Trying to explain debt to people

Says this bloke in The Guardian.

And then immediately and totally fucks up.

Because he only looks at aggregates. Japan owes debt to the US, the US owes debt to Japan etc.

No, specific people and organisations that happen to be located in Japan own US debt, just as specific people and organisations in the US own Japanese debt. If you\’re not going to look at the distribution of it all then you\’re never going to get close to the truth.

13 thoughts on “Trying to explain debt to people”

  1. Ironically the article was pure hyperbole, bad descrtiption and mis-information and ended up with a plea for the provision of better infomation and thus understanding by the public.

  2. Collectivists struggle to think below the level of the hive. It just does not come naturally to them.

  3. The Japanese position is interesting. While it is all owed internally, most of it is owed indirectly to households, via banks, insurance companies and pension funds. All of these institutions have massive asset liability mismatches, although the problem is worst in the banking sector.

    And thanks to BIS II (and III) government debt requires no capital for the banks.

    Japan has massive external assets (as does the UK), but those external assets belong (in the main) to the private sector and not the public sector (the Bank of Japan owns a lot in their forex reserves, but it’s still tiny in the greater scheme of things).

    What is particularly depressing in an article trying to talk about debt in a proper way is that the chap then goes on to commit the crime of comparing the stock of debt to the flow of value added, without trying to explain that this is akin to looking at the operating income of a company and comparing it to the debt on the balance sheet. And this is externally owed debt, which is a useful concept, but not in all circumstances.

  4. “No, specific people and organisations that happen to be located in Japan own US debt, just as specific people and organisations in the US own Japanese debt.”

    Correct me if I’m wrong, but didn’t specific (largely private) organisations in Germany (banks) own the debt of specific private organisations in Ireland (banks)? And didn’t that end up with the Irish citizens paying the German banks? And presumably at some point German tax payers will have to bail out their own banks for their losses either on bank loans or sovereign loans to the at least some of the periphery. (Maybe they have already – I’m hazy on German banking.)

    So while I take your point, it’s not necessarily irrelevant for the citizens of country X if lots of private institutions in country X owe or own debt to private institutions in country Y. Particularly if those institutions are banks.

  5. Andreou proclaims that the nature of bank debt is too complex ,esoteric and plain boring for ordinary people to understand but the real problem is that its all too simple: the banking system creates money out of thin air and then charges interest on it. Plenty of people war got the message inter-war, mostly Social Crediters who took quite a hold in parts of Canada. There were Greenshirts marching up and down British streets proclaiming the truth about bank debt in the 30’s.Nowadays the attitude is that people cannot standard too much monetary reality, otherwise we could end up with a nationalised banking system with interest rates forming a tax on the creation of money, reducing other taxes.

  6. DBC Reed, have you read much about monetary economics and money creation. I highly recommend reading about it, even though it is rather boring, before commenting about it.

  7. The Guardian article on debt is considered so good because the vast majority of other articles on Debt are even worse.

  8. David B. Wildgoose

    It seems to me that DBC Reed has clearly read more about monetary economics and money creation than “Current” and is thus far more qualified to comment on it.

    Of course, I may be wrong, but the snide fact-free comment by “Current” suggests otherwise.

  9. I was loath to point it out but I too thought that DBC Reed was right – that the banking system as a whole DOES create money from nothing, and does indeed profit from the interest charged on it.

    But monetary theory is above my pay grade and thus I tend to keep my head below the parapet when such matters are discussed.

  10. One of the problems of financial reporting is the sloppy and misleading language that is thrown about.

    For example sometimes the phrase appears, that money created by loans being “backed by nothing”. Which is a fallacy.. In fact it its backed up by bonds and the future goods and services produced by the borrower that those bonds represent and in the case of secured loan banking it is also backed up by collateral such as houses and land.

    In that article the phrase” imginary money” was used and then the doubled down with “fictional money” and rounded off the offences with the phrase “fake money”. And as an encour he claimed to be educating people.

  11. Not sure I can cope with all this agreement- quite unnerving. Think I will take a sabbatical for a while. Where is John 77 when you need him? More what I am used to, though I don’t think I need so many details of his personal history, to be quite honest.

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