What would happen if everyone paid off their debt in 5 years? - Printable Version
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What would happen if everyone paid off their debt in 5 years? - kavi - 03-20-2017
It was an interesting made earlier where someone said debt is good cos you can buy 5 houses and put them on rent instead of one. The obvious problem here is that not everyone can do this and it is in fact just a case of one group (the borrower/landlord) taking advantage of the other (the renter/landlord). A borrower can become wealthy in such a way but how exactly has this person benefitted society because they havent created/produced anything themselves of value.
A basic premise of economics is that people are meant to create things for the society to prosper. Thats not whats happening here. It's completely fucked up. You should not be able to use leverage in such a way. Interest rates should be much higher.
I read parts of Shatapatha Brahmana once (an ancient indian text) and happened onto to the the guidance that borrowers should be charged 20% interest PER MONTH. I think you as we further back in time you would find interest rates much higher than todays levels which simply would not allow for the types of leverage seen today.
High debt stifles innovation, risk taking and freedom. When you have a mortgage to pay you are less likely to leave your shitty job and start a business, or even join a union and go on strike.
What would happen if everyone paid off their debt in 5 years? - Paracelsus - 03-20-2017
Quote: (11-14-2015 03:20 PM)nek Wrote:
This a bit of a U.S.-centric question, but feel free to chime in (our household debt in the U.S. is outrageous). What would happen to the economy? Would things be great or is the system reliant on debts?
First, you would crash every pension plan and 401k scheme in the United States - because if everyone including the government pays off its debts, every bond issued by the US Treasury gets paid off at once. No further interest accrues on the bond. The vast majority of the US's public debt is owed to its own citizens.
Second, you would crash every single bank in the United States, simply because every bank that ever existed exists only on the margin between the money it pays in interest on savings and the money it loans out. Remove all debts, and half of the mechanism by which a bank exists disappears. Interest rates on savings would immediately fall to zero if there was a bank willing to even exist on those terms. Indeed you would see negative interest rates since banks would have to charge you money to look after your funds.
What would happen if everyone paid off their debt in 5 years? - Off The Reservation - 03-20-2017
The money is created via debt so there would be no money.
What would happen if everyone paid off their debt in 5 years? - TrifeLife - 03-20-2017
Some good responses on this thread.I think the OP was asking more specifically what would happen if everybody paid off their personal debts, CC and mortgage and what not. Not the event that every debt owed in the entire economy be paid off.
I think this scenario is more interesting to think about. Obviously there would be a negative demand shock, but the whole thing wouldn't come grinding halt if there was still commercial debt.