<p>So there are a couple of things you want to consider:</p>

<p>1st: It is not true that if some country gains 1% some other country must have lost that 1% of economic growth. The economy is not a zero-sum game where the gains of one person are the losses of another one. In fact, usually, it is the opposite. Think about it this way, if the US grows by a lot it also means that they will buy more things from other countries so these countries will probably also grow faster. </p>

<p>2nd: Money is just the means by which we keep track of, and do transactions. At the end, what really matters is how much stuff is produced (goods or services). That is why if some country produces more things, everyone can benefit from it. </p>

<p>I do understand your logic that if the Bank produces 100B of coins how can they expect to get back 101B? Once you think of it in terms of stuff, the puzzle is resolved as follows:</p>

<ul>
<li>The bank lends you the money so you can buy and plant seeds (these are the 10B), they expect to get back some of the benefits from this productive project after you produce apples (they could directly ask to pay back in apples, but this would be impractical, that's one of the reasons we use money, so instead  they ask you for the 10.1B). Of course, if the bank does not print more money where will the .1B come from? Well, indeed the bank will never ask for 1% interest if they know there is no physical way to actually pay it back. </li>
<li>What really happens is that the bank understands that if an economy is growing, she needs to constantly be printing money, so people can easily do and keep track of all the transactions they do. Therefore, when they ask for the 1% interest, first this is possible, because there is more money out there in the economy, and second, they choose how much interest to charge in order to reflect that they expect you to do something productive with the money (interest also depend, of course, on how risky is your project, and other factors).</li>
</ul>

<p>I am over-looking the whole issue of inflation to keep things simple and explain the main logic of why banks (including the central bank) charges interests. Whenever you think about whether a debt can be paid or not; the relevant question is not if there is enough money out there to pay it. Rather the relevant question is if the money loaned is being used in a productive way so that it can later pay the interests. And if the answer is no, we care because that means that the money loaned is being wasted, instead.</p>

CC BY-SA 4.0
2019-05-08T06:06:13.907Z
In the sample I made, the extra 1B is not there jet. So you say that the bank will print more money to allow the countries to pay have that extra 1B? Won’t that 1B have also an interest? How to cover that? Why do we even need interest if we need extra money to be printed to pay it back?
alec_djinn
CC BY-SA 4.0
2019-05-08T06:12:02.873Z
Also, mathematically I don’t get your first point. Given a fixed amount of money, if one gains, another must lose. Else you continue to print money but then is the same, if one gains, another must ask for more debt. Am I wrong? Is there any scenario in which all the parties have more money they started with and no debt?
alec_djinn
CC BY-SA 4.0
2019-05-08T15:38:42.307Z
I understand your confusion, money is really tricky, and you can spend a full semester thinking and understanding why we need money in the first place, why do we need to print more money constantly, etc. My point is that interests are not about the actual coins you get back, but rather about the extra value (measured in terms of stuff, not money) that you get as a reward from lending someone money).
Regio
CC BY-SA 4.0
2019-05-08T15:41:58.807Z
Probably the easiest is to assume there is no money in the economy, even in this barter economy, if I were to lend you some resources, say a piece of my land for a couple of years, not only would I want that piece of land back at the end of those years, but also some of the benefits from what you produced on it. This is the interest. Why do I want this interest, because otherwise I could have done something productive with that land, so I won't lend it to you unless you compensate me.

Printing money is not what motivates interest, nor is necessary to have interest.
Regio
CC BY-SA 4.0
2019-05-09T05:51:43.760Z
The field metafore doesn’t stand. Stuff grows on the fields. Money don’t grow by themself. Any extra earned must come from somewhere.
alec_djinn
CC BY-SA 4.0
2019-05-09T11:42:27.483Z
@alec_djinn "Given a fixed amount of money, if one gains, another must lose." Wait, so whenever you go to the store to buy groceries, you are losing on the transaction, you feel robbed?
Giskard
CC BY-SA 4.0
2019-05-09T11:51:36.213Z
Of course I don't feel robbed. But when I exit the grocery store, sute enough I will have less money then when I have entered.
alec_djinn
CC BY-SA 4.0
2019-05-09T12:22:01.860Z
@alec_djinn But are you losing on the transaction? Would you prefer not to do the transaction?
Giskard
CC BY-SA 4.0
2019-05-09T12:43:35.153Z
@Giskard Absolutely not. But how is this related to the question? I am not questioning the usefulness of transsctions but of the world debt...
alec_djinn
CC BY-SA 4.0
2019-05-09T15:09:48.213Z
I don't know why you refuse to see money and stuff as interchangeable. @Giskard 's point is that interest rates are not there in order to receive more coins (whether this is mathematically possible or not. In your example if no more money is created - though there are multiple ways it can be created- then it cannot be repaid), but rather interest if there in order to receive more stuff from the resources you lent. If money had no counterpart with real stuff, we wouldn't even need money. So interest are there to provide good incentives for borrowing and lending in terms of real stuff not  coins
Regio
CC BY-SA 4.0
2019-05-10T17:03:08.877Z
@Regio Probably I am not able to ecplain myself properly. I acknowledge the interchangeability of money and stuff. But this is not what my question is about. I am asking I the world debt can be ever paid off or if it is destined to grow over time. Imagine the economic system will stay the same for the next 1000 years, would the world debt in 3020 be sky-high or similat to the one we have now?
alec_djinn
CC BY-SA 4.0
2019-05-07T20:48:03.703Z
2019-05-07T20:48:03.703Z
Regio
<p>Money can circulate multiple times. If you borrow \$100B (all the money in the world) and spend it on new factories (all the factories in the world), you are giving the money to the workers (all the workers in the world) to set up the factory and then to make things. Since your factories are producing all the stuff in the world, all the stuff they buy comes from you and they give you money. Some of that money goes back to the bank. But what does the bank do with it? One thing that the bank does with its money is to pay its employees, who buy stuff (from your factories) and thereby give you money... which you can pay back to the bank.</p>
<p>In fact, the bank can even lend you \$150B when there is \$100B in the world. Your factory doesn't just magically appear one day - you pay workers to build it. So you pay the workers \$1000 per week per worker, and what do they do with the money? They put it in the bank (because there is nothing to buy because you are still building your factory). Even if there was something to buy, where do you think the shop would keep the money that the worker paid to the shop? That's right, in the bank. So the bank still has \$100B at all times. Even after you've paid \$100B to the workers, the bank still has \$100B left and it can let you pay another \$50B.</p>

CC BY-SA 4.0
2021-10-28T15:14:59.550Z
That comes back to the point that to make more money you need more debd. So debt, at last, can't be repaid. In the current system, there will always be more debt than money in circulation.
alec_djinn
CC BY-SA 4.0
2021-10-29T06:03:24.197Z
In your example, it seems that the worker's salary doesn't have an interest rate, but in reality, it has. What the worker receives as a salary got generated as a bank loan in the first place, the money to cover the salary wouldn't exist otherwise. The same is for the money used to build the factory, the phone, and the rest. At the very beginning of their existence, that cash was given as a loan from a central bank. The cash can circulate indefinitely in the economy, but it will always be less than enough to repay the loan debt.
alec_djinn
CC BY-SA 4.0
2021-10-29T06:10:47.333Z
So, following your example, this is what happens in reality. 1) A central bank loans 1000 to the local bank, at say 1% interest. The local bank pays the worker the same 1000. The worker buys an iPhone with that money. There are 1000 circulating in the economy, but 1010 are needed to repay the full debt to the central bank. That extra 10 does not actually exist. The local bank can get enough money to repay the debt by making a profit, for example. But that profit is still money that was circulating in the economy. They are also attached to some debt.
alec_djinn
CC BY-SA 4.0
2021-10-29T06:13:41.930Z
So, in the end, if you sum all the money in existence, it will be less than the total debt. The debt is going to exist and grow over time, there is no way to get rid of it. This is happening in practice, indeed the debt ceiling is pushed further up regularly by most of the world's nations. So, my question is WHY DO WE CARE about repaying the debt if ultimately it cannot be zeroed away?
alec_djinn
CC BY-SA 4.0
2021-10-28T10:59:31.350Z
2021-10-28T10:59:31.350Z
Criticize SE actions means ban
<p>Let me apologize if my questions sound stupid to experts. I have no training in economics. I am just curious and puzzled. I couldn't find any answer to the questions below.</p>

<p>As far as I have understood, broadly speaking, money is created by central banks and landed to governments with interest and creating debt.</p>

<p>Now, let's take a simple example. Let's imagine a world with 10 countries and 1 central bank. The central bank gives 10B (billions) to each country (100B in total) at a 1% interest rate. At the end of the year, the world owes 101B.</p>

<ul>
<li>Where is this extra 1B coming from?</li>
<li>Since 1B was never created in the
first place, how can the 1B be paid back?</li>
<li>If it turns out that   the world cannot actually ever pay back the full debt, then why do we care? What is the use of the 1B in debt?</li>
</ul>

<p>Of course, the countries are in business with each other. During the year some will gain money, some will lose money. The countries that managed to gain that 1% can pay back the interest, but hardly the full debt. In general, for each 1% gained by some country, others must have lost that money.</p>

<p>So it appears to me that with such a design <strong>1) the debt cannot ever be paid back</strong>, <strong>2) someone must go bankrupt in the long run</strong> and <strong>3) the debt can only grow over time (since it cannot be fully paid back)</strong>. Is that true or am I missing something?</p>

<p>Just to be clear, I get why we need money. I don’t get why we need debt. Wouldn’t capitalism work as well if central banks could just distribute money around as needed without asking them back? </p>

<p>I don't think this question duplicates  <a href="https://economics.stackexchange.com/questions/8318/how-is-the-interest-on-fractional-reserve-money-creation-paid">this one</a>. While the linked question does explain the mechanism of money and debt creation, it doesn't shine light on WHY we care about debt, nor whether  it is possible to ever pay back the world debt if it is destined to steadily increase over time.</p>

CC BY-SA 4.0
2019-05-07T14:35:00.813Z
Possible duplicate of [How is the interest on fractional reserve money creation paid?](https://economics.stackexchange.com/questions/8318/how-is-the-interest-on-fractional-reserve-money-creation-paid)
410 gone
CC BY-SA 4.0
2019-05-07T14:35:46.030Z
Why the downvote?
alec_djinn
CC BY-SA 4.0
2019-05-07T14:37:48.897Z
@EnergyNumbers It is not the same question even if the topic partially overlaps.
alec_djinn
CC BY-SA 4.0
2019-05-07T22:09:58.970Z
It's a duplicate because the answers there, answer your question here.
410 gone
CC BY-SA 4.0
2019-05-08T05:48:58.970Z
The WHY DO WE CARE part is fully missing.
alec_djinn
CC BY-SA 4.0
2019-05-08T18:21:46.900Z
Personally, I care because my neurons tell me to.
Giskard
CC BY-SA 4.0
2019-05-09T05:42:52.370Z
@Giskard  Any logic behind this or is it just a feeling?
alec_djinn
CC BY-SA 4.0
2019-05-09T05:46:28.727Z
It would be nice to know the reason for the downvote. Is there something unclear in my question?
alec_djinn
CC BY-SA 4.0
2019-05-11T12:22:01.983Z
Who exactly does the **world** owe their debt to? The Deceptecons in outer space? Issuers of their currency don’t owe **their own currency** to anyone else.
aliteralmind
CC BY-SA 4.0
2019-05-11T23:35:21.937Z
@aliteralmind is then the debt pointless? This is what I am asking.
alec_djinn
CC BY-SA 4.0
2019-05-12T01:09:25.647Z
@alec_djinn Selling bonds is completely optional – non economically necessary. Offering above a 0% interest rate is completely optional (serves only as welfare for the rich, since paying them back has literally 0 probability of default). Practically speaking, it is the people’s (all currency users’) debt free savings – literally the money in their bank accounts, investments, & wallets. Once sold, of course paying them back individually on maturity or request is important. But “paying the national debt back” as a whole is nonsensical. Economist Stephanie Kelton: https://youtu.be/9BYhoMILwR4
aliteralmind
CC BY-SA 4.0
2019-05-12T01:13:43.833Z
Paying back US treasuries has not only zero probability of default but also consumes zero real resources, directly speaking, so is literally effortless (beyond the energy to click the numbers on the computer keyboard) and economically harmless. https://youtu.be/cHp4h6yRnfY
aliteralmind
CC BY-SA 4.0
2019-05-13T10:33:08.587Z
@aliteralmind I am not talking about US debt only. What about the world debt. In Europe for example countries have real debt. They borrow from the European central bank. It's different from the USA getting money from the FED.
alec_djinn
CC BY-SA 4.0
2019-05-13T11:29:22.760Z
@alec_djinn My comments only relates to the public debt of a sovereign fiat currency issuer .
aliteralmind
<central-banking><debt>
Is it possible to repay the world debt? If not, why do we care?
alec_djinn
# Is it possible to repay the world debt? If not, why do we care?

(Asked by: username_0 on 2019-05-07)

Let me apologize if my questions sound stupid to experts. I have no training in economics. I am just curious and puzzled. I couldn't find any answer to the questions below.

As far as I have understood, broadly speaking, money is created by central banks and landed to governments with interest and creating debt.

Now, let's take a simple example. Let's imagine a world with 10 countries and 1 central bank. The central bank gives 10B (billions) to each country (100B in total) at a 1% interest rate. At the end of the year, the world owes 101B.

* Where is this extra 1B coming from?
* Since 1B was never created in the
  first place, how can the 1B be paid back?
* If it turns out that the world cannot actually ever pay back the full debt, then why do we care? What is the use of the 1B in debt?

Of course, the countries are in business with each other. During the year some will gain money, some will lose money. The countries that managed to gain that 1% can pay back the interest, but hardly the full debt. In general, for each 1% gained by some country, others must have lost that money.

So it appears to me that with such a design **1) the debt cannot ever be paid back**, **2) someone must go bankrupt in the long run** and **3) the debt can only grow over time (since it cannot be fully paid back)**. Is that true or am I missing something?

Just to be clear, I get why we need money. I don’t get why we need debt. Wouldn’t capitalism work as well if central banks could just distribute money around as needed without asking them back?

I don't think this question duplicates [this one](https://economics.stackexchange.com/questions/8318/how-is-the-interest-on-fractional-reserve-money-creation-paid). While the linked question does explain the mechanism of money and debt creation, it doesn't shine light on WHY we care about debt, nor whether it is possible to ever pay back the world debt if it is destined to steadily increase over time.

**Tags:** central-banking, debt
> **Comments:**
> **username_1**: Possible duplicate of [How is the interest on fractional reserve money creation paid?](https://economics.stackexchange.com/questions/8318/how-is-the-interest-on-fractional-reserve-money-creation-paid)  
> **username_0**: Why the downvote?  
> **username_0**: @EnergyNumbers It is not the same question even if the topic partially overlaps.  
> **username_1**: It's a duplicate because the answers there, answer your question here.  
> **username_0**: The WHY DO WE CARE part is fully missing.  
> **username_2**: Personally, I care because my neurons tell me to.  
> **username_0**: @Giskard  Any logic behind this or is it just a feeling?  
> **username_0**: It would be nice to know the reason for the downvote. Is there something unclear in my question?  
> **username_3**: Who exactly does the **world** owe their debt to? The Deceptecons in outer space? Issuers of their currency don’t owe **their own currency** to anyone else.  
> **username_0**: @aliteralmind is then the debt pointless? This is what I am asking.  
> **username_3**: @alec_djinn Selling bonds is completely optional – non economically necessary. Offering above a 0% interest rate is completely optional (serves only as welfare for the rich, since paying them back has literally 0 probability of default). Practically speaking, it is the people’s (all currency users’) debt free savings – literally the money in their bank accounts, investments, & wallets. Once sold, of course paying them back individually on maturity or request is important. But “paying the national debt back” as a whole is nonsensical. Economist Stephanie Kelton: https://youtu.be/9BYhoMILwR4  
> **username_3**: Paying back US treasuries has not only zero probability of default but also consumes zero real resources, directly speaking, so is literally effortless (beyond the energy to click the numbers on the computer keyboard) and economically harmless. https://youtu.be/cHp4h6yRnfY  
> **username_0**: @aliteralmind I am not talking about US debt only. What about the world debt. In Europe for example countries have real debt. They borrow from the European central bank. It's different from the USA getting money from the FED.  
> **username_3**: @alec_djinn My comments only relates to the public debt of a sovereign fiat currency issuer .  

---

## 2 answers

### Answer by username_4 on 2019-05-07. Score: 4

So there are a couple of things you want to consider:

1st: It is not true that if some country gains 1% some other country must have lost that 1% of economic growth. The economy is not a zero-sum game where the gains of one person are the losses of another one. In fact, usually, it is the opposite. Think about it this way, if the US grows by a lot it also means that they will buy more things from other countries so these countries will probably also grow faster.

2nd: Money is just the means by which we keep track of, and do transactions. At the end, what really matters is how much stuff is produced (goods or services). That is why if some country produces more things, everyone can benefit from it.

I do understand your logic that if the Bank produces 100B of coins how can they expect to get back 101B? Once you think of it in terms of stuff, the puzzle is resolved as follows:

* The bank lends you the money so you can buy and plant seeds (these are the 10B), they expect to get back some of the benefits from this productive project after you produce apples (they could directly ask to pay back in apples, but this would be impractical, that's one of the reasons we use money, so instead they ask you for the 10.1B). Of course, if the bank does not print more money where will the .1B come from? Well, indeed the bank will never ask for 1% interest if they know there is no physical way to actually pay it back.
* What really happens is that the bank understands that if an economy is growing, she needs to constantly be printing money, so people can easily do and keep track of all the transactions they do. Therefore, when they ask for the 1% interest, first this is possible, because there is more money out there in the economy, and second, they choose how much interest to charge in order to reflect that they expect you to do something productive with the money (interest also depend, of course, on how risky is your project, and other factors).

I am over-looking the whole issue of inflation to keep things simple and explain the main logic of why banks (including the central bank) charges interests. Whenever you think about whether a debt can be paid or not; the relevant question is not if there is enough money out there to pay it. Rather the relevant question is if the money loaned is being used in a productive way so that it can later pay the interests. And if the answer is no, we care because that means that the money loaned is being wasted, instead.

> **Comments:**
> **username_0**: In the sample I made, the extra 1B is not there jet. So you say that the bank will print more money to allow the countries to pay have that extra 1B? Won’t that 1B have also an interest? How to cover that? Why do we even need interest if we need extra money to be printed to pay it back?  
> **username_0**: Also, mathematically I don’t get your first point. Given a fixed amount of money, if one gains, another must lose. Else you continue to print money but then is the same, if one gains, another must ask for more debt. Am I wrong? Is there any scenario in which all the parties have more money they started with and no debt?  
> **username_4**: I understand your confusion, money is really tricky, and you can spend a full semester thinking and understanding why we need money in the first place, why do we need to print more money constantly, etc. My point is that interests are not about the actual coins you get back, but rather about the extra value (measured in terms of stuff, not money) that you get as a reward from lending someone money).  
> **username_4**: Probably the easiest is to assume there is no money in the economy, even in this barter economy, if I were to lend you some resources, say a piece of my land for a couple of years, not only would I want that piece of land back at the end of those years, but also some of the benefits from what you produced on it. This is the interest. Why do I want this interest, because otherwise I could have done something productive with that land, so I won't lend it to you unless you compensate me.  Printing money is not what motivates interest, nor is necessary to have interest.  
> **username_0**: The field metafore doesn’t stand. Stuff grows on the fields. Money don’t grow by themself. Any extra earned must come from somewhere.  
> **username_2**: @alec_djinn "Given a fixed amount of money, if one gains, another must lose." Wait, so whenever you go to the store to buy groceries, you are losing on the transaction, you feel robbed?  
> **username_0**: Of course I don't feel robbed. But when I exit the grocery store, sute enough I will have less money then when I have entered.  
> **username_2**: @alec_djinn But are you losing on the transaction? Would you prefer not to do the transaction?  
> **username_0**: @Giskard Absolutely not. But how is this related to the question? I am not questioning the usefulness of transsctions but of the world debt...  
> **username_4**: I don't know why you refuse to see money and stuff as interchangeable. @Giskard 's point is that interest rates are not there in order to receive more coins (whether this is mathematically possible or not. In your example if no more money is created - though there are multiple ways it can be created- then it cannot be repaid), but rather interest if there in order to receive more stuff from the resources you lent. If money had no counterpart with real stuff, we wouldn't even need money. So interest are there to provide good incentives for borrowing and lending in terms of real stuff not  coins  
> **username_0**: @Regio Probably I am not able to ecplain myself properly. I acknowledge the interchangeability of money and stuff. But this is not what my question is about. I am asking I the world debt can be ever paid off or if it is destined to grow over time. Imagine the economic system will stay the same for the next 1000 years, would the world debt in 3020 be sky-high or similat to the one we have now?  

---

### Answer by username_5 on 2021-10-28. Score: -1

Money can circulate multiple times. If you borrow \$100B (all the money in the world) and spend it on new factories (all the factories in the world), you are giving the money to the workers (all the workers in the world) to set up the factory and then to make things. Since your factories are producing all the stuff in the world, all the stuff they buy comes from you and they give you money. Some of that money goes back to the bank. But what does the bank do with it? One thing that the bank does with its money is to pay its employees, who buy stuff (from your factories) and thereby give you money... which you can pay back to the bank.

In fact, the bank can even lend you \$150B when there is \$100B in the world. Your factory doesn't just magically appear one day - you pay workers to build it. So you pay the workers \$1000 per week per worker, and what do they do with the money? They put it in the bank (because there is nothing to buy because you are still building your factory). Even if there was something to buy, where do you think the shop would keep the money that the worker paid to the shop? That's right, in the bank. So the bank still has \$100B at all times. Even after you've paid \$100B to the workers, the bank still has \$100B left and it can let you pay another \$50B.

> **Comments:**
> **username_0**: That comes back to the point that to make more money you need more debd. So debt, at last, can't be repaid. In the current system, there will always be more debt than money in circulation.  
> **username_0**: In your example, it seems that the worker's salary doesn't have an interest rate, but in reality, it has. What the worker receives as a salary got generated as a bank loan in the first place, the money to cover the salary wouldn't exist otherwise. The same is for the money used to build the factory, the phone, and the rest. At the very beginning of their existence, that cash was given as a loan from a central bank. The cash can circulate indefinitely in the economy, but it will always be less than enough to repay the loan debt.  
> **username_0**: So, following your example, this is what happens in reality. 1) A central bank loans 1000 to the local bank, at say 1% interest. The local bank pays the worker the same 1000. The worker buys an iPhone with that money. There are 1000 circulating in the economy, but 1010 are needed to repay the full debt to the central bank. That extra 10 does not actually exist. The local bank can get enough money to repay the debt by making a profit, for example. But that profit is still money that was circulating in the economy. They are also attached to some debt.  
> **username_0**: So, in the end, if you sum all the money in existence, it will be less than the total debt. The debt is going to exist and grow over time, there is no way to get rid of it. This is happening in practice, indeed the debt ceiling is pushed further up regularly by most of the world's nations. So, my question is WHY DO WE CARE about repaying the debt if ultimately it cannot be zeroed away?  

---

