Euro Area

[phonicsmonkey]

Since all this debt gets eliminated, it means there is far less money being lost on "interest", which means all the economies can improve at home.

This is the problem - no-one lends money except to earn interest and no lender is willing to cancel a loan early and forsake the interest which would come later and the potential profit which is to be made in the future if the rate at which you are lending is higher than the rate at which you borrow. There is an actual loss and an opportunity cost in a loan being repayed early. Where bonds are issued with such an option embedded in the structure (ie. when the lender can repay early) they are typically more expensive for the borrower to compensate the lender for the risk that they will receive the principal back early. It's called 'repayment risk'.

Also, it is not as neat as simply saying "Europe is owed money by America" because it is privately owned institutions like banks, funds management and insurance companies which are the actual lenders. The American government has not borrowed directly from European governments or vice versa.

[a completely inoffensive name]

Didn't debt cancellation as a policy occur at some point before or after one of the world wars? I think I remember reading some sort of debt scheme they came up regarding how to get the losers to pay up after their country had been destroyed.

I think that ultimately, if the four debt horsemen of the apocalypse comes around and starts having all hell break loose, countries may just decide to start forgiving debt as a last ditch measure to prevent the new Great Depression. When the world economy is at stake, I feel like everything is up for grabs.

[phonicsmonkey]

When the world economy is at stake, I feel like everything is up for grabs.

I think this is a reasonable view. It's not beyond the realms of possibility that debt could be forgiven but it would effectively involve nationalising privately owned banks and other institutions.

I think a more likely move is that the credit default swap contracts outstanding on sovereign debt (Italy's mainly) will be declared null and void as they present a systemic risk to the financial system.

I am of the economical mind that you should pretty much never borrow money (other than longterm investment with easy repayment well within your budget), and only lend money if you can afford to lose it. Whilst I do have my fabulous student loan, I have absolutely no credit card bills or any other loans or negative amounts of money and I only buy what I can afford.

This is very sensible and it's quite possible to live this way until you want to buy a house. Then you realise that in order to get hold of that kind of asset you either have to borrow or spend many many years saving up while prices rise and push it further out of reach.

[Beskar]

This is very sensible and it's quite possible to live this way until you want to buy a house. Then you realise that in order to get hold of that kind of asset you either have to borrow or spend many many years saving up while prices rise and push it further out of reach.

As I stated:

other than longterm investment with easy repayment well within your budget

IE: Mortgage

[Beskar]

This is the problem - no-one lends money except to earn interest and no lender is willing to cancel a loan early and forsake the interest which would come later and the potential profit which is to be made in the future if the rate at which you are lending is higher than the rate at which you borrow. There is an actual loss and an opportunity cost in a loan being repayed early. Where bonds are issued with such an option embedded in the structure (ie. when the lender can repay early) they are typically more expensive for the borrower to compensate the lender for the risk that they will receive the principal back early. It's called 'repayment risk'.

Also, it is not as neat as simply saying "Europe is owed money by America" because it is privately owned institutions like banks, funds management and insurance companies which are the actual lenders. The American government has not borrowed directly from European governments or vice versa.

I am of the economical mind that you should pretty much never borrow money (other than longterm investment with easy repayment well within your budget), and only lend money if you can afford to lose it. Whilst I do have my fabulous student loan, I have absolutely no credit card bills or any other loans or negative amounts of money and I only buy what I can afford.

As such Government should be running a surplus of money from taxes and what not, which it can then use to provide loans for investment into the nation or even lend to another nation if needed, or simply for "rainy day" emergencies.

[Nowake]

As such Government should be running a surplus of money from taxes and what not, which it can then use to provide loans for investment into the nation or even lend to another nation if needed, or simply for "rainy day" emergencies.

A budget surplus doesn’t entail an absence of debt though. Under Clinton, you chaps had one. That is, if you kept on that course, you would’ve eventually paid your whole debt. Yet the then surplus was caused by Clinton’s further deregulation of the financial industry in ’94.

Now, the budget deficit is used as a tool of demand management; most economists would support the use of changing the level of borrowing as a way of fine-tuning or managing the level of aggregate demand. An increase in borrowing can be a stimulus to demand when other sectors of the economy are suffering from weak spending. A fiscal stimulus given is important in stabilizing demand and output at a time of global uncertainty. The argument is that the government can and should use fiscal policy to keep real national output closer to potential GDP so that a large negative output gap is avoided. Maintaining a high level of demand helps to sustain growth and keep unemployment low.

Plus, a government debt can lead to economic growth: a budget deficit can have positive macroeconomic effects in the long run if it is used to finance extra capital spending that leads to an increase in the stock of national assets. For example, higher spending on the transport infrastructure improves the supply-side capacity of the economy promoting long-run growth. And increased public-sector investment in health and education can bring positive effects on labour productivity and employment. The social benefits of increased capital spending can be estimated through use of cost-benefit analysis.

Overall, your overall GDP, in every situation, has more to gain from efficient debt management than from an aggressive approach to acquit it. I know where you’re coming from though and why it seems a lot safer, ideally, we’re all fiscally conservative and the current system has not been proved sustainable ad infinitum; it has not been disproved either yet thank F.

[Beskar]

A budget surplus doesn’t entail an absence of debt though. Under Clinton, you chaps had one. That is, if you kept on that course, you would’ve eventually paid your whole debt. Yet the then surplus was caused by Clinton’s further deregulation of the financial industry in ’94.

I am not American, but during a "Boom" period, the government should attempt to erase its debts and work up its surplus so lets say the Global Meltdown happened, the government has the resources for its "bail outs" and for heavy investment to keep the employment down, creating jobs and opportunities for businesses to continue under these conditions.
(There should be budget set aside for investment anyway, regardless of where about it is in the boom-bust cycle. This is for extra-intensive investment during the hardtimes)

However, if it is a situation where the debts are cleared and you got surplus money, you either use it for investment (if required for any major projects or serious work) or lower taxes.

[Philippus Flavius Homovallumus]

I am of the economical mind that you should pretty much never borrow money (other than longterm investment with easy repayment well within your budget), and only lend money if you can afford to lose it. Whilst I do have my fabulous student loan, I have absolutely no credit card bills or any other loans or negative amounts of money and I only buy what I can afford.

As such Government should be running a surplus of money from taxes and what not, which it can then use to provide loans for investment into the nation or even lend to another nation if needed, or simply for "rainy day" emergencies.

I agree, but it's worth noting that most religions consider Usury (lending money at interest) a mortal sin, it's never outright stopped anyone but it did appear to curtail the practice somewhat.

They were obviously on to something.

As to your debt cancelation plan, I don't think we're quite there yet, but it's worth noting that many countries (including Italy) have a primary surplus, but currently need to borrow to pay off their debts.

So we may get there.

[rory_20_uk]

Voting populations are like children.

Who would they prefer? The parent who gives them small toys but promises them that tomorrow is going to be taken care of, or the one who gets them really big toys using loans... and also tells them that tomorrow is going to be taken care of.

In the UK there was a flood in the North. Some had house insurance that covered floods, others didn't. Those that didn't got give free money from the government. So, either you can pay insurance year after year, or not bother and complain if a flood happens and the Government will give you money.

In the UK, cuts are being fought tooth and nail as every special interest group fights for their money, with no mature overview that this is required due to the hideous amount of borrowing that went on before. Of course spending less money on things will be worse but frankly that's just tough.

Gordon Brown epitomised this "spend now, ask questions... never" mentality by calling every handout an "investment" - but never feeling the need to explain what the returns would be.

[phonicsmonkey]

Voting populations are like children.

Who would they prefer? The parent who gives them small toys but promises them that tomorrow is going to be taken care of, or the one who gets them really big toys using loans... and also tells them that tomorrow is going to be taken care of.

In the UK there was a flood in the North. Some had house insurance that covered floods, others didn't. Those that didn't got give free money from the government. So, either you can pay insurance year after year, or not bother and complain if a flood happens and the Government will give you money.

In the UK, cuts are being fought tooth and nail as every special interest group fights for their money, with no mature overview that this is required due to the hideous amount of borrowing that went on before. Of course spending less money on things will be worse but frankly that's just tough.

Gordon Brown epitomised this "spend now, ask questions... never" mentality by calling every handout an "investment" - but never feeling the need to explain what the returns would be.

Yes this is called moral hazard.

In the aftermath of the crisis the Fed and developed world governments in general, in their bailouts, failed to discriminate between those who had been reckless and deserved to go under and those who were simply caught up in the storm and should be saved. Then, in an apparent attempt to deal with the issue of moral hazard, they recklessly allowed Lehman Brothers to fail (alone among the broker-dealers who were in the same mess together) pour l'encouragement des autres and the resulting uncertainty made the whole problem many times worse.

Now the only clarity is that if you are big enough that your failing will threaten the whole financial system you will not be allowed to fail - a perverse incentive to grow bigger and more dangerous!