Debt lasts forever and is only moved around?

[Wubbaz]

What the title says.

A friend of mine said this a week or so ago, and I just couldn't understand what he meant by it. If I borrow 100 dollars from a bank, plus a 3 dollar interest, and I pay that back, the debt has disappeared. Or hasn't it? I would really appreciate if someone could enlighten me on this.

Thank you in advance.

[thesadmafioso]

Your friend didn't just so happen to watch one of the zeitgeist films by any chance, did he?

But yeah, that is quite the nonsensical concept. Debt is not some grand metaphysical entity nor is it equatable to energy in any substantial way, it is just another creation of man. To use your example, if you have paid the bank back in full with the inclusion of interest, then you are no longer in direct debt to it. There really isn't much to the concept beyond that, so far as I'm aware.

[Commissar Rykov]

Debt is usually nothing more than an IOU to whoever holds that debt based on the idea you will be able to pay it back with profit you make later. Debt can be traded and sold but that is entirely based on whether you or your organization is believed to be "good" on the debt thus being able to pay it back.

[xub3rn00dlex]

I think your friend might of meant something along the line of : You borrow $100 bucks, pay $103 back. Your debt is settled, but the bank a) had to borrow the $100 bucks originally from somewhere and b) must now pay that debt back... etc.

[Commissar Rykov]

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These two vids will help you in regards to understanding debt and banking while doing so from a Marxist perspective.

[Wubbaz]

I think your friend might of meant something along the line of : You borrow $100 bucks, pay $103 back. Your debt is settled, but the bank a) had to borrow the $100 bucks originally from somewhere and b) must now pay that debt back... etc.

So, in theory, this could be a realistic scenario?

Bank A owes Bank B money
Bank B owes Bank C money
Frank owes Bank A money

Bank A gets money from Frank -> Bank A pays loan from Bank B with the money from Frank's repayment -> Bank B pays loan from Bank C with the money from Bank A's repayment?

If assuming that all banks are so indebted to eachother, would it actually be possible that, due to excessive credit loans between banks, the debt would be "moved around and never truly disappear" like it was the case my friend told me? Simply due to the fact that the banks constantly have to repay the loans they have made from eachother.

[Binh]

No. If you declare bankruptcy, you only pay back a percentage of the total you owe. The same is true for when nations (like Greece) default. Sometimes banks and businesses lose money.

[xub3rn00dlex]

So, in theory, this could be a realistic scenario?

Bank A owes Bank B money
Bank B owes Bank C money
Frank owes Bank A money

Bank A gets money from Frank -> Bank A pays loan from Bank B with the money from Frank's repayment -> Bank B pays loan from Bank C with the money from Bank A's repayment?

If assuming that all banks are so indebted to eachother, would it actually be possible that, due to excessive credit loans between banks, the debt would be "moved around and never truly disappear" like it was the case my friend told me? Simply due to the fact that the banks constantly have to repay the loans they have made from eachother.

It could be very realistic. There is a reason a unified and complete bank run would be disastrous - there isn't enough money to repay everyone at the same time. Where is the debt then? It is in stocks, investments in other loans and countries, etc. IIRC my HS Economics teacher explained that you don't have the actual $100 dollars in your hand, you have $100 dollars worth of debt you can transfer to someone else through a transaction.

[R_P_A_S]

good discussion!

[robbo203]

From David Graeber's new book: Debt: The First 5,000 Years

In today's excerpt - almost everyone, from Aristotle to Adam Smith to almost everycollege economics textbook, explains the origin of money in the same way. It was an evolutionary process - first came barter, then when barter proved cumbersomemoney was introduced, and then as societies became even more complex credit was introduced. There's only one problem with this - there is no evidence that a true barter economy ever existed, and there is ample evidence that the opposite occurred.Archeologists have found that all civilizations where there is any archeological evidence of money began with credit, and money (including coins) was simply oneform of tracking these IOUs. In other words, credit existed from the very inceptiono f civilization:"The story [that money arose from bartering] is everywhere. It is the founding mythof our system of economic relations. It is so deeply established in common sense... that most people on earth couldn't imagine any other way that money possiblycould have come about. The problem is there's no evidence that it ever happened,and an enormous amount of evidence suggesting that it did not."For centuries now, explorers have been trying to find this fabled land of barter- none with success. Adam Smith set his story in aboriginal North America (otherspreferred Africa or the Pacific). In Smith's time, at least it could be said thatreliable information on Native American economic systems was unavailable in Scottishlibraries. But by mid-century, Lewis Henry Morgan's descriptions of the Six Nationsof the Iroquois, among others, were widely published - and they made clear that the main economic institution among the Iroquois nations were longhouses where mostgoods were stockpiled and then allocated by women's councils, and no one ever tradedarrowheads for slabs of meat. Economists simply ignored this information."Stanley Jevons, for example, who in 1871 wrote what has come to be considered theclassic book on the origins of money, took his examples straight from Smith, withIndians swapping venison for elk and beaver hides, and made no use of actual descriptions of Indian life that made it clear that Smith had simply made this up. Around thatsame time, missionaries, adventurers, and colonial administrators were fanning outacross the world, many bringing copies of Smith's book with them, expecting to findthe land of barter. None ever did. They discovered an almost endless variety of economic systems. But to this day, no one has been able to locate a part of the world where the ordinary mode of economic transaction between neighbors takes the form of 'I'll give you twenty chickens for that cow.'"The definitive anthropological work on barter, by Caroline Humphrey, of Cambridge,could not be more definitive in its conclusions: 'No example of a barter economy,pure and simple, has ever been described, let alone the emergence from it of money;all available ethnography suggests that there never has been such a thing.'"Now, all this hardly means that barter does not exist - or even that it's neverpracticed by the sort of people that Smith would refer to as 'savages.' It justmeans that it's almost never employed, as Smith imagined, between fellow villagers.Ordinarily, it takes place between strangers, even enemies. ..."In fact, our standard account of monetary history is precisely backwards. We didnot begin with barter, discover money, and then eventually develop credit systems.It happened precisely the other way around. What we now call virtual money came first. Coins came much later, and their use spread only unevenly, never completelyreplacing credit systems. Barter, in turn, appears to be largely a kind of accidentalbyproduct of the use of coinage or paper money: his- torically, it has mainly been what people who are used to cash transactions do when for one reason or another they have no access to currency" (p28-29, 40)

[Psy]

No. If you declare bankruptcy, you only pay back a percentage of the total you owe. The same is true for when nations (like Greece) default. Sometimes banks and businesses lose money.
The problem is when large industrial powers default it leaves huge holes in the global capital system. Capital represented the value the market thought would be there, yet the with defaults value in the market is much much lower then even what capital thought currently existed that causes markets to crash as they have to deal with a massive correction of the value of capital as markets violently pulls the value of capital back down to the actual value of productive forces in the economy that are stalled due to capital markets being frozen up thus the crash over corrects the value of capital as it is correcting to a crisis of overproduction aggravated by the correction is capital values.