Why do people in developed countries still fall into the "debt trap" ?

fascinating

Ad Honorem
Dec 2011
2,370
Some of these links are a little dated but in general the debt is owned by foreign nations (China and Japan typically the largest foreign holders), retirement funds (especially Social Security and government pensions), and the Federal Reserve is sitting on a good chucnk of it.

Here’s who owns a record $21.21 trillion of U.S. debt

who holds the us public debt

The Real Owner of the U.S. Debt Will Surprise You

Who Owns the National Debt? - zFacts

Who actually owns it is not especially relevant however because working people are the ones who are expected to pay - there is no one else who actually generates wealth - and their wages have been stagnating for quite some time.

The fact that retirement plans are such heavy holders of these "promises to pay" exposes the fact that a "debt jubilee" which has occasionally been seen in the past is probably not an option in the current situation.

In a traditional debt jubilee the wealthy got a "haircut" - usually to avoild further radicalization of the poor and shrinking middle class that threatened social stability. Today that "haircut" would effectively wipe out private and public retirement plans on which the poor and middle class are dependent.
So only about 30% of the debt is owed to foreigners.

I think that the question of who owns the debt is very relevant. If a large part of it was held by China, for example, then the whole economy could be in the thrall of the government of China.

What do you mean by "working people are the ones expected to pay"? Business leaders, who may well each have large personal surpluses and no debt, can, by their decisions, generate wealth. Certainly, rich people pay a lot of money in taxes.
 
Jul 2019
102
Pale Blue Dot - Moonshine Quadrant
So only about 30% of the debt is owed to foreigners.

I think that the question of who owns the debt is very relevant. If a large part of it was held by China, for example, then the whole economy could be in the thrall of the government of China.

What do you mean by "working people are the ones expected to pay"? Business leaders, who may well each have large personal surpluses and no debt, can, by their decisions, generate wealth. Certainly, rich people pay a lot of money in taxes.
I agree that China’s (or any other nation for that matter) political leverage over U. S. debt is apparently limited. It would seem to be nothing like Eisenhower’s leverage over Britain in the 1956 Suez Crisis when he blocked the International Monetary Fund from providing Britain over half a billion dollars in standby credit; blocked the US Export-Import Bank from extending another half-billion plus in credit to Britain; and threatened to dump America’s holdings of pound-sterling bonds unless Great Britain withdrew from the Suez.

The U.S. debt is a large and growing financial problem however; one that I believe plays heavily into American politics. Its effects on international politics are largely indirect – typically as a result of its drag on the U.S. economy and a desire in some places to replace the dollar as the world's reserve currency.

My phrase “working people” included anyone working in the private economy – from CEOs, to the people that empty the trash at night, to someone starting their own business. Many of the wealthy do pay a lot of tax – but not all of them do. And given the multi-generational run of American deficits and growing indebtedness, it is clear that tax-based income has long been insufficient to finance what the American government is doing.

But the discussion here, as I read it, is about debt itself and its social risks for individuals and not its international political implications.

It may be worth noting at this point that the U.S. money is itself a debt instrument because it is a Federal Reserve Note. If the money supply needs to be increased, then through the process of fractional reserve banking loans need to be made somewhere so the number of notes can increase. If debt did not increase in the aggregate, then the money supply could not increase.

I personally don’t agree that the money supply needs to expand but mine is a minority viewpoint - mainstream economists certainly believe that it does.
 

tomar

Ad Honoris
Jan 2011
13,799
Debt-free besides mortgage? That's probably the biggest debt you'll ever have. And no, you can't argue that rent is debt. And of course you can live debt-free if you have more money than you need...but if you want to live like the vast majority of people live, debt is the only way. That's how things work from the individual to nation-states.
Rent is debt in the sense that you need to live somewhere, and if you dont own a home you will have to pay rent... (except in the rare cases of people getting free lodging or being homeless - not a desirable scenario)... this rent comes out every month out of your income, so it is much like debt

"if you have more money than you need".... that is really up to you... I know people who save money while making less than $2 000 per month and others who make more than $10 000 and who do not save a dime
 

fascinating

Ad Honorem
Dec 2011
2,370
I agree that China’s (or any other nation for that matter) political leverage over U. S. debt is apparently limited. It would seem to be nothing like Eisenhower’s leverage over Britain in the 1956 Suez Crisis when he blocked the International Monetary Fund from providing Britain over half a billion dollars in standby credit; blocked the US Export-Import Bank from extending another half-billion plus in credit to Britain; and threatened to dump America’s holdings of pound-sterling bonds unless Great Britain withdrew from the Suez.

The U.S. debt is a large and growing financial problem however; one that I believe plays heavily into American politics. Its effects on international politics are largely indirect – typically as a result of its drag on the U.S. economy and a desire in some places to replace the dollar as the world's reserve currency.

My phrase “working people” included anyone working in the private economy – from CEOs, to the people that empty the trash at night, to someone starting their own business. Many of the wealthy do pay a lot of tax – but not all of them do. And given the multi-generational run of American deficits and growing indebtedness, it is clear that tax-based income has long been insufficient to finance what the American government is doing.

But the discussion here, as I read it, is about debt itself and its social risks for individuals and not its international political implications.

It may be worth noting at this point that the U.S. money is itself a debt instrument because it is a Federal Reserve Note. If the money supply needs to be increased, then through the process of fractional reserve banking loans need to be made somewhere so the number of notes can increase. If debt did not increase in the aggregate, then the money supply could not increase.

I personally don’t agree that the money supply needs to expand but mine is a minority viewpoint - mainstream economists certainly believe that it does.
Well the question is about people getting into debt (even though they are in developed countries which are "wealthy" in comparison to undeveloped countries). Clearly, most of the debt, that private individuals have, is borrowed from other individuals who have the money to loan out - I know that, in practice, loans are mainly given out by financial institutions, not rich people as such, yet those financial institutions are owned by people, people rich enough to buy shares in them. Those financial institutions are quite happy to lend the money, because thereby they make profit. Companies are happy to let people have their goods by payments which are in fact credit to the buyer (eg if the buyers pay using credit cards).

What is wrong with debt? Typically, a person will live in a house that is 500% of the value of his annual income. Of course he has the asset of the house that, theoretically, will pay off the mortgage debt he has taken on. As long as the assets are bigger than the debt, there isn't really a problem. In fact the debt that the mortgage holder has is enabling to live in a place that he couldn't have without debt - unless he paid rent, which in the end will cost him more.

The total of all assets in the USA is over $100 trillion, which is more than the total of all kinds of debt.

This touches on your last paragraph about the money supply. Given that the government must create some money, so that the economy can operate, there comes the question: how much money should it create, exactly? As money is a token of value, it could be argued that the total amount of money should be equal to the total value of all assets (over $100 trillion in the case of the USA). Of course, it isn't that high, the money supply is theoretically aligned with the amount of assets, of all kinds, that are exchanged. Say, for example, someone, who got his house 80 years ago for a small amount, maybe $2000, dies age 100, that house is transferred to the inheritor who sells it, for as much as he can get, let's say $300,000. The buyer applies for a mortgage, and the financial institution that grants the mortgage CREATES the necessary $300,000 which the vendor gets. Arguably that's OK because that matches the value of the real-world asset (the house). With ordinary debt, it's different, the bank creates the money supply for the specific debt, but this time there is no asset of that value; the bank nevertheless will add the amount of debt into the "assets" and "liablities" columns of its accounts.
 

Scaeva

Ad Honorem
Oct 2012
5,630
Was that not always the case though ? I mean city centers (in large cities) were always too expensive for the working class, whether in Paris, London or New York (except perhaps for run down and crime ridden neighborhoods)
At the end of the Second World War home ownership came to be seen as a right. Or at least that was the case in the United States. So long as a person had a full time job, housing was affordable.

That is no longer the case, and people who may have owned a house if they had been born a few decades earlier are now renting because buying a house in the city of their employment is beyond their means.
 
May 2017
193
Monterrey
Rent is debt in the sense that you need to live somewhere, and if you dont own a home you will have to pay rent... (except in the rare cases of people getting free lodging or being homeless - not a desirable scenario)... this rent comes out every month out of your income, so it is much like debt
You need to eat too, does that mean paying for food is paying a debt(except in rare cases where you live off your potatofield and nothing else)? Have you tried living without water or electricity for that matter? What if I need a car to go to work? How do I contact anyone without a mobile phone? etc etc. In a way, you are onto something, since none of us can really live without constantly making more money. Unless we have a **** ton of money to begin with.

I've lived most of my life debt-free, but if you want to own something debt is usually the only viable solution.
 

fascinating

Ad Honorem
Dec 2011
2,370
At the end of the Second World War home ownership came to be seen as a right. Or at least that was the case in the United States. So long as a person had a full time job, housing was affordable.

That is no longer the case, and people who may have owned a house if they had been born a few decades earlier are now renting because buying a house in the city of their employment is beyond their means.
So who owns these houses that people are paying rent for? Is the housing stock less than it used to be, or is it a the case that insufficient houses have been built to meet the needs of a ballooning population?

The huge increase in the price of housing over the past few decades, in just about every developed country, is extraordinary and needs to be explained. There should be no shortage of land in places like USA and Australia, so that building firms could make and sell plenty of houses, there most be things like planning restrictions driving the increase. Or is it something to do with the rising cost of transport, whereby people could afford to buy a cheaper house outside the city, but cannot afford the cost of the longer daily commute to work?
 

tomar

Ad Honoris
Jan 2011
13,799
So who owns these houses that people are paying rent for? Is the housing stock less than it used to be, or is it a the case that insufficient houses have been built to meet the needs of a ballooning population?

The huge increase in the price of housing over the past few decades, in just about every developed country, is extraordinary and needs to be explained. There should be no shortage of land in places like USA and Australia, so that building firms could make and sell plenty of houses, there most be things like planning restrictions driving the increase. Or is it something to do with the rising cost of transport, whereby people could afford to buy a cheaper house outside the city, but cannot afford the cost of the longer daily commute to work?
Its hardly suprising, when :
the earth's population had tripled in 70 years
in developed countries, there are more monoparental families (there by you need more houses/ appartments for the same number of people)
its now rare that several families would share the same house (again you need more houses / appartments for the same number of people)
houses are now different, better built and equipped (thus more expensive)
total amount of land is irrelevant (not many people need a house in the australian desert), the amount of desirable land does not increase (city centers, picturesque places.... the cote d'azur is not getting any longer or wider for example..... best place is still beach side.... and there is a limited amount of beachfront)
people have moved from the countryside to the cities during the 20th century thus urban population has grown far faster than the overall population growth
 

tomar

Ad Honoris
Jan 2011
13,799
You need to eat too, does that mean paying for food is paying a debt(except in rare cases where you live off your potatofield and nothing else)? Have you tried living without water or electricity for that matter? What if I need a car to go to work? How do I contact anyone without a mobile phone? etc etc. In a way, you are onto something, since none of us can really live without constantly making more money. Unless we have a **** ton of money to begin with.
You are right, there are many things you need.... But rent is usually the largest item in the budget, it is a fixed amount to be paid every month... and thus it most ressembles a debt... Food and other stuff can be somewhat managed (you can eat more or less, eat out or not, eat more or less expensive foods etc..)...

But in general yes, a case can be made that you are born in debt since you need to cover housing, food, clothes and other essentials for life (about 80 years on average).. A calculation can thus even be made about how much a new born child owes when he is born... part of that will be covered by parents (if he is lucky all of it), the rest he will have to earn somehow....