Tuesday 12 March 2013

Can we borrow from the Future?

When respected commentators (Satyajit Das, Marketwatch) claim that "Debt allows society to borrow from the future" one has to wonder about the standard of economic discourse. There is no way that 'society' can borrow from the future. All borrowing is a transfer of purchasing power from one person to another. That is true even if no money changes hands. If, for example, a carpenter agrees to help someone building a house and be paid for his efforts on a future date this does not mean that anything is 'borrowed from the future'. All that has happened is that the recipient has now to service a debt that he incurred vis-a-vis the carpenter. Rising debt levels - on a national or international basis - therefore mean that some people (or countries) do have rising debts which correspond to rising assets (claims) that other groups of the population have. Some individuals therefore have a claim on others that will have to be serviced in the future (or written off). Rising debt levels always lead to rising inequality - an aspect that gets more and more attention as a consequence of the credit crisis