The Darkness of Debt

This may come as a shock to you, but debt is something new in the world.  For hundreds of years, Western society got along without debt.  Credit was extremely difficult to get, and large quantities of collateral were required.  If you could get a loan, you probably didn’t need one.  This all changed in the 1960’s, with the advent of commercial paper, bonds floated by companies for short-term financing.  At the same time, the credit card appeared, beginning a descent into the darkness of spending what you have not earned yet.

There is a fundamental reason that debt has become so common; loaning out money creates money.  In American accounting, if someone owes you money, it makes your net worth go up.  Even if there is a good chance that they will not be able to pay you.  And you can charge fees for late payments, over limit balances, and several other things, which is creating money.  Just saying that someone owes you money makes that money appear.  So we can claim that we are worth whatever we want, until we have to pay somebody else.  Right now, everyone is claiming that they, and the things that they own, are worth lots of money.  But how much of that money is real?  Does real wealth evaporate over night?


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