Debt Worldwide Hits Record $86k per Person • Hacker News Board

Re: Debt Worldwide Hits Record $86k per Person

#251

Post by dragontamer » Sat, Dec 15, 2018, 5:40 PM UTC

usefulcat wrote: post #250

Joeri wrote: post #232

Earlier quoted context omitted.

That’s not really how it works. The bank takes savings deposited and issues most of it as loans keeping enough on hand to issue to people withdrawing their savings (fractional reserve banking). The interest on the loans pays the interest on the savings (which is why one tracks the other). They also borrow money from the markets (or the central bank) at low interest rates to reissue as higher-interest loans. Nowhere i…

But they're able to loan far more than they have in deposits, no? In which case how are they not "creating money" by lending?

It's an issue of details.

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...

Re: Debt Worldwide Hits Record $86k per Person

#252

Post by pjmorris » Sat, Dec 15, 2018, 5:40 PM UTC

Joeri wrote: post #232

anonymouzz wrote: post #205

Earlier quoted context omitted.

Shortest possible answer: debt is money. 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 th…

That’s not really how it works. The bank takes savings deposited and issues most of it as loans keeping enough on hand to issue to people withdrawing their savings (fractional reserve banking). The interest on the loans pays the interest on the savings (which is why one tracks the other). They also borrow money from the markets (or the central bank) at low interest rates to reissue as higher-interest loans. Nowhere i…

Actually, the GP's explanation is closer to true than yours is. I was taught the same explanation you gave, but it doesn't fit the facts on the ground. Banks don't base the loans they issue on deposits (the closest to this they come are the capital requirements regulators impose on them), they base them on models of the borrower's ability to repay and on models of the ability to resell the loan (aka 'securitization', though less so since that practice helped drive the financial crisis). If the models fit, the loan amount is credited to the seller, and debited to the buyer, essentially creating money 'out of thin air.' The economist Steve Keen is perhaps one of the more vocal advocates of this view (http://www.debtdeflation.com/blogs/).

Re: Debt Worldwide Hits Record $86k per Person

#253

Post by jganetsk » Sat, Dec 15, 2018, 6:19 PM UTC

posix_me_less wrote: post #204

talltimtom wrote: post #193

Earlier quoted context omitted.

Currency is debt. If you have a 20$ bill that means essentially that the government owes you the equivalent in value. If everyone converted all their debt to currency that just means the state buys all the debt and prints sufficient government IOU’s (bills) along the way. If there is not enough value to cover the debt, the notes just lose value as others refuse to trade them at their previous rate.

> If you have a 20$ bill that means essentially that the government owes you the equivalent in value. 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…

"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."

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.

https://www.youtube.com/watch?v=TDL4c8fMODk

Re: Debt Worldwide Hits Record $86k per Person

#254

Post by jganetsk » Sat, Dec 15, 2018, 6:22 PM UTC

graeme wrote: post #66

Doesn't debt have to sum to zero globally? A debt held by one person is an equal asset owed another. Or perhaps this is a measure of the number of debts outstanding, divided per person, but not accounting for assets.

Correct. The sum of all assets and liabilities in the world in some unit of account (like the USD) is 0.

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.

Re: Debt Worldwide Hits Record $86k per Person

#255

Post by wbl » Sat, Dec 15, 2018, 6:23 PM UTC

hirsin wrote: post #169

mrec wrote: post #122

Earlier quoted context omitted.

And I think you're arguing that the disappearance of mortgages would have no effect on real estate prices. IMO, and that of many others, loose credit has been the major factor driving up property prices to their current insane heights. There's a place for credit, but right now I think it does more harm than good.

On the contrary - no mortgages would mean I couldn't afford a house, and someone richer than me would buy it and loan^H^H^H rent it to me. They'd get richer, and do the same to the next person who couldn't quite afford to buy a house. You've described a society closer to feudalism than efficient housing.

And you would have a house to live in, while your own investments are diversified. How did homeownership work in Detroit?

Re: Debt Worldwide Hits Record $86k per Person

#256

Post by jganetsk » Sat, Dec 15, 2018, 6:26 PM UTC

RobertoG wrote: post #218

licnep wrote: post #157

Earlier quoted context omitted.

The total government debt = total private sector savings, to the last cent. That is an accounting truth, for every debtor there is a creditor, and the creditor of the public sector as a whole is the private sector. 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, an…

I totally agree. 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.

> 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.

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.

Re: Debt Worldwide Hits Record $86k per Person

#257

Post by nitrogen » Sat, Dec 15, 2018, 6:50 PM UTC

moreira wrote: post #208

posix_me_less wrote: post #204

Earlier quoted context omitted.

> If you have a 20$ bill that means essentially that the government owes you the equivalent in value. 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…

The answer is gold. Your $20 is worth a certain amount of gold, and that is what the government owes you. $20 in gold. These days you'd be hard pressed to get the government to give you gold, of course, but that is the answer to your question. 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…

This used to be more literally true: https://en.m.wikipedia.org/wiki/Silver_certificate_(United_S...

Re: Debt Worldwide Hits Record $86k per Person

#258

Post by zygotic12 » Sat, Dec 15, 2018, 6:56 PM UTC

Issac Newton changed the world for the better by creating fractional reserve banking. But it's like an elastic band as we noticed in 2008. To get any perspective on this a breakdown by age groups would be more revealing. My goggle fu failing me.

Re: Debt Worldwide Hits Record $86k per Person

#259

Post by samsonradu » Sat, Dec 15, 2018, 9:16 PM UTC

thescriptkiddie wrote: post #123

graeme wrote: post #66

Doesn't debt have to sum to zero globally? A debt held by one person is an equal asset owed another. Or perhaps this is a measure of the number of debts outstanding, divided per person, but not accounting for assets.

Not necessarily. The value of debt as an asset is often less than the amount owed, because there is a non-trivial risk that the debt will not be paid back in full. Furthermore, if you are a central bank, you can effectively borrow money from your future self.

Could also be more, when interest adds up to the debt.

Re: Debt Worldwide Hits Record $86k per Person

#260

Post by belorn » Sat, Dec 15, 2018, 10:14 PM UTC

talltimtom wrote: post #193

ssalka wrote: post #184

Earlier quoted context omitted.

The problem is that if everyone were to try to collect all the debts owed to them, there would not be enough currency to fulfill it all. We freely create debt, but the result is a deficit that can only be resolved by creating enough value to offset the debt. And if that is somehow infeasible, economic collapse occurs.

Currency is debt. If you have a 20$ bill that means essentially that the government owes you the equivalent in value. If everyone converted all their debt to currency that just means the state buys all the debt and prints sufficient government IOU’s (bills) along the way. If there is not enough value to cover the debt, the notes just lose value as others refuse to trade them at their previous rate.

> If you have a 20$ bill that means essentially that the government owes you the equivalent in value

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.