Reality Blind - Vol. 1

What is Debt?

“Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds naught and six, result misery.” - Charles Dickens

Summary: Debt is a claim on future money, and therefore a claim on future energy and resources. But economics textbooks currently treat debt as neutral to economies; neither good nor bad. These textbooks claim that it doesn’t matter whether we generate a dollar of growth by investing our savings or by boosting money creation by issuing debt; only the growth itself matters . If you buy a car with savings and your neighbor buys the same car by going to the bank and getting a loan, the impact on our GDP and economies is identical. Economics textbooks treat debt as just an exchange of “time preference of consumption” between a d ebtor and a creditor: the creditor agrees to consume later than the debtor, and the debtor compensates the creditor for this inconvenience by paying interest. But if money is a claim on future energy and resources, and if future energy and resources are declining in quality and quantity over time, then debt does have significant implications for our future which are not explained in economics textbooks. In fact, every year since 1965, the United States has increased its debt by more than it has grown its GDP. That same trend has been observed in most other countries in the world, with very few exceptions. Thus, our debt productivity - a measure of how much growth we stimulate for each additional dollar of debt created - has been in constant decline these past few decades, with some periodic upticks. Since 2000, the global economy has grown from $41 trillion to $57 trillion (in 2005 dollars), while its debt has grown from $87 trillion to $199 trillion. Global GDP went up by $16 trillion, but it took $112 trillion in new debt


Powered by