[HN Gopher] The zombie economy and digital arm-breakers
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The zombie economy and digital arm-breakers
Author : rbanffy
Score : 31 points
Date : 2021-04-02 17:03 UTC (5 hours ago)
(HTM) web link (pluralistic.net)
(TXT) w3m dump (pluralistic.net)
| IG_Semmelweiss wrote:
| I think the author doesn't appreciate that the debt is being
| repaid, perhaps because that happens in a very un- conventional
| manner, different from ways most people think debt is repaid.
|
| #1 we are doing gargantuan "stimulus" transfers of money. This
| money will serve 1 thing only: The US will become a net exporter
| (and to some degree, it always was) of inflation. All the world
| economies that can get away doing so will do so. Since all debt
| that matters is denominated in USD, then that debt is effectively
| being repaid thru the loss of purchasing power of every single
| dollar holder.
|
| At some point it may be true that debtholders may experience a
| debt "shock". This brings me to repayment #2
|
| IF any issuer of debt, like a bank, gets in trouble, like in 2008
| or March 2020, they are bailed out. Sometimes directly (TARP)
| sometimes indirectly (CARES).
|
| So due to the bailout, a huge amount of debt is transferred to
| the federal balance sheet. Its true that did not liquidate the
| private debt - govt debt still needs to be repaid. But that can
| happen via #1, or via taxation. So the circle is closed and the
| debt is repaid. Note that taxation can involve individuals not
| yet born, too.
|
| So while I agree that this is zombie (bad) debt, i don't agree
| that it won't be repaid. Its just that the time horizon for
| repayment is so long, and hard to observe, that it may lead to
| the conclusion that the debt is not being repaid.
| cryptica wrote:
| Taxation is not enough to pay back the entire public or private
| debt since all the new money which is injected into the economy
| enters via the banking system as loans or via government bonds
| (also backed by debt at a 1 to 1 ratio); so no amount of
| taxation against those dollars is sufficient to cover the debt
| which was created as a consequence of injecting those dollars
| into the economy in the first place... Unless the tax rate was
| 100% - But that would be impossible for other very obvious
| reasons.
|
| The only real purposes of taxation are to force people to keep
| using the fiat currency as a means of payment (maintain
| currency monopoly) and also to maintain scarcity of the
| currency as this helps to keep inflation under control (at
| least for consumables). But it doesn't actually prevent
| inflation in absolute terms because the government usually ends
| up spending more than it collects in taxes anyway (take loans
| from the Fed by creating new bonds); they mostly care about
| having inflation lower or proportional to other countries, not
| about preventing inflation.
|
| The only way to pay off the debt would be to change the
| mechanism via which money enters the economy so that it is no
| longer tied to a debt as it does so. But then the question
| would be who should receive all that new debt-free money?
| Probably it will be big corrupt megacorporations via insanely
| large government contracts.
| vkou wrote:
| > The only way to pay off the debt would be to change the
| mechanism via which money enters the economy so that it is no
| longer tied to a debt as it does so.
|
| Yes, all money is created in the form of debt, which implies
| that it has to be paid back with interest. There is no way
| for everyone to pay off all outstanding debt.
|
| However, you are forgetting that not all debt is paid off.
| Some of it defaults, which destroys money.
| cryptica wrote:
| True, and I guess private banks just sell all that toxic
| debt to the reserve banks.
|
| But it's not the money which is being destroyed by
| defaults, it's only the debt component which is wiped
| clean. The credit component of the loan was already spent
| into the economy by the now-insolvent borrower and cannot
| be recovered by creditors so it's still circulating and
| adding to inflation.
|
| It really sucks. What a horrible society we live in.
|
| The current system monetizes bankruptcies. Bankruptcy is
| the only mechanism which allows debts to be wiped clean
| without simultaneously adding more debts.
| D13Fd wrote:
| >Bankruptcy is the only mechanism which allows debts to
| be wiped clean without simultaneously adding more debts.
|
| This is untrue. There is also repayment, which is the way
| the system is designed to work. There is also
| voluntary/negotiated forgiveness by lenders.
|
| More than that, how is bankruptcy a bad thing in this
| context? Isn't bankruptcy exactly what should happen when
| repayment becomes impossible?
|
| Our system of bankruptcy organizes the process of
| default, and was actually the solution to the older
| problem of things like debtor's prisons.
| arithmomachist wrote:
| The invention of credit scores and their use to screen
| people for renting apartments and getting jobs brought in
| a coercive system of similar magnitude to debtors'
| prisons. Credit scores should be only used for evaluating
| potential loans, not for anything else.
| bhawks wrote:
| I understand your sentiment but renting housing comes
| with significant legal protection for the renter. If the
| renter can't make their payments it is a long process to
| evict (no landlord wants to evict). This is a long-term
| relationship between renter and landlord. It seems
| reasonable to allow landlords to gauge the ability of
| tenants to make payment. They'd be doing this anyway, at
| least they're going thru a neutral mostly centralized
| group of third parties instead of judging from their gut
| (although that does happen too - but it'd be more biased
| if you eliminate credit checks).
| carbonguy wrote:
| > I think the author doesn't appreciate that the debt is being
| repaid... #1 we are doing gargantuan "stimulus" transfers of
| money... #2... IF any issuer of debt, like a bank, gets in
| trouble, like in 2008 or March 2020, they are bailed out.
|
| Changing who's holding the hot potato is not the same as
| repayment of debt. In both of your examples, it's the
| government who's assuming the debt from corporate debtholders
| who have (presumably) milked it for return already in the way
| the article describes. But, as you point out:
|
| > ...govt debt still needs to be repaid. But that can happen
| via #1 ["The US will become a net exporter (and to some degree,
| it always was) of inflation."], or via taxation.
|
| Taxation is a no-go - even if the political will could be
| mustered in the US to increase taxes, who are you as the
| government going to tax? The companies who were so indebted you
| had to bail them out, or the private individuals who've already
| been put through the wringer by the companies?
|
| So we have to export the debt in some way - but it stays debt,
| and it has to be paid.
|
| > Its just that the time horizon for repayment is so long, and
| hard to observe, that it may lead to the conclusion that the
| debt is not being repaid.
|
| I suspect that if it takes long enough then it doesn't really
| matter whether the debt is "repaid" in some technical sense
| because the negative outcomes associated with default will have
| already taken place.
| vkou wrote:
| > #1 we are doing gargantuan "stimulus" transfers of money.
| This money will serve 1 thing only: The US will become a net
| exporter (and to some degree, it always was) of inflation.
|
| This is incorrect, for two reasons.
|
| Firstly, because there are two ways that new money is created
| (which is what causes inflation).
|
| Those ways are fractional reserve banks issuing loans, and the
| printing presses at the Fed.
|
| In normal situations, the printing presses aren't running, and
| most new money is created through the fractional reserve
| banking system. In a recession, like the one we are in,
| fractional reserve banks stop lending, and thereby creating
| money - and the printing presses at the Fed fulfil that
| function, instead.
|
| We didn't go from 'no money being printed' to 'a lot of money
| being printed'. We went from 'a lot of money being printed by
| banks' to 'a lot of money being printed by the Fed.' The
| difference between those two things is not very large.
|
| Secondly, stimulus money isn't magical printed money that was
| just parachuted onto the economy, with no strings attached.
| It's money that the government borrowed - and will have to be
| paid back by taxpayers - like any other loan.
| solresol wrote:
| > Since all debt that matters is denominated in USD,
|
| Actually, most major economies borrow in either their own
| currency or in Euros (if they are in Europe).
| cryptica wrote:
| I agree about the problem but disagree about the solution.
|
| Forgiving debt would not only have a hyperinflationary effect on
| the currency since everyone will suddenly have massive surplus
| income but it's down right unethical. What about people who did
| not take on any debt? Will the government give them free money?
| How can we make it fair to people don't have any debt. Also, not
| everyone who has debt has the same amount of debt... Forgiving
| debts is akin to the banks giving free money only to people who
| have debts. It's ridiculous, why not give every person in the US
| 1 million dollars each? This should allow the vast majority of
| people to pay off their debts. That is still unfair though
| because massive hyperinflation won't give people the time to even
| spend their money so they would still be severely disadvantaged
| relative to debt holders who own assets.
|
| But anyway, debt forgiveness would completely destroy the fiat
| monetary system. Nobody will accept Dollars or Euros or any
| currency backed by a reserve bank which forgives debt because the
| amount of currency that would flood the system is unfathomable.
|
| The price of cryptocurrencies would double every hour, that kind
| of crazy.
| capncleaver wrote:
| Leaving aside whether debt is 'fair' (is it fair that
| productive assets like land are in the hands of a hereditary
| plutocracy?), there is some evidence that debt forgiveness can
| work -- indeed, it might have been a critical release valve in
| the development of early civilization.
|
| I can highly recommend David Graeber's book 'Debt: the first
| five thousand years' on this topic. He proposes modern 'Debt
| Jubilees' similar to these:
| https://en.wikipedia.org/wiki/Jubilee_(biblical)
|
| There's nothing to say that such a jubilee couldn't have means-
| testing or other 'fair' aspects incorporated into the design,
| it doesn't have to be blanket forgiveness. In Graeber's
| examples of ancient jubilees 'business' debts were, iirc,
| usually extempt.
|
| I agree it would be very disruptive to the existing order.
| nradov wrote:
| If we were to institute periodic debt forgiveness then the
| obvious result is that lenders would simply cease lending as
| the jubilee approaches. This would strangle some sectors of
| the economy.
| cryptica wrote:
| What about people who didn't inherit anything and don't own
| any assets and don't have any debt? What do I get?
|
| Does this mean I should go to the bank right now and take out
| 1 million in loans to buy crypto then wait for my debt to
| disappear? Why would the bank approve such loan?
|
| Some people couldn't even afford to get a loan. Forgiving
| debts will make house prices even more out of reach. These
| people would be absolutely evicerated since everyone else
| will basically get free money. These honest, cautious people
| will be the new lower class of society. It's criminal. Think
| of all the lawsuits... The court system won't even be able to
| handle it. There will be complete break down of all laws. I
| doubt private property laws will survive. You can be sure
| mafias of disgruntled individuals will form and take all your
| assets anyway.
|
| Maybe if the debt jubilee comes with complete forfeiture of
| all assets, then it makes a little bit more sense. But this
| will still be terrible for inequality at the very top.
|
| If we want to change the rules, the fairest thing that can be
| done is seize everyone's assets which are above a certain
| threshold net worth and redistribute them evenly to all
| citizens. Then we can talk about cancelling the debt.
| Otherwise I think we should just let things run their course.
|
| If you don't like your situation, why don't you pay a visit
| to the billionaires and politicians who put you in that
| position? Sort it out with them. Don't try to steal from
| decent people via monetary manipulation who are also victims.
| petermcneeley wrote:
| I wonder what will happen soon as an alternative society
| exists such that one with personal total debt can leave and
| start clean with 0 wealth ? Will they build a wall to keep
| those people in?
| D13Fd wrote:
| This is a dangerous line of thinking, although it's not even
| clear what Doctorow is proposing.
|
| It appears he may be advocating just erasing debt - meaning if I
| owe the bank $300k on my mortgage, I don't owe it any more and
| the bank has a $300k hole in its balance sheet.
|
| That would be absolutely insane, and would destroy our modern
| system of finance as we know it. That means interest rates will
| go absolutely through the roof, because lenders would bear the
| risk of complete default if the government randomly forgives
| loans again (are we even going to allow loans any more in that
| scenario?). It also means that everyone who is in debt will
| receive a massive windfall, while those who have lived frugally
| will be punished. Most banks would instantly be out of business.
|
| So I guess he means that the government will "forgive" debt by
| repaying it for you? That's like half a step better, but would
| result in disastrous inflation. Even if we're just talking about
| consumer debt (we're not, since he also mentions bonds), that
| amount is around $14T, not far below the total money supply
| (~19T). So either the government is going to more or less double
| the money supply by printing currency, or it's going to add
| nearly 50% to the national debt.
|
| If it doubles the money supply, then everyone will be hit with
| massive inflation, meaning the money you have right now will be
| worth about half as much.
|
| If it ratchets up the national debt, then we'll all be repaying
| it eventually in the form of taxes and lost government services.
|
| All because he doesn't want people to have to pay for for the
| Tesla or Samsung smartphone that they bought (his examples)?
| cryptica wrote:
| If they double the money supply by putting the new money in the
| hands of regular citizens, the resulting inflation will be
| much, much worse than just halving of buying power.
|
| Because given extremely high inequality, 100% of the total
| money supply might very well represent 1000 times the money
| supply which is actually in the hands of average citizens. Most
| of the current fiat is concentrated in very few hands and it's
| not being spent on consumables - That's the only reason why we
| don't already have massive hyperinflation in consumables.
| solresol wrote:
| It's called the year of jubilee. It's not insane, and it has
| been applied to developing nation debt. A lot of thinking has
| gone into what wide-scale debt forgiveness might look like.
| ssivark wrote:
| The bureaucratic thicket of financialization helps fuzz out the
| underlying reality that there are significant costs to
| participating in society today (access to housing, energy,
| transport, internet/communications, education... most of which
| require taking on loans). The propensity for debt masks the
| severe lack of equity (literal financial equity, not just a lack
| of fairness) in access to resources. The credit system is then
| perfectly set up to enable cabals controlling access to extract
| rents while appearing polite. Sophisticated arm-breakers indeed.
|
| Quite besides the abstract economic concerns which can be
| ameliorated by moving around numbers in ledgers, the true cost of
| a zombie economy is the tragedy of billions of human lives wasted
| away because of the (engineered) difficulty in integrating with
| society in a smooth manner. Makes one wonder whether there are
| good reasons why several cultures/religions forbade usury.
| oxymoran wrote:
| While I agree with a lot of this, some of this is just juvenile.
| Like the repo of "your Tesla". It's not "your Tesla" until you
| have fully paid for it. Your monthly payments are paying for the
| use that you have incurred to date. If you stop paying, Tesla
| will take THEIR car back.
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