Questions tagged [debt]
An obligation to pay another party at some point in the future. Examples include national debt, corporate bonds, and household credit.
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what portion of US consumer spending that is debt-financed (looking for data source)
In a piece from Business Insider, we read:
US households today have a savings rate of just 3.7% — way below the historical levels of 9%. Meanwhile, consumer spending exploded by \$208 billion in the ...
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By how much does debt exceed credit in major currencies?
Fiat currency is created by issuing loans.
Assume 100 crowns (a non-specific currency) existed before the crown became a fiat currency.
Every time a new 100 crown loan is made, 100 crowns of credit ...
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Would it work? A tax that automatically toggles on-off
Could we create a tax that automatically toggles on or off depending on the state of the economy taking into consideration that the revenues would be saved for further use, either to stimulate the ...
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How does a bail bondsman make a profit?
I hope I'm asking this on the right site and used the right tags.
When looking into the concept of bail bonds on Google, I was told bail bondsmen are paid a fee to post a defendant's bail- but also ...
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How do bonds & shares relate to the money supply?
Non-eocnomist here. I'm trying to understand how money works, and what "money supply" means.
I understand about how banks take deposits and lend them out, turning short term loans (the ...
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Do banks influence each other's decisions to issue bonds, via a dependency graph?
This questions is about how to model the growth of a bond market. Consider a large set of banks, such as HSBC, BNP Paribas, etc, that can enter into syndication (i.e. join together in small groups) to ...
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China interest rates
"the PBoC said it would keep interest rates below the nominal GDP growth rate as a way of maintaining debt sustainability. But this only makes debt "sustainable" by implicitly ...
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Meaning of $\frac{A}{r}$ in standard debt model:
Given the model of debt and repayments given by the first-order linear ordinary differential equation (ODE):
$\frac{dD}{dt} - rD = -A$
In this model, $D(t)$ represents the consumer's debt at time $t$, ...
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Why does increase of national debt of the USA not lead to inflation?
Increase of national debt is increase of money supply.
But why does increase of national debt of the USA not lead to inflation?
Thanks.
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Why would a company file for bankruptcy now when it can always do so later?
Taking FTX as an example, I know they took depositors' funds, send them to SBF's other company Alameda Research which then made risky crypto investments and failed.
This made FTX hold less assets than ...
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Expected vs actual inflation and the real debt burden
The real rate of return is given by:
1+r=(1+i)/(1+π)
and it can easily be shown that:
1+r ≈ i-π+1 so that r ≈ i-π
This can be used to calculate real rates of return, or equivalently the real debt ...
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How can debt be larger than gdp? [closed]
government is taking debt because they spend it all at once and pay it over time so if you spend all at once there will be increase in gdp(multiple increase in gdp as money changes hands multiple ...
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How come Greek debt is only a few dozen bps above US debt?
I see Greek 10Y debt yielding only +86bps spread over US 10Y debt.
Greek debt to GDP runs above 190% and was not decreasing even prior to the pandemic response. Moreover, Greece has gone through ...
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Is there any example of being in debt not being considered particularly bad? [closed]
I was thinking about how useful debt is, in contrast to a common sentiment that it’s a ball-and-chain to be avoided. Without credit, one can hit zero funds with no alternative. With credit, one can ...
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How does debt-financed public infrastructure spending stimulate the economy if money supply is unchanged?
When a national government embarks on public infrastructure projects to stimulate the economy, the money spent on the infrastructure projects increases the money supply. However, if the projects are ...
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Effect of tax on required return on debt (and equity)
Debt financing has a tax advantage over equity financing, as the borrower gets reimbursed the tax on interest payments and other debt-servicing costs. Thus
$$
R_{\text{WACC}}=\frac{E}{E+D}R_E+(1-T_C)\...
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Cost of debt: How to adjust YTM for the possibility of bankruptcy?
When calculating the weighted average cost of capital (WACC), it may be tempting to use the debt yield (yield to maturity, YTM) as the cost of debt. However, Berk & DeMarzo note in Chapter 12 of &...
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WACC: forward looking vs. backward looking
I have learned from the thread "Cost of debt, taxes and WACC" that WACC is forward looking in that it disregards the interest rate on debt already taken by the firm but rather use debt's ...
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Cost of debt, taxes and WACC
I am studying the cost of debt. Without loss of generality, suppose the debt consists of bonds. On the one hand, some textbooks (e.g. Hillier et al. "Fundamentals of Corporate Finance: 4th ...
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How does high external debt hurt GDP?
Really confused by this. Say debt burdens increase and country A now has to spend more of its income towards servicing its debt to country B, causing a fall in consumption. Country B now has more ...
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Consequence of student debt forgiveness
US government has recently announced student debt forgiveness plan (link). What are the consequences of student debt forgiveness that is discussed in the economics literature, encompassing its effects ...
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Can this transactions log become "money"?
TL;DR:
Mankind started trading in barter. Trade was simple so people could use word of mouth, their brain, or pen and paper, to find barter trade deals. However, as trading networks grew in size, ...
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Eurozone crisis between 1990s-2010(?)
Earlier when the Eurozone is established, the countries have a problem of competitiveness: the growth of wages is much faster than the growth of productivity. This high salary results in high prices ...
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long term and short term debt cycle
Ray dalio in his video "how the economic machine" claims the economy works in cycles. Specifically, he claims there is a short-term and a long-term debt cycle.
https://youtu.be/PHe0bXAIuk0?...
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What was Debt Burden in 2008?
Ray dalio in this video "how the economic machine works" shows the debt peaking at 400% https://www.youtube.com/watch?v=PHe0bXAIuk0 When I look at a different source, I don't see anything ...
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How does inflation make the impact of public debt better?
Why is a high rate of inflation better for weathering effects of a huge govt. debt ?
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Are fixed rate mortgages better in periods of low interest?
Conventional wisdom is to lock in a low rate (by getting a fixed-rate mortgage instead of ARM) while we're in a period of historically low interest rates.
Assuming that you are going to own a house ...
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When debt to GDP is only around 85%, how can this article quote as 300%?
I was reading an article in FT, where debt to GDP is quoted as 300% for US and Japan. However, all the official sites for US quotes the debt to GDP as 85% for US.
This article is from a reputed ...
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Understanding Debt Deflation
I read the following explanation for debt deflation in my textbook:
To better understand how this decline in net worth occurs, consider what happens if a firm in 2018 has assets of 100 million (in ...
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Problem with the definition of external debt
This is how external debt is explained in wikipedia:
"In public finance, external debt (or foreign debt) is the component of the total government debt which is owed to foreign creditors; its ...
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What would the theoretical ramifications of a mass sell-off of United States bonds be?
If a sovereign nation or nations were to sell off large amounts (say 30%) of United States bonds, what effects would it have on the United States' economy and debt situation? I am guessing that a mass ...
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Debt cycle theory of Ray Dalio
I recently started reading Ray Dalio's book regarding BIG DEBT CRISES. He compared there, economy to the monopoly board game. There is something I don't quite follow in this analogy.
If you ...
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Is Fiat Money Ultimately Tax Based?
First, I am not an economist, so seeking general "good enough" answers. Since Nixon went off the gold standard the U.S. dollar has been a fiat currency backed by federal debt.
While I ...
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How is the United States net foreign wealth affected by a depreciation of the US Dollar?
My thought here is that if the dollar were to depreciate, then the value of US liabilities would decrease while the value of their assets would increase. Moreover, the US trade balance would become ...
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Why do we need to borrow?
(I have super limited knowledge with economics/finance/etc so please forgive me for any misunderstandings or misrepresentations.)
Why do we need debt? People who make profit by lending to others don't ...
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Large National Debt by borrowing money from foreign sources
I have a question about the greater severity of large national debt caused by borrowing from foreign sources.
I am reading a book about elementary Economics and am currently on a chapter discussing ...
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A bank approves a loan: where does the money come from?
In the naïve picture of the banking system, banks strike a balance between savings invested in them by savers and the loans requested of them by borrowers. The money loaned to borrowers is the same ...
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confusion regarding debt and debit [closed]
According to it's etymology, the term debit comes from the word debt, which means "the state of owing money.".
Among other meanings, liability is a contractual obligation to deliver cash ...
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How could DTI(debt-to-income ratio) go well above 1?
IMF Working Paper No. 19/258: Assessing Macro-Financial Risks of Household Debt in China
(PDF version)
The riskiness of household debt increased as well: between 2010 and 2016, the share of debt held ...
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Are there any Sovereign Debt Guarantees, apart from those issued by the US?
The US has been undertaking an irregular form of foreign aid, Sovereign Bond Guarantees, which entails guaranteeing some of the public debt of their allies, source here: https://www.cgdev.org/blog/...
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Financial manipulation and Inflation as tools for sovereign debt default
In the book This Time Is Different, by Reinhart and Rogoff, in chapter 8, the authors state that
Higher minimum level of reserves (?)
And/or upper bound/ceiling to interest rates ( will help increase ...
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How come debts is higher than assets?
Investopedia has a definition about Debt ratio, I do not understand how come Debt ratio can be higher than 1. Because it means that equity is negative (because Total Assets=Debt+Equity).
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Why debt/equity ratio is limited to between 0 and 9
Is there any economic reason that debt/equity is limited to between 0 and 9 as in the picture below?
This research examines the impact of the law on firms' financial flexibilities.
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Small Open Economy Without Government
Suppose we have an economy with a representative consumer with the following utility function: $$U=\sum_{t=0}^\infty\beta^t\frac{c_t^{1-\sigma}}{1-\sigma} $$ There is no uncertainty and the household ...
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External/Internal debt
https://www.bis.org/publ/work550.pdf
page 7 extract
"Third, the distinction between external and internal debt is important. External
debt, long seen as a key driver of financial crises in EMEs (...
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What happens to an MBS if all the underlying mortgages are fully paid back by the borrowers much before the maturity date?
What would happen to an MBS (mortgage-backed security) if hypothetically speaking all the underlying mortgages were fully paid back by the mortgagees (borrowers), much before the maturity date?
I ...
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What are the 'Public Account Liabilities' of the Government of India?
In the Quarterly Report on Public Debt Management for the Quarter Jul - Sep 2020 of the Government of India, an increase in 'Public Debt Liabilities' is declared.
What are they?
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Difference between 'Internal Debt' and 'Market Loans' in RBI public debt statistics
While perusing RBI public debt statistics, I am at my wits end in trying to figure out the table headers.
I am unable to sum up any combination of them to get any other.
Specifically, what is the ...
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Is the debt owed to resourceful producers by resourceless consumers practically irrepayable?
Here is my argument for the debt owned by resourceless consumers to resourceful producers (as currency, bonds, loans, or other means). Is it correct? If not, where am I going wrong?
Economic value is ...
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How does QE effect the collaterals?
For instance, the ECB accepts green bonds as collateral. And also they are more likely to include green bonds in a QE program.
Does this face make a green bond more valuable? How would it work in a ...
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