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I was looking at some debt figures the other day, and asked myself how much debt is actually cancelled out by a contra transaction?

What if netted out there was zero debt? Other more direct World order and PO related questions spring to mind as well.

Quinny wrote:I was looking at some debt figures the other day, and asked myself how much debt is actually cancelled out by a contra transaction?

What if netted out there was zero debt? Other more direct World order and PO related questions spring to mind as well.

Debt is to the economy what fertilizer is to a field of crops. A little bit can stimulate growth and produce a healthy bountiful result, but too much acts like a poison killing the soil and making the future crop totally dependent on further fertilizer stimulation. Debt is like that for the economy in that a small amount paid off annually can act like a stimulant making it easier to pay off the incurred debt load, however once you accumulate too much debt your economic system becomes dependent upon it to maintain function.

The Roman empire operated on the original model where the wealthy would loan money short term and reap the benefit of the pay off from the economy. This model of economics works so long as the currency is tied to something, and it doesn't matter much what it is tied to so long as their is a fixed limited supply of it. Base metal, precious metal, land, slaves, livestock... All are limited in how fast they can be expanded in supply so that limits the debt load possible for the next year.

Fiat currencies are a whole different ball of string because they grow or (rarely) shrink by fiat, the will of the government issuing them and they shift from representing wealth to representing debt. If every American in the country were to simply take one dollar bill out of their pocket and burn it today that would decrease the money supply by say $200,000,000.00 In theory this would shrink the money supply by an equal amount and increase the value of the remaining money by a small percentage. However the ability to do this is almost eliminated by the fact that in our current culture about 99% of money is actually in the form of a digital illusion, just numbers in a bank ledger without even a paper dollar of physical substance to give it meaning.

Tanada wrote:

Quinny wrote:I was looking at some debt figures the other day, and asked myself how much debt is actually cancelled out by a contra transaction?

What if netted out there was zero debt? Other more direct World order and PO related questions spring to mind as well.

Debt is to the economy what fertilizer is to a field of crops. A little bit can stimulate growth and produce a healthy bountiful result, but too much acts like a poison killing the soil and making the future crop totally dependent on further fertilizer stimulation. Debt is like that for the economy in that a small amount paid off annually can act like a stimulant making it easier to pay off the incurred debt load, however once you accumulate too much debt your economic system becomes dependent upon it to maintain function.

Well said. How would almost anyone under middle age EVER afford a house in the first world without the mortgage market? How would almost ANY small business get started or meaningfully grow without business loans (or the stock and bond markets)?

Without any debt, the economy would be a much more constrained thing.

Debt is a good thing, but like many good things, it's only good net, if it's used wisely.

Now of course, ask 1000 people what using debt wisely means -- and you may get 100+ different answers, and several good ones.

Tanada wrote:Fiat currencies are a whole different ball of string because they grow or (rarely) shrink by fiat, the will of the government issuing them and they shift from representing wealth to representing debt. If every American in the country were to simply take one dollar bill out of their pocket and burn it today that would decrease the money supply by say $200,000,000.00 In theory this would shrink the money supply by an equal amount and increase the value of the remaining money by a small percentage. However the ability to do this is almost eliminated by the fact that in our current culture about 99% of money is actually in the form of a digital illusion, just numbers in a bank ledger without even a paper dollar of physical substance to give it meaning.

For a currency which isn't based on some objective standard which can't be inflated, how much "meaning" can it have?

Once the US closed the gold window (no longer allowing paper dollars to be redeemed for gold), for example -- the dollar is no longer tied to anything except politicians promises and peoples' confidence.

So once that happens, I don't understand how paper dollars (which are intrinsicially worth almost nothing) are anything to feel better about than bank ledgers. Either the politicians running things can be trusted not to misbehave, or not.

At least, gold (or diamonds, or something with tangible, objective value based on scarcity) can't be inflated away at the whim of politicians. And, virtually all paper currencies get destroyed by inflation over time. (I don't think digitical currencies will be any different. Blockchain or not -- they can always invent many, many more).

Quinny wrote:how much debt is actually cancelled out by a contra transaction?

Back in the 1970s I read a book called (if I remember correctly) "The death of the Dollar". I know there have been changes in the laws covering banks going bankrupt, but at the time of the writing the concern was that if a bank went bankrupt then the deposits would be lost but the debts would remain on the books. So the advice was if you have any free money in the bank use it to pay down your debts so if there was a crash you would not be liable for so much. Now there are guarantees of depsoits, but if a large number of banks collapsed there is not enough insurance money to cover all guaranteed deposits, so the guarantees might not be honoured.

As I worked for a small organisation as the financial department (only me in it) I was faced by at least four separate major financial crises (the first one shrunk the organisation by over 50%) in nearly 22 years. In thinking of these I wondered how much debt could be cancelled out in a full blown financial crisis (related to the organisation) and the answer was very little. The chains of debt are long and complicated and while I would have been able to unravel some of the debt (eg some small loans/salary advance to staff) most of it lay outside my control. So I think that while theoretically it should be able to cancel out a lot of the debts it is likely to be too complicated to do.

Practically the only thing I could do was to try and pay down my own debts (housing mortgage) at a faster rate than I needed too.

Outcast_Searcher wrote:

Tanada wrote:Fiat currencies are a whole different ball of string because they grow or (rarely) shrink by fiat, the will of the government issuing them and they shift from representing wealth to representing debt. If every American in the country were to simply take one dollar bill out of their pocket and burn it today that would decrease the money supply by say $200,000,000.00 In theory this would shrink the money supply by an equal amount and increase the value of the remaining money by a small percentage. However the ability to do this is almost eliminated by the fact that in our current culture about 99% of money is actually in the form of a digital illusion, just numbers in a bank ledger without even a paper dollar of physical substance to give it meaning.

For a currency which isn't based on some objective standard which can't be inflated, how much "meaning" can it have?

Once the US closed the gold window (no longer allowing paper dollars to be redeemed for gold), for example -- the dollar is no longer tied to anything except politicians promises and peoples' confidence.

So once that happens, I don't understand how paper dollars (which are intrinsicially worth almost nothing) are anything to feel better about than bank ledgers. Either the politicians running things can be trusted not to misbehave, or not.

At least, gold (or diamonds, or something with tangible, objective value based on scarcity) can't be inflated away at the whim of politicians. And, virtually all paper currencies get destroyed by inflation over time. (I don't think digitical currencies will be any different. Blockchain or not -- they can always invent many, many more).

Ah, you misunderstand my scenario. I am not saying it would ever be likely for 200,000,000 million people to each destroy a physical dollar bill and deflate the inflationary pressure by a very small fraction. However so long as every ledger dollar had a physical representation in the form of a paper dollar such an act was theoretically possible. Today a great percentage of ledger dollars have no physical representation at all because they were created as ledger entries purely at the fiat of the authorities who have the capability of doing so. This has completed the divorce between tangible money and ledger money completely and now the only thing remaining to give American dollars value is faith in the system. If anything breaks that faith in the mind of the world population all those ledger dollars become nothing, there is not even more than about 1% of the printed paper dollars in existence to replace them.

The Authorities love the idea of a 'cashless, digital' society because they see the advantages of being able to create money by fiat without the step of printing and distribution to slow down the process. Those same Authorities believe they can prevent anything from ever disrupting the faith of the average human being in the value of those digital dollars being lost.

I am not so sanguine about the infinite capacity of Authoritarians to believe in their own capacity to convince and lead as they are. All it takes is a lapse and we are back to barter overnight until someone comes up with a new monetary system that people will trust.

The Federal Reserve system, and all the major central bank systems are based on "credit money." Money is issued by commercial banks when they fund loans. The bank itself does not have the money to lend, rather it has the power to create and issue money. This is not the way other money systems work, but it is how the FED, ECB, Bank of Japan, PBOC, etc. operate. Money, among other things, is a way of managing accounts in a public manner. For example, the $20 in your wallet tells the world you have 20 units positive. Otherwise they have to trust your check or credit card, i.e. believe you are a good debtor. Debt is not the same as money, but the two are often intertwined as they are in the FED system. So, under the FED system, if there was zero debt, there would be zero money. Of course, people would quickly create a money system of some sort and it is not necessary to have a system that combines debt with money, but then the FED and the ruling class it supports would not have their dominant position. So, the best answer is if there was zero debt the FED and the ruling class would be replaced with something else.

Since the idea of a "jubilee" goes back at least as far as the old testament, It's clear that societies, economies, and religions understood the need for a reset of things.

Drawn from the Old Testament book of Deuteronomy, the concept derives from the biblical injunction for a day of rest one day out of every week, a “sabbath” day that reflects the teaching the God rested on the seventh day after creating the world in six.

There is another injunction for a sabbath year every seventh year, in which people are to not work, and on the year after the seventh of those sabbatical years , i.e. the 50th, (one year after the 49th) there would be a jubilee year during which any slaves would be emancipated and everyone would return to their land and family to live off of natural providence. A clear implication of this teaching is that all obligations, including debt obligations, would be forgiven in the process.
https://theconversation.com/the-debt-ju ... isis-11816

On the other hand, this was rarely practiced and economic resets tended to be organic and occur on their own as societies went into economic overshoot. Attempts to further cheat the system generally increased as the inevitable reset approached. Layers of debt and complexity pile up until the system implodes. Tainter and others have reminded us of this, and, historically, there is no escaping the end result of economic reset. How these resets play out varies, but I posit that our current global system, especially with the use of technology, is over-leveraged to an extraordinary extent and will have an unprecedented reset (which is normally an attempt at rebalancing things), and fear that our level of overshoot (out-of-balance condition) relative to the carrying capacity of our environment, will force a reset of all of our societal systems. We don't have any wiggle room and are running out of planet to exploit. Not nearly enough lifeboats.

GHung wrote:Since the idea of a "jubilee" goes back at least as far as the old testament, It's clear that societies, economies, and religions understood the need for a reset of things.
. . . . How these resets play out varies, but I posit that our current global system, especially with the use of technology, is over-leveraged to an extraordinary extent and will have an unprecedented reset (which is normally an attempt at rebalancing things), and fear that our level of overshoot (out-of-balance condition) relative to the carrying capacity of our environment, will force a reset of all of our societal systems. We don't have any wiggle room and are running out of planet to exploit. Not nearly enough lifeboats.

If we can understand the essential role of money and debt in social relations, then we do not need to wait for a cataclysmic reset. The nature of the money system is the fundamental political issue. The present system gives the Federal Reserve banking cartel the money power -- the ability to decide to whom and for what money is issued. The ruling class forms around the flow of money. Thus, the corporate agenda is funded, while other agendas go begging.
Here are two web sites that offer meaningful reform ideas:
http://greensformonetaryreform.org/solution.shtml
http://positivemoney.org/videos/introduction/#threesimplechanges
I have heard about the inevitable collapse of our system all my adult life and I am convinced that none of the standard reasons for this collapse are valid. When the mismanagement of social relations reaches an intolerable level there will be a war or revolution resulting in the replacement of the current system, but I think this is far off for the "advanced" societies. Add environmental collapse, i.e. famine and/or major system breakdown, and we have another possibility. But we could educate ourselves on the money subject and create a system that did not require destruction of the environment, colonial exploitation, debt servitude, etc. If, of course, we could understand how to maintain acceptable social relations in the process.

kanon said; "But we could educate ourselves on the money subject and create a system that did not require destruction of the environment, colonial exploitation, debt servitude, etc. If, of course, we could understand how to maintain acceptable social relations in the process."

Are you kidding? The is no "we" when it comes to being proactive about the future and long-term benefits to society, especially when it involves 'haves and have-nots' and the 'haves' giving up something for the betterment of the collective..

kanon wrote: Debt is not the same as money, but the two are often intertwined as they are in the FED system. So, under the FED system, if there was zero debt, there would be zero money.

I'm not buying that. (No pun intended).
If there was zero debt would all the land , houses, factories, automobiles and ships on the seas cease to exist? No of course not. Debt is just the amount you owe balanced against the value of the assets you own. Money is just the medium of exchange that lets you determine how many units of say hamburger it takes to buy a car or how many of your hours of labor it takes to buy this weeks groceries.
Having zero debt is a good thing be it on a personal or national level.
On a personal level it means all your physical assets are fully paid for and all you income can be directed to savings or current purchases and expenses (including taxes) free of interest charges.

I agree with Ghung in that we are tremendously overleveraged. By we I mean pretty much all societies and countries. Debt in modernity has become our mode of operation. And so we have arrived at a point whereby if true honest accounting were to take place, most if not all entities would be bankrupt. By honest accounting, it would be zero debt or more precisely zero lending and so true discovery of prices and balance sheet totals.
Thus, our monetary system has become totally divorced from the true worth of all our assets around us. In some cases we charge much more then they are really worth in others much less. One sees that in the relentless inflation and appreciation of assets in general. Does anyone seriously think the Stock Market reflects an accurate version of our economic situation. It has devolved into simply a gambling casino for the mostly very rich entities and people. In order to realize this Zero debt proposal, we would have to completely eradicate the current system and install another without lending if possible. And if not possible, the lending would be asset/resource based so that willy nilly lending could not start up again and loans would be issued consistent with the true worth of assets of both creditor and debtor.

onlooker wrote:I agree with Ghung in that we are tremendously overleveraged.
.......
........... In order to realize this Zero debt proposal, we would have to completely eradicate the current system and install another without lending if possible. And if not possible, the lending would be asset/resource based so that willy nilly lending could not start up again and loans would be issued consistent with the true worth of assets of both creditor and debtor.

That would not be possible or even desirable. Beyond the value of the object being borrowed against the assets of the creditor don't matter as he has the value of the loan fully covered. The buyer has to have the probable means of paying back the loan with foreclosure if he doesn't.(You have a job today but might get laid off next year).
But yes we are way over indebted. Can a liberal arts graduate be expected to pay back $75k in college loans? Why do they have "Jumbo " mortgages so people can buy way more house then they need. Why should anyone put a cruse or Christmas presents on a credit card charging 22 percent?

Well actually the way it is from my understanding currently in the Banking system what exists if Fractional Reserve Banking. That would be whereby the Bank can lend you 90% or so of the loan without it being accounted for in the Deposits of the Bank. The Bank only required to have 10% or so of the loan actually on deposit. This is the system that has been created. The assumption being ALL the depositors will NOT withdraw their money all at once. Of course the US govt. stands by a certain sum should their be a run on the banks, I think 100 grand or something. Of course the other insidious parts of the current lending system is compound interest and fiat money ie. money out of thin air. So, I am glad you are seeing that this has gotten out of hand. We can attest to that by the statistics of how Americans are drowing in debt. Oh and I have even heard people buy groceries with credit cards. geez

If there was no debt there would be no money. Money is manufactured by the debt people accept and the fact people are willing to work for it.

Neither money nor Debt preclude or necessarily have to include each other. In past times, people were bound to certain duties or obligations as a form of repayment, so you can look at that as Debt. Also, past societies had money but no lending per say. But certainly money and lending go hand in hand, in so much as money can be printed, manufactured or bought into existence easily to serve as loans and certainly modern Banking system has been one of the most lucrative industries ever on this planet.

mmasters wrote:If there was no debt there would be no money. Money is manufactured by the debt people accept and the fact people are willing to work for it.

No. If I sell you a cord of wood I'll accept $275 in cash from you for it and you need not have borrowed that $275 from the bank and I will not have borrowed any money to cut and split the wood.

vtsnowedin wrote:

mmasters wrote:If there was no debt there would be no money. Money is manufactured by the debt people accept and the fact people are willing to work for it.

No. If I sell you a cord of wood I'll accept $275 in cash from you for it and you need not have borrowed that $275 from the bank and I will not have borrowed any money to cut and split the wood.

That's money in the system. The foundation of it is debt.

mmasters wrote:

vtsnowedin wrote:

mmasters wrote:If there was no debt there would be no money. Money is manufactured by the debt people accept and the fact people are willing to work for it.

No. If I sell you a cord of wood I'll accept $275 in cash from you for it and you need not have borrowed that $275 from the bank and I will not have borrowed any money to cut and split the wood.

That's money in the system. The foundation of it is debt.

It could just as well be founded in precious metals or grain in the bins and oil in the ground and equity in plant and equipment.
Consider for every dollar of debt there is someone that counts that dollar as an account receivable.

vtsnowedin wrote:

kanon wrote: Debt is not the same as money, but the two are often intertwined as they are in the FED system. So, under the FED system, if there was zero debt, there would be zero money.

I'm not buying that. (No pun intended).
If there was zero debt would all the land , houses, factories, automobiles and ships on the seas cease to exist? No of course not. Debt is just the amount you owe balanced against the value of the assets you own. Money is just the medium of exchange that lets you determine how many units of say hamburger it takes to buy a car or how many of your hours of labor it takes to buy this weeks groceries.
Having zero debt is a good thing be it on a personal or national level.
On a personal level it means all your physical assets are fully paid for and all you income can be directed to savings or current purchases and expenses (including taxes) free of interest charges.

In the FED system, money is created and issued when banks fund loans. In the FED system money is an entry in the banking system ledger books, which corresponds to the debt entry. (Not all money, since a small amount is coins issued by the treasury). The FRN's in your pocket look like cash money with no debt, but they do say "Federal Reserve Note" and there is an outstanding debt somewhere to offset them, e.g. the federal government debt.

You make the mistake of applying definitions without review of the facts. Yes, money is a medium of exchange, store of value, and it is usually good for people to have little debt, but that does not describe the actual money system in use today. If you borrow to buy a house and then pay the loan then money was issued and then returned. You end up with a house and no money (actually the interest is not issued, so there is negative money). In fact, if you are able to have a savings of money, like a savings account or a stuffed mattress, then someone else does not have enough money to pay their debts. It is a mathematical truism that the accounting must balance. To avoid that reckoning is the reason the federal government debt must grow at an exponential rate (~8%), and has done so since the 1970's. This is why inflation is a necessity under the FED system, so there can be enough new money to service the existing debts. This is also why the ZIRP and QE program was undertaken -- a massive issuance of money by the FED to cronies, so they could maintain their debts and thereby prevent deflation (and control more wealth).

The U.S. has had debt-free money in the past, the Greenback of Civil War days is an example. However, the Federal Reserve system of today is a debt system modeled on the Bank of England and the British East India Company and is designed to give the banking cartel and their cronies the ability to manipulate society and exploit the public and the environment.