Posts Tagged ‘debt’
“A creditor is worse than a slave-owner; for the master owns only your person, but a creditor owns your dignity, and can command it.”*…
Developing countries around the world are deeply in hock. According to UNCTAD (UN Trade and Development), global public debt reached a record high of $102 trillion in 2024. Although public debt in developing countries accounted for less than one third of the total – $31 trillion – it has grown twice as fast as in developed economies since 2010. Those developing nations had debt service on that external public debt of $487 billion in 2023– which meant, for half of them, paying at least 6.5% of export revenues to service external public debt. More practically, that means that 3.4 billion people are living in countries that spend more on interest than on healthcare or education. [See the UNCTAD fact sheet here.]
Not surprisingly, developing countries sometimes fall sufficiently behind to call their loans into question. When that happens, an under-the-radar “informal group” of creditors– the Paris Club– gets together to negotiate a way forward…
The Paris Club is an informal group of official creditors whose role is to find coordinated and sustainable solutions to the payment difficulties experienced by debtor countries. As debtor countries undertake reforms to stabilize and restore their macroeconomic and financial situation, Paris Club creditors provide an appropriate debt treatment. Paris Club creditors provide debt treatments to debtor countries in the form of rescheduling, which is debt relief by postponement or, in the case of concessional rescheduling, reduction in debt service obligations during a defined period (flow treatment) or as of a set date (stock treatment).
The origin of the Paris Club dates back to 1956 when Argentina agreed to meet its public creditors in Paris. Since then, the Paris Club has reached 484 agreements with 102 different debtor countries. Since 1956, the debt treated in the framework of Paris Club agreements amounts to $616 billion.
The 22 members of the Paris Club are mostly the larger OECD members, plus Russia. South Africa is a prospective member, and China and India are Ad Hoc members. Organizations like the IMF, the World Bank, the African Development Bank, the Asian Development Bank, the Inter-American Development Bank, and the OECD are “observers.” Participants representing members are government officials. The U.S., for instance is represented by a State Department official (relying on positions formulated by the Treasury Department).
Sven van Mourik puts all of this into context…
In today’s world, finance is dominated not by states, but by private actors. The market capitalization of a company like Apple in December 2023 reached $3 trillion, exceeding the combined GDP of at least 140 countries. Last year, global private financial assets reached a record $291 trillion, of which some 50 percent is concentrated in North America. By contrast, the world’s nations together owed a global public debt of a record $102 trillion in 2024, of which so-called “developing” countries owe $31 trillion. While there’s a playbook for private debt and corporate bankruptcy, it’s a different story for the official debt owed by nation states. What happens when a state can no longer repay its foreign creditors?
Following a deep global debt crisis in the early 1980s, the world’s poorest states struggled to service impossible debts to foreign capital, leading to widespread revolts and humanitarian crises across the formerly colonized, developing countries of the Global South. Following the COVID-19 pandemic of 2020, the burden of this public debt is once again immense…
[van Mourik reviews some of the startling statistics cited above…]
… It is puzzling to see states prioritize the servicing of foreign debt, even when it directly harms their populations. Why not default? Experts at the International Monetary Fund and World Bank in Washington, D.C. claim that “there is no alternative” to what has become an ossified response to sovereign debt crises: cut the government budget, facilitate the private sector and grow your economy to repay your foreign debt. But what about when a state, fully cooperative with the policy measures prescribed by these institutions, still cannot repay its debts?
As a financial historian, this question led me to investigate a creditor that routinely takes center stage as countries attempt to navigate sovereign default, an institution so secretive that it has largely escaped the public eye. The Paris Club, an informal forum of representatives from creditor countries largely in the Global North, has steered the destinies of nations in financial peril, restructuring over half a trillion dollars in sovereign debt since its first meeting in 1956. Without its approval, countries face default and can effectively be prevented from accessing long- and short-term trade credit — credit that facilitates the uninterrupted flow of goods across borders, and can be compared to a country’s life blood. Without it, states are unable to access vital imports like food, fuel and medicine.
The Paris Club convenes to set up a new payment schedule for a country at risk of defaulting on its “official” debt owed to other countries. It is unique in that despite its pivotal role, it remains an informal institution. It comprises 22 major creditor countries, including the United States, Germany and France, and occasional ad hoc participants like India and China, which together coordinate reduced or rescheduled debt payments for a country facing default.
The Paris Club itself doesn’t lend new money. Instead, it “treats” a country’s debt payment schedule, either through rescheduling interest payments or, since the late 1980s, by offering the poorest countries a “haircut” and partially restructuring the debt. In its 70-year history, including the recent Debt Service Suspension Initiative, the Paris Club has treated a total of $863 billion of debt for 102 countries through 543 agreements; this amounts to around two-thirds of the world’s sovereign debt restructurings through 2010. A staggering legacy for a group that lacks any public oversight. With some pride, former chairmen of the Paris Club’s secretariat have called the Club a “non-institution” and “totally discreet if not secretive.”…
[van Mourik unpacks the operations of the Club and explains its symbiotic relationship with the IMF and its “structural adjustment” programs– AKA “austerity,” the reduction of debtor government expenses, often on social welfare, education, and healthcare (and often to painful effect)
… While the Paris Club rescheduled debt payments, the IMF designed programs that served to optimize a country’s ability to pay back interest and principal; the arrangement has over the years evolved into a debt restructuring routine in which debtor countries have little say.
The IMF today remains an institution in which the countries of the Global North have nine times more voting power than the countries of the Global South, as voting rights are tied to economic weight. In the Paris Club, a similar power differential is reflected in the spatial and temporal arrangement of the procedures, which borders on the theatrical. A debtor country’s delegation only ever confronts its creditors alone and is required to leave the room when they deliberate to set the terms of a deal…
[van Mourik explores the consequences of these deals, concluding…]
… creditor-dominated organizations like the IMF and the Paris Club allow rich countries to remain at the helm of a sinking ship. After all, as economist Daniel Munevar concluded following the COVID-19 pandemic, continuing within our current framework of debt servicing would “sound the death knell” for the world’s climate ambitions, as it prevents debtor countries from implementing the costly policies needed to meet ambitious climate targets. Others conclude that a serious degrowth strategy, one that prioritized ecological sustainability and social well-being over growth for its own sake, would require the countries of the Global South to default.
Various formations of countries across the Global South have proposed debt restructuring regimes, like the UN Framework Convention on Debt, that would “improve the fairness and transparency of debt resolution mechanisms.” Gabor, the economist, has called this new UN framework “a bid to wrest deliberative control away from the closed-door clubs where Northern financial might prevails.”The question is under what circumstances such strategies might be successful. Despite the Paris Club’s inclusion of non-Western members like Korea and Brazil, or the IMF and the Paris Club’s recent collaboration with China and the G20, the deck remains stacked against low-income borrowing countries, who “have little voice in any of these fora.”
The deeper challenge for all states is to reform a global financial architecture that evolved based on the interests of a handful of Western creditor states, at the cost of austerity and social destruction elsewhere. Debtor countries that wish to retain access to global markets — even for the most vital imports — must participate, and service their debt within regulatory frameworks over which they have no control and which have proven to be defective…
Who really controls international debt? “The Quiet Powerbroker,” from @thedialmag.bsky.social.
All this said, it’s important to note that in fact an alternative is emerging, but not one that’s in the spirit of the UN Framework. Even before the Trump Administration took the U.S. off the field, China had become the world’s largest development lender.
“How China Lends: A Rare Look into 100 Debt Contracts with Foreign Governments“:
We collect and analyze 100 contracts between Chinese state-owned entities and government borrowers in 24 developing countries in Africa, Asia, Eastern Europe, Latin America, and Oceania, and compare them with those of other bilateral, multilateral, and commercial creditors. Three main insights emerge. First, the Chinese contracts contain unusual confidentiality clauses that bar borrowers from revealing the terms or even the existence of the debt. Second, Chinese lenders seek advantage over other creditors, using collateral arrangements such as lender-controlled revenue accounts and promises to keep the debt out of collective restructuring (“no Paris Club” clauses). Third, cancellation, acceleration, and stabilization clauses in Chinese contracts potentially allow the lenders to influence debtors’ domestic and foreign policies. Even if these terms were unenforceable in court, the mix of confidentiality, seniority, and policy influence could limit the sovereign debtor’s crisis management options and complicate debt renegotiation. Overall, the contracts use creative design to manage credit risks and overcome enforcement hurdles, presenting China as a muscular and commercially-savvy lender to the developing world.
For a fascinating and illuminating on-the-ground consideration of these issues, see/hear Mary Kay Magistad‘s On China’s New Silk Road.
* Victor Hugo
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As we redesign debt, we might send thoughtful birthday greetings to Jean-Jacques Laffont; he was born on this date in 1947. An economist, he made pioneering contributions in public economics, development economics, and the theory of imperfect information, incentives, and regulation. Over the course of his career, he wrote 17 books and more than 200 articles. His 1993 book A Theory of Incentives in Procurement and Regulation, written with Jean Tirole, is a fundamental reference in the economics of the public sector and the theory of regulation. Laffont died in 2004; had he lived, he might well have shared the 2014 Nobel Prize for Economics awarded to his colleague and collaborator Jean Tirole for the work they did together.
He was uninvolved in the Paris Club; indeed, his last book, Regulation and Development, discussed policies for improving the economies of less developed countries in ways more consistent with the UN’s new framework than the IMF’s old-but-still-dominant playbook.
“Language is the road map of a culture. It tells you where its people come from and where they are going”*…
From Colin Gorrie, how our world also shapes our language– and in the example he uses, also our sense of duty…
Debt is old. It’s older than writing. The first writing system, Sumerian cuneiform, evolved out of marks used for accounting. From the beginning, writing was used to track who had what, and, crucially, who owed what to whom.
The influence of debt also extends to language more generally. In many languages, including English, the experiences of owing and being owed provided the blueprint for more abstract notions of duty, necessity, and obligation.
Words meaning ‘to owe’ developed into abstract expressions of obligation so often that it’s useful to have a name for the phenomenon. I call it the owe-to-ought pipeline, named after one of the clearest cases of this development. The word ought is, in fact, nothing but the old past tense form of owe.
This pipeline shows us something about how language changes and develops over time. First, it shows how easily words can slide from one meaning to another, although that’ll be no surprise to anyone who has watched the development of slang over a few decades.
The more important lesson owe-to-ought teaches us has to do with where grammar comes from. Wait, don’t run away! This isn’t a grammar lesson. What I want to show you is how languages create grammar — a collection of abstract meanings such as plurality and verb tense — out of the concrete realities of our shared human experience.
And what human experience is more common than debt?
This is the story of three families of words: owe, should, and the word debt itself. Understand these three families, and you’ll understand how the English language built its way of expressing duty, necessity, and obligation — not to mention guilt and sin — out of the raw materials of accounting…
A case study in how our vocabulary (and our sense of obligation) evolved: “How debt shaped the way we speak,” from @colingorrie.bsky.social.
* Rita Mae Brown
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As we acknowledge our antecedents, we might recall that it was on this date in 1950 that Rose Marie Reid was granted one of her several patents, US2535018A. A swimwear designer and manufacturer, Reid has already been the first swimsuit designer to use inner brassieres, tummy-tuck panels, stay-down legs, elastic banding, brief skirts, and foundation garments in swimwear, and the first designer to introduce dress sizes in swimwear, designing swimwear for multiple sizes and types of bodies, rather than just producing one standard size. This patent was, in its way, even more revolutionary– it was for a one-piece bathing suit made of elastic fabric “embodying a novel construction for causing it to snugly fit the body of a wearer in a flattering manner [that would] shape and support portions of the body of the wearer in areas of the bust and abdomen in a flattering manner without discomfort or impedance to free movements of the body.” The elastic fabric and elastic securing bands were designed to enable the garment to be put on without having buttoned openings which would “detract from the appearance of the garment.”
Reid assigned her patent to her company and enjoyed huge sales success, in part due to her impact in Hollywood and the motion picture industry. Famous screen actresses (e,g, Rita Hayworth, Marilyn Monroe, Jane Russell, and Rhonda Fleming) wore her swimsuits. And her suits also appeared in several California beach party films from the late 1950s and the early 1960s, including Gidget, Muscle Beach Party, and Where the Boys Are.
“The ultimate hidden truth of the world is that it is something we make and could just as easily make differently”*…
As a new collection of his writing is published, Rebecca Solnit remembers her friend David Graeber, the late activist and anarchist who believed ordinary people have the power to change the world…
David Graeber was a joyful, celebratory person. An enthusiast, voluble, on fire with the possibilities in the ideas and ideologies he wrestled with. Every time we met – from New Haven in the early 00s to London a few years before his death in 2020 – he was essentially the same: beaming, rumpled, with a restless energy that seemed to echo the constant motion of his mind, words tumbling out as though they were, in their unstoppable abundance, overflowing. But he was also much respected in activist circles for being a good listener, and his radical egalitarianism was borne out in how he related to the people around him.
He was always an anthropologist. After doing fieldwork among traditional peoples in Madagascar, he just never stopped, but he turned his focus to his own society. Essays such as Dead Zones of the Imagination: On Violence, Bureaucracy, and ‘Interpretive Labor’ and his book Bullshit Jobs came from using the equipment of an anthropologist on stuff usually regarded as boring, or not regarded at all – the function and impact of bureaucracy. His 2011 bestseller on debt reminded us that money and finance are among the social arrangements that could be rearranged for the better.
He insisted, again and again, that industrialised Euro-American civilisation was, like other societies past and present, only one way of doing things among countless options. He cited times when societies rejected agriculture or technology or social hierarchy, when social groups chose what has often been dismissed as primitive because it was more free. And he rejected all the linear narratives that present contemporary human beings as declining from primordial innocence or ascending from primitive barbarism. He offered, in place of a single narrative, many versions and variations; a vision of societies as ongoing experiments, and human beings as endlessly creative. That variety was a source of hope for him, a basis for his recurrent insistence that it doesn’t have to be this way.
As Marcus Rediker wrote in his review of David’s posthumous book Pirate Enlightenment, “Everything Graeber wrote was simultaneously a genealogy of the present and an account of what a just society might look like.” He was concerned about inequality of all kinds, including gender inequality in this society and others, and the violence that enforces inequality and unfreedom, as well as how they might be delegitimised and where and when societies might have escaped them. He focused, in short, on freedom and its impediments…
…
… The way that, as he wrote, “The ultimate hidden truth of the world is that it is something we make and could just as easily make differently.” If you truly believe that, if you perceive a world that is constructed according to certain assumptions and values, then you see that it can be changed, not least by changing those assumptions and values.
We have to recognise that ideas are tools that we wield – and with them, some power. David wanted to put these tools in everyone’s hands, or remind them that they are already there. Which is part of why he worked hard at – and succeeded in – writing in a style that wasn’t always simple but was always as clear and accessible as possible, given the material. Egalitarianism is a prose style, too. Our mutual friend the writer, film-maker, and debt abolitionist Astra Taylor texted him: “Re-reading Debt. You are such a damn good writer. A rare skill among lefties.” He texted back that August, a month before his demise: “Why thanks! Well at least I take care to do so – I call it ‘being nice to the reader,’ which is an extension of the politics, in a sense.”
In order to believe that people can govern themselves in the absence of coercive institutions and hierarchies, anarchists must have great faith in ordinary people, and David did. A sentence Lyndsey Stonebridge wrote about Hannah Arendt could apply equally well to him: “To fixate on her exceptional mind is to miss something that is important about her lessons in thinking: thinking is ordinary, she teaches; that is its secret power.”…
An edited extract from Solnit’s foreword to The Ultimate Hidden Truth of the World by David Graeber: “‘It does not have to be this way’- the radical optimism of David Graeber,” from @RebeccaSolnit in @guardian.
* David Graeber
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As we promote possibility (and remember that on this date in 1973 then-President Richard Nixon averred in a speech that “I am not a crook”), we might send never-ending birthday greetings to August Möbius; he was born on this date in 1790. An astronomer and mathematician, he studied under mathematician Carl Friedrich Gauss while Gauss was the director of the Göttingen Observatory. From there, he went on to study with Carl Gauss’s instructor, Johann Pfaff, at the University of Halle, where he completed his doctoral thesis The occultation of fixed stars in 1815. In 1816, he became Extraordinary Professor in the “chair of astronomy and higher mechanics” at the University of Leipzig, where he remained for the rest of his career.
While he was an influential professor, he is best remembered for his creation of the “Möbius strip.”
“Wealth does not consist in money or in gold and silver, but in what money purchases”*…
For millennia, simple forms of record-keeping have been used as ways to keep track of debt, to substitute for the contemporaneous conveyance of specie, or to accommodate the future settlement and netting of debts. In England, tally sticks were regularly used. From Paolo Zannoni, an excerpt from his book, Money and Promises, via Richard Vague and his invaluable Delancey Place…
A tally is usually a stick, or a bone, or a piece of ivory — some kind of artefact — that is used to record information. Palaeolithic tallies include the Lembombo bone, found in the Lembombo Mountains in southern Africa, reported to date from around 44,000 BC; the Ishango bone, which consists of the fibula of a baboon, from the Democratic Republic of the Congo (the former Belgian Congo), thought to be 20,000 years old; and the so-called Wolf bone, discovered in Czechoslovakia during excavations at Vestonice, Moravia, in the 1930s, and estimated to be around 30,000 years old. Marked with notches and symbols, these tallies are ancient recording devices, means of data storage and communication. Not merely artefacts, they are important historical documents.
In England, from around the twelfth century, and for over 600 years, tallies became important financial instruments, a key part of public finance and an answer to a perennial problem for money-lenders, merchants and those involved in commerce and trade: how to both facilitate and record the exchange of goods, services and commodities. Reading these English tallies, understanding their history and their changing use, provides us with an understanding not only of the nature of individual financial transactions during the late medieval and early modern period, but also of the development of banking practices in England and its relationship to the English state.
Usually made of willow or hazelwood, tallies were used to record the key information of a financial exchange. The name of the parties involved, the specific trade and the date were written on each side of a stick. Notches of different sizes — which stood for pounds, shillings, and pence — were also cut on both sides. Then the stick was split in two along its length, creating a unique jagged edge; only those two pieces could ever fit perfectly together again. When someone presented one side as proof of a transaction, the parties could check for the right fit.
The potential uses for such a simple tool are obvious.
To begin with: an example of the early use of tallies as a record of debt repayment. John D’Abernon was the Sheriff of Surrey. His portrait in brass, in Stoke D’Abernon Church, Cobham, shows him as a knight in full armour, wielding a broadsword.
When he died, D’Abernon left his title, possessions and debts to his son, also named John. In 1293, we know that John D’Abernon gave two pounds and ten shillings to the Exchequer to pay a fine on behalf of his father. How do we know? Because at the time of payment, the official tally cutter made a series of notches on a stick: two cuts for the two pounds and one smaller notch for the ten shillings. The stick was then split, with the longer end going to John, and the shorter end staying with the Exchequer. The following words were inscribed on both sides: ‘From John D’Abernon for his father’s fine’ and ‘XXI year of the King Edward’.
John could thus prove to anyone that he had paid the fine of his father — simple and convenient.
Tallies also enabled the functioning of the tax system in medieval England, which was a rather more complex affair. The process took months to complete. It worked roughly like this. Tax receivers collected
revenues from the King’s subjects at Easter. They then passed them on to the Exchequer, which completed an audit in late September or early October. At the time, the Exchequer had two branches: the Lower and the Higher. The Lower Exchequer received and disbursed the revenues. The Higher Exchequer audited the process. They used tallies to track who had paid whom. As soon as the Lower Exchequer received the revenues, the tally cutter recorded the payment on the tally and split the stick. The tax receiver — the debtor — got the longer part, called the ‘stock’. The Exchequer — the creditor — kept the short end of the stick, called the ‘foil’. And once a year, at Michaelmas, the Higher Exchequer audited the whole process by matching stocks and foils. The stock was the proof that the collector had not merely pocketed the tax revenues.Over time, both the use and appearance of the tallies began to change: in the early years, tallies were 3 to 5 inches long; later, they grew to be 1 to 2 feet long, and sometimes much longer. More money meant more notches; more notches, in turn, required longer sticks. One of the last issues of tallies made by the English Exchequer was in 1729, for £50,000: the tally is a whopping 8 feet, 5 inches long, visible proof of the growth of public spending, taxation and inflation.
As the appearance of the tallies changed, so too did their uses. Inside the Exchequer, they served as receipts for money paid by taxpayers. Outside the Exchequer, they began to be put to entirely different purposes.
The business of the Exchequer simply could not work without the tally sticks. They were essential for auditing and controlling public finances, which obviously made them excellent collateral for a loan.
The tally was not a mere generic promise to pay, but a strong, unique claim on the proceeds of the Exchequer’s revenue stream. It identified the cashflow and the individual in charge of paying; the creditor gave the stock to the indicated tax receiver to get coins from a specific revenue stream, and a lender was sure to get his coins sooner or later. The humble English tally stick was therefore ripe to become a veritable public debt security, not merely a receipt. They functioned just like paper public debt securities, except instead of being written on paper, the transactions were instantiated and inscribed on sticks.
To take an early example: Richard de la Pole was a merchant who traded wool, wine and corn with France and central Europe in the early 1300s. He had a reputation for using debts aggressively to grow his business, which appealed to King Edward III and his advisors, who thought they might be able to make use of his skills. So, they appointed him Royal Butler. The job of butler was to supply all sorts of goods — food, wine and arms — to the royal household and to the army. We know that in 1328 Richard bought some wine from the French. As a good businessman, as Royal Butler, did he pay for the wine in coins? He did not. Rather, in order to pay the bill, the Lower Exchequer cut eight tallies, which were addressed to the collectors of taxes for West Riding in Yorkshire, listing the tax revenues earmarked to settle the debt. The Lower Exchequer gave the foils — one half of all the eight tallies — to Richard, who handed them to the merchants who sold him the wine. The merchants then exchanged the tallies with coins from the taxes paid in West Riding, and finally, a few months later, the Higher Exchequer called upon the tax receivers to account for the shortfall of cash, whereupon they presented the eight foils, which had been first given to Richard, as proof of the payments made.
To be clear: unlike coins, tallies did not actually settle debt. By accepting a foil, a vendor was effectively agreeing to a delayed payment from the Exchequer; the tally was a kind of guarantee that they would get coins. For the state, meanwhile, the tally was a convenient way to borrow from its suppliers, or a form of what we would now call vendor financing — the citizens and merchants who sold goods and services for tallies were effectively financing the state, in much the same way as those who lent actual coins to the Exchequer…
How record-keeping became finance: “Tally Sticks for Money,” via @delanceyplace.
Having looked back, we’d do well to heed Jack Weatherford‘s admonition (in his 1997 book The History of Money):
As money grows in importance, a new struggle is beginning for the control of it in the coming century. We are likely to see a prolonged era of competition during which many kinds of money will appear, proliferate, and disappear in rapidly crashing waves. In the quest to control the new money, many contenders are struggling to become the primary money institution of the new era…
* Adam Smith
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As we contemplate currency, we might recall that it was on this date in 1888 that William Seward Burroughs of St. Louis, Missouri, received patents on four adding machine applications (No. 388,116-388,119), the first U.S. patents for a “Calculating-Machine” that the inventor would continue to improve and successfully market– largely to businesses and financial institutions. The American Arithmometer Corporation of St. Louis, later renamed The Burroughs Corporation, became– with IBM, Sperry, NCR, Honeywell, and others– a major force in the development of computers. Burroughs also gifted the world his grandson, Beat icon William S. Burroughs.
“To tie [the debt ceiling] to something about whether you break the promises of the United States government to people all over the world as well as its own citizens, just makes no sense. So it ought to banned as a weapon, it should be like nuclear bombs, basically too horrible to use”*…
As the battle over the debt ceiling continues, Treasury Secretary Janet Yellin warns that the U.S. could run out of (available) money by early June– and that this could have dire consequences.
The estimable economist, investor, government official, and scholar Richard Vague argues that objections to raising the ceiling are rooted in a fundamental misunderstanding of the impact of government debt…
With the pending battle over the debt ceiling, we are once again hearing concerns about the magnitude of our national budget deficit and the seemingly overwhelming size of our national debt. Given those concerns, it is important to have a clear understanding of how deficits and debt impact the U.S. economy. For that, we need to look at the overall financial status of not just the U.S. government, but of U.S. households too.
In 2020, during the darkest hours of the global coronavirus pandemic, the U.S. government spent $3 trillion to help rescue the country’s—and, to some extent, the world’s—economy. This infusion of cash increased government debt and thus reduced government wealth by almost the entirety of that frighteningly large amount—the largest drop in nominal U.S. government wealth since the nation’s founding. Surely something this unfavorable to the government’s financial condition would have broad, adverse financial consequences.
So what happened to household wealth during that same year? It rose. And it grew by not just the $3 trillion injected into the economy by the government, but by a whopping $14.5 trillion—the largest recorded increase in household wealth in history.
Given the pending debate on the debt ceiling, and the perennial debates on spending that dominate the halls of Congress, it is crucial to understand the relationship between government debt and household wealth. Conventional wisdom states that the government is incurring debt that will burden our children and grandchildren, yet the data shows that households already have the funds generated by this debt as part of their current wealth. In 2022, the prestigious Peter G. Peterson Foundation argued: “Federal borrowing…crowd[s] out new investment,” yet household wealth has increased dramatically in the very period that this debt has grown most rapidly. The policy decisions we make on spending should be informed by the data on debt and wealth…
The effects of government debt on households– and industry and inflation– aren’t the catastrophe that many would have us believe; in fact, the opposite: “The Truth About Government Debt,” from @delanceyplace in @DemJournal.
See also: Brad DeLong: “Print the Perpetual (Consol) Bond” and “The US Inflation Reduction Act is already brightening the outlook for energy and industrial firms.”
* Warren Buffett
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As we get our facts straight, we might note that today is Twilight Zone Day, a celebration of Rod Serling’s masterful series, The Twilight Zone (See also here and here).
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