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Yakk · 12-04-2008, 04:27 PM

So every time you borrow money, someone else owns the debt.

Every time you default on debt, you gain wealth and the owner of the debt loses wealth.

All of these things move money around.

Now, the trick is, if someone lends money to you, and you do not end up being able to pay it back, while they _think_ you are able to pay it back, for a period of time ... the books don't actually balance.

You have cash (from the loan), and think you own the things you bought with it.

They have your debt, and think that you will make good on it.

In reality, their debt isn't worth all that much -- because you will default.

And the things you bought with the cash from your debt ... well, you won't own them, because you are going to go under.

The things you wanted (that you bought with your cash from your debt) end up going to the people who wanted you to pay them back in cash (and they don't want it). This is bad for the 'sum worth' of both you and the person borrowing money from you.

In essence, that loan/debt agreement isn't making wealth -- it is simply moving liquidity from someone who wants future returns, to someone who wants immediate liquidity to buy something right now. This arrangement can make both of you better off (as you own something that both of you want). If it collapses (or the illusion that it works collapses), it causes real harm.

Now, if you are able to generate the future cash-stream to pay off the debt, and you don't walk away from the security, and you intended and where aware of that future cost and do think it is worth it -- you are both better off.

But that isn't always what happens.

In the case of America, the world (as a whole) is lending it massive amounts of money. Now, either America boosts its productivity, produces things that generate massive amounts of money, ships more goods out of itself than it is importing, and uses that to pay off these debts . . . or the people who think that owning American debt will give returns later on are wrong.

In short, there are at least two ways America can get itself out of this mess. It can ramp up its own productivity -- or it can engage in economic collapse.

12-04-2008, 04:27 PM	#26 (permalink)
Yakk Wehret Den Anfängen! Location: Ontario, Canada	So every time you borrow money, someone else owns the debt. Every time you default on debt, you gain wealth and the owner of the debt loses wealth. All of these things move money around. Now, the trick is, if someone lends money to you, and you do not end up being able to pay it back, while they _think_ you are able to pay it back, for a period of time ... the books don't actually balance. You have cash (from the loan), and think you own the things you bought with it. They have your debt, and think that you will make good on it. In reality, their debt isn't worth all that much -- because you will default. And the things you bought with the cash from your debt ... well, you won't own them, because you are going to go under. The things you wanted (that you bought with your cash from your debt) end up going to the people who wanted you to pay them back in cash (and they don't want it). This is bad for the 'sum worth' of both you and the person borrowing money from you. In essence, that loan/debt agreement isn't making wealth -- it is simply moving liquidity from someone who wants future returns, to someone who wants immediate liquidity to buy something right now. This arrangement can make both of you better off (as you own something that both of you want). If it collapses (or the illusion that it works collapses), it causes real harm. Now, if you are able to generate the future cash-stream to pay off the debt, and you don't walk away from the security, and you intended and where aware of that future cost and do think it is worth it -- you are both better off. But that isn't always what happens. In the case of America, the world (as a whole) is lending it massive amounts of money. Now, either America boosts its productivity, produces things that generate massive amounts of money, ships more goods out of itself than it is importing, and uses that to pay off these debts . . . or the people who think that owning American debt will give returns later on are wrong. In short, there are at least two ways America can get itself out of this mess. It can ramp up its own productivity -- or it can engage in economic collapse. __________________ Last edited by JHVH : 10-29-4004 BC at 09:00 PM. Reason: Time for a rest.