The nature of debt.

IveSeenTheLight

Graham_Devon wrote: »

And I did state what you stated I didn't state.

Apologies Graham, missed that post amongst the others where you kept saying £8.333333 or £8.33

nearlynew

This shopkeeper sounds like a right lying thief.

DervProf

Also, the man who bought the gun is a bit silly for being conned by the shopkeeper. He even forgot to buy some ammo.

the_flying_pig

HAMISH_MCTAVISH wrote: »

Unless they just bring forward consumption, and repay the debt later.

In which case it's still a situation of zero net debt, but with economic stimulus today.




And this is where it gets interesting.

Even debt spent on consumer tat can be good because money recirculates within the economy, and thanks to fractional reserve banking, debt creates more money, which then recirculates further, etc.

So lets say Person A, who happens to be a hop farmer, goes to the bank and deposits £1000. Person B goes to the bank and borrows £900, then spends it all on a giant party at their local pub.

The £900 is taken by the pub and deposited in their bank. It's then used to pay employees wages, buy more stock, etc. Those employees then spend the money with their local shops, the supplier takes the money for beer and uses it to pay the brewer, who then pays the farmer (Person A) for more hops.

The money has recirculated within the economy, and will keep doing so.

But in the meantime person C has gone to that bank and borrowed £810 to start a business.... Which he buys from Person D who deposits the £810 in his bank.

And the process continues, at each stage creating multiple claims on the same money, and in so doing effectively creating more money until with a 10% reserve rate the original £1000 deposited has bloomed into £9000 circulating within the economy.

So even the highly irresponsible act of borrowing money for a p1ss up in a pub can be turned into useful and productive economic endeavour.

Debt is an essential part of the economic process.
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Too little debt within society is worse in many ways than too much.

Is that what you think we've got, too little debt?

IveSeenTheLight

the_flying_pig wrote: »

Is that what you think we've got, too little debt?

He quite clearly didn't say that.

He said too little debt was worse in many ways than too much.

i think the key is cashflow, money needs to be available to circulate.

Without money circulating, then there will be little room for the economy to grow.

the_flying_pig

IveSeenTheLight wrote: »

He quite clearly didn't say that.

He said too little debt was worse in many ways than too much.

i think the key is cashflow, money needs to be available to circulate.

Without money circulating, then there will be little room for the economy to grow.

i realise that he didn't say that. hence my question.

but what he said is only really relevant if the UK does indeed have too much debt. otherwise he's attacking a silly straw man along the lines of 'we shouldn't have any debt ever'.