> 1) Personal debt, like I took out a car loan and I can get the car repossessed or the loan sold to debt collectors. 2) Debt that exists just to create more money i.e. the IMF or Fed Reserve decide to have an expansionary monetary policy and they lend from... what exactly?
As far as I know, these two are the same.
In a fractional reserve banking system, when you borrow money from the bank for a car or a house, that money is then created from nothing. They just punch in the number in your account, and there you have it.
At the end of the day, the bank has to have a certain reserve, which is held in the banks account in the central bank. The central bank doesn't usually create the money itself, it lets the banks to it for them, as long as they stick within the limits.
I could be very wrong here. Not an expert. This is my laymans understanding.
This is why it's not really worrying on its own that there's a large amount of debt per person. Debt is how money is created in our system. As other countries get wealthier, you expect them to have more debt. Put another way: if you're living outside civilisation, you're not gonna get a loan for anything. But as soon as you live in a modern city with some steady income, you can borrow several times the amount you make a year, and that's generally OK as long as you expect to make that money back some time during your lifetime.
The money isn't created from "nothing" - it's definitely real money from real people's savings accounts.
The difference is that on a large enough scale, you can make a $1 of real savings circulate as though it were $1.50 or (probably a lot more) of circulating currency and there's huge benefits to doing that (when it's backed by real productivity).
The source of things like the 2008 collapse was the dark side of that - trillions of dollars debts, backed by no possible amount of productivity that could repay them (and tons of fraud allowing these to exist on the books).
Banks do indeed make money "from nothing". If you get a loan of $1000 from a bank, they just add $1000 to your current account, and write down in another account that you owe them $1000. They don't have to "get" this money from somewhere.
This is all as it should be. Say I can make tables, and you want one, but don't have anything to give me in exchange. We can agree that you now owe me $100, say. You can write me an IOU and sign it. Suppose you are trustworthy enough that an IOU from you is considered acceptable as payment. I can now use your IOU as money - we have just "created" $100 money from nowhere (or, $100 debt, same thing).
As far as I know, these two are the same.
In a fractional reserve banking system, when you borrow money from the bank for a car or a house, that money is then created from nothing. They just punch in the number in your account, and there you have it.
At the end of the day, the bank has to have a certain reserve, which is held in the banks account in the central bank. The central bank doesn't usually create the money itself, it lets the banks to it for them, as long as they stick within the limits.
I could be very wrong here. Not an expert. This is my laymans understanding.
This is why it's not really worrying on its own that there's a large amount of debt per person. Debt is how money is created in our system. As other countries get wealthier, you expect them to have more debt. Put another way: if you're living outside civilisation, you're not gonna get a loan for anything. But as soon as you live in a modern city with some steady income, you can borrow several times the amount you make a year, and that's generally OK as long as you expect to make that money back some time during your lifetime.