Debt

6 Key excerpts on "Debt"

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  eBook - ePub

  Understanding Financial Crises

  • Ensar Yılmaz(Author)
  • 2020(Publication Date)
  • Routledge

    (Publisher)

  However, until the Global Recession, in the mainstream economic models, Debt was not regarded as an issue that could trigger a sequence of problems, hence it was not incorporated into these models. The main rationale behind this was that borrowers and lenders canceled each other out at the level of the economy, thus every dollar owed by someone was also owed to someone. Hence the incorporation of Debt into economic analysis seemed trivial. However, we learn each time from austere times (during crises) that Debt is critical in terms of triggering the problems and their deepening. Therefore, Debt is a more complex issue and not a simple zero-sum game. Economists have started to deal with new complications by including Debt in their economic models such as heterogeneity between Debtors and creditors and discontinuity arising from collapse in economic relations.

  The historical evidence shows the dangers of Debt. The extent of these dangers created by increased Debt depend on who has the Debt (firms, banks, households or governments) and what kind of Debt they have—depending on maturities (short or long) and financing types (loans or bonds) and types of currencies (domestic currency or foreign currency). In many diverse countries and periods, combinations of these forms can come to the fore. In one country, government Debt can be a big problem, but in another country it can be private Debt and with a short-term maturity, and it can even maybe be borrowed in foreign currency. Hence several forms of borrowing can emerge in different countries, so it can reveal itself in different problems.

  Until the Asian crisis in 1997, economists were widely concerned with government Debt. Along with this crisis, private Debt became critical in understanding the crisis. The global crisis in 2007–2008 also showed that private-sector liabilities, namely household Debt (the bulk of which was mortgages) and financial institutions (especially banks), was too high. In recent years, it also seems that household and corporate Debt in many countries, especially in rich countries, have increased as a percentage of GDP. Households owed to financial firms, non-financial firms owed to financial firms and further at an increasing rate financial firms owed to financial firms. In particular the financial firms’ Debt structure has become more complicated over time; that is, borrowing from depositors and bondholders, borrowing from and lending to financial firms (lending to lenders). Hence they enter a huge Debt and asset relationship at the same time.

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  Debt and Development in Small Island Developing States

  • D. King, D. Tennant, D. King, D. Tennant(Authors)
  • 2014(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  At the end of 2012, a half of the 20 most highly inDebted countries were from the narrow grouping of countries classified as Small Island Developing States (SIDS). Six of these countries were among the top ten most highly inDebted. Subsequent chapters will explore the Debt experience in these countries and highlight reasons for the accumulation of the Debt. This chapter examines the developmental impact of Debt accumulation. It begins by highlighting the non-linear relationship between Debt and development by summarizing the main theoretical and empirical studies in this area, and then explains this relationship by examining a number of specific channels through which Debt impacts economic growth and development.

  Debt and Development: Theory and Evidence

  It is widely accepted that most developing countries cannot grow without borrowing to finance the technology gains and capital deepening that precipitate economic progress. High levels of Debt are, however, increasingly asserted to have deleterious effects on economic development.3 Much of the literature in this area focuses on the relationship between Debt and economic growth. More recently, though, there have been a number of articles that have examined the ways in which Debt can impact poverty levels and alleviation efforts. This section briefly summarizes theoretical and empirical literature on the impact of Debt on a country’s developmental fortunes.

  Debt and Economic Growth—Theory and Intuition

  Several authors have highlighted the positive impact that public Debt can have on the effective functioning of an economy. At a very basic level, public Debt enables fiscal authorities to play their role in stabilizing the macroeconomy, which is a critical ingredient for growth creation. As an example, Bourne (2010) notes that countering the effects of external economic shocks and natural hazard events are legitimate motivations for Debt accumulation. When governments borrow, they are able to smooth taxes in the face of variable expenditures. “Since part of the tax rise needed to fund higher current consumption is postponed, public Debt may rise, at least up to a point, without growth necessarily slowing.”4

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  Public Economics and Finance

  • Bernur Aç?kgöz, Bernur Açıkgöz, Bernur Açıkgöz(Authors)
  • 2019(Publication Date)
  • IntechOpen

    (Publisher)

  • Public Debts according to sources: internal Debts and external Debts ○ Internal borrowing refers to a country’s borrowing from own national resources. This borrowing has no effect on increasing or decreasing national income. ○ External borrowing refers to the resources provided from a foreign country that is repaid with principal and interest at the end of a certain period. External Debt has an increasing effect on national income when it is taken and vice versa has a decreasing effect on national income when it is paid. • Public Debt as a voluntary basis: voluntary Debts and obligatory Debts ○ Voluntary Debts refer the Debts that are lent to the state by its own will and desire. ○ Obligatory Debts refer to the Debts which are lent by forcing to take the bonds issued by the government. These Debts are applied in times of war, natural disaster, or economic crises. In itself, it is classified as the Debts taken by full compulsion, the Debts taken by the threat of forcing, the Debts taken by cre-ating the necessary savings, and the liabilities taken by the moral coercion. Productive and unproductive Debts are also available. If the Debts are used in con-struction, such as railways, power stations, and irrigation projects, which contribute to the productive capacity of the economy, they denote to productive Debts. By this way, productive Debts provide a constant flow of income to the state. The state gener-ally pays the interest and principal Debt amount from these projects’ revenues. If the Debts are used in the area such as war, famine relief, social services, etc., which do not contribute to the productive capacity of economy, they denote to unproductive Debts. The state generally pays the interest and principal Debt amount from taxes; therefore, these Debts are a burden on the society [10–12] ( Figure 1 ). Today, rapidly increasing international relations have increased the importance of external Debts.

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  Personal Debt in Europe

  The EU Financial Market and Consumer Insolvency

  • Federico Ferretti, Daniela Vandone(Authors)
  • 2019(Publication Date)
  • Cambridge University Press

    (Publisher)

  2 Personal Debt in the Economy 2.1 the demand side of the personal Debt market This chapter provides an account of the role of personal Debt in the modern economy. In particular, it covers the economic dynamics of national personal Debt markets and the importance of Debt in the current economic model, and analyses the social, demographic and economic characteristics of individuals in Debt. Section 2.2 focuses on the size and the growth of the personal Debt market in Europe. To this end, data from the ECRI Statistical Package are analysed over the period 1995–2016, both at aggregate level and by country. The focus is not only on the total amount of Debt, but also on relative measures, such as the Debt to GDP ratio, the Debt-to- income ratio and the per-capital amount of Debt, in order to draw a picture of the personal Debt market in Europe and its evolution over time. Section 2.3 focuses on the factors shaping the evolution of the personal Debt market, while Section 2.4 provides an empirical analysis of the characteristics of inDebted consumers using data from the Eurosystem’s Household Finance and Consumption Survey (HFCS). The analysis is framed within the life-cycle theory, 1 which is the traditional economic setting where the characteristics of individuals holding Debt are analysed. The socio-demographic and economic features of consumers who participate in the Debt market are separately investigated for mortgage Debt and consumer credit, to shed light on existing differences between the two groups of borrowers. 2.2 personal Debt in europe: size and growth of the market In the last twenty years credit to households 2 in Europe had experienced a strong growth until the 2008 crises, a downturn in the following years and an upward trend 1 Modigliani and Brumberg (1954). 2 In the field of economics, the term ‘household’ in frequently used in place of the term ‘consumer’.

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  Fiscal Monitor, October 2016 : Debt: Use It Wisely

  • Marialuz Moreno Badia(Author)
  • 2016(Publication Date)
  • INTERNATIONAL MONETARY FUND

    (Publisher)

  Chapter 1. Debt: Use It Wisely

  Passage contains an image

  Introduction

  The global gross Debt of the nonfinancial sector has more than doubled in nominal terms since the turn of the century, reaching $152 trillion in 2015.1 About two-thirds of this Debt consists of liabilities of the private sector. Although there is no consensus about how much is too much, current Debt levels, at 225 percent of world GDP (Figure 1.1 ), are at an all-time high. The negative implications of excessive private Debt (or what is often termed a “Debt overhang”) for growth and financial stability are well documented in the literature, underscoring the need for private sector deleveraging in some countries. The current low-nominal-growth environment, however, is making the adjustment very difficult, setting the stage for a vicious feedback loop in which lower growth hampers deleveraging and the Debt overhang exacerbates the slowdown (Buttiglione and others 2014 ; McKinsey Global Institute 2015 ; Gaspar, Obstfeld, and Sahay 2016 ). The dynamics at play resemble that of a Debt deflation episode in which falling prices increase the real burden of Debt, leading to further deflation. Weak bank balance sheets in some countries have further contributed to dampening economic activity, as private credit has been curtailed beyond what would be desirable.

  Figure 1.1 . Global Gross Debt

  (Percent of GDP; weighted average)

  Sources: Abbas and others 2010 ; Bank for International Settlements; Dealogic; IMF, International Financial Statistics ; IMF, Standardized Reporting Forms; IMF, World Economic Outlook ; Organisation for Economic Co-operation and Development; and IMF staff estimates.

  Note: U.S. = United States.

  A key priority in those countries currently facing a private Debt overhang is to identify policies that can help with the repair process while minimizing the drag on the economy. This task is particularly challenging because the room for policy maneuver has narrowed since the start of the global financial crisis and the effectiveness of some policies (notably monetary) may be more limited. These constraints put a premium on how to use the fiscal space that may still be available, including leveraging complementarities across different policy tools to get more mileage out of any fiscal intervention. Against this backdrop, this issue of the Fiscal Monitor

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  Essays in the Fundamental Theory of Monetary Economics and Macroeconomics

  • John Smithin(Author)
  • 2013(Publication Date)
  • WSPC

    (Publisher)

  credit ! (original emphasis)

  Meanwhile, Geoffrey Ingham, in his influential book, the Nature of Money (2004, p. 198), explicitly states that “all money is Debt ... ”, and at the same time refers throughout the work to the system of “capitalist credit money”.

  These positions are obviously far more realistic, both in terms of the historical development of a distinctive system of capitalism, and in thinking about current affairs, than the idea that the origins of money lie merely in the offer of one or another physical item in exchange for some other physical thing. Adam Smith (1981/1776, p. 65) talked about “an early and rude state of society” in which he imagined this sort of thing taking place, but as Searle (2010, p. 62) has astutely remarked “there is no such thing as a state of nature ” (emphasis added) as far as human social institutions, including commerce, are concerned.

  However, once we do start talking about social accounting and thereby use terms like “credit money” and “Debt money”, there is one obvious pitfall that needs to be pointed out and dealt with straight-away. This is simply that in any banking or financial system, credit and Debt are just the mirror images of each other. For every Debt there is a credit and vice versa. If, for example, a commercial bank extends a loan to an individual or a firm, then that would correctly be described as the granting of credit, and the loan is an earning asset to the bank. On the other hand, if somebody makes a deposit in a bank then, from the bank’s point of view, that is a Debt or liability. Confusion arises because, by definition, assets must be equal to liabilities in a balance sheet. Therefore, when a bank or similar financial institution does extends credit, its asset portfolio increases, but at the same time the liabilities side of the balance sheet must necessarily be rising also. In the simplest case, the person or firm receiving the loan just deposits the funds back with the same bank. Moreover, even if all of the funds are paid away to another financial institution the assets and liabilities of the system as a whole rise to exactly the same extent. So, there is always both credit creation and money creation at the same time. Conversely, when the loans are paid back this must amount to the “destruction” of money and credit. We need to be clear, therefore, in discussing these balance sheet operations, about which side of the balance sheet contains the entries we actually think of as money. The correct answer is that it is the funds (deposits) on the liabilities

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