Wednesday, March 12, 2014

Imposes on itself (by design of policy)

Peter Martin:

If we add up the national debts of all the world's countries, subtracting any claimed surpluses, it reportedly comes to about $57 trillion.

Tom Hickey:

These morons apparently don't realize that all money is created by crediting and debiting accounts. Money functions as a unit of account, medium of exchange, store of value, and record of debt. Every debt has a corresponding credit denominated the unit of account of that jurisdiction, so that all debt as someone's liability is someone else's asset, which nets to zero.

Since money is not only someone's debt (a payable) but also someone else's credit (a receivable), it is just as true to say that the world owns over 57 trillion in financial assets expressed in USD, as it is to say that the world owes 57 million in financial liabilities. Doh.

Marko at Peter Martin's:

The tautology of assets=liabilities isn’t hard to grasp or accept , but one is left with the feeling of “so what?”.

Exactly: So what. The fact that debts and credits are equal and "net to zero" does not mean there is no cost involved. The cost of debt does not cease to exist because debts and credits net to zero. The cost of debt only ceases to exist when the debts are paid off and the credits are actually zeroed out.

Peter Martin is talking about national debts -- the debt of governments. But it isn't so much the debt of governments around the world that is a problem. Private sector debt is the problem, because it directly impacts private sector growth -- which is to say, it impacts economic growth.

If you think debt is good for growth, I have to say you have the terminology wrong. Debt is what's left over, after the use of credit has had its beneficial effects on growth. Debt is the cost that offsets the benefits of credit use.

Funny thing is, if you follow Peter Martin's link, you see that the national debts of all the world's countries add up to about 57 trillion dollars. But if you look at just the U.S. part of that, and then add in U.S. private debt, you come up with more than 57 trillion dollars. The big part of this is a cost burden that the U.S. private economy imposes on itself.

This cost is the reason we cannot attain satisfactory economic growth.

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