]

-----------------------

This

https://en.wikipedia.org/wiki/Reserve_requirement

[swansont]

 

 

However, I think, it does count as future/potential debt.

 

It may discount the currency due to inflation, but why would it be debt?

[michel123456]

That's not to say a government can't create money by having its treasury print it. But that probably doesn't count as debt.

 

Printing money diminishes the value of money. In fact the whole value which remains constant is sprayed over a larger amount of banknotes. The lowering of the Euro exchange value lately was provoked by the printing of several billions by the Central European Bank. So it is not debt exactly, it is poverty distributed everywhere. When printing happens not so often, it doesn't matter much, but you cannot do that all the time.

[dimreepr]

 

It may discount the currency due to inflation, but why would it be debt?

 

 

My first thought was ‘it depends on the rate of inflation’ but on reflection you’re quite right, even hyper-inflation wouldn’t count as debt.

Edited June 16, 2015 by dimreepr

[DimaMazin]

That's not to say a government can't create money by having its treasury print it. But that probably doesn't count as debt.

It may discount the currency due to inflation, but why would it be debt?

money = /debt/

[iNow]

money = /debt/

Debt is money owed, generally due to borrowing.

Money is a standardized measure of value, itself local to some system.

Printing money or engaging in quantitative easing affects the value relative to other currencies.

 

Let's try to avoid conflation. Debt and deficit and money and currency are all distinct topics with different meanings.

[DimaMazin]

Debt is money owed, generally due to borrowing.

Money is a standardized measure of value, itself local to some system.

Printing money or engaging in quantitative easing affects the value relative to other currencies.

 

Let's try to avoid conflation. Debt and deficit and money and currency are all distinct topics with different meanings.

I have some money and I don't know who have positive or negative debt measured by the money. But I can find goods for my money.

Debt and deficit and money and currency aren't my conflation. And at all an equation isn't a conflation.

[Roamer]

Most currencies started out as the opposite of debt, obligations of a bank to pay (in gold) the holder, which gave them their value.

Most currencies have lost this obligation nowadays, though there is usually still some kind of backing-up with gold.

However the oldest "currency," gold, has gotten it's value for being durable and shiny.

Also cigars have been used as money by the common man when their (old) currency failed them.