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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4answers
204 views

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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51 views

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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37 views

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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50 views

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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Does the US Federal Government keep public records of annual service payments on external (foreign-owned) public debt?

I'm doing some research on international debt policy, and I'd like to be able to compare some statistics I've compiled of external public debt in HIPC (heavily indebted and poor countries) with the ...
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1answer
35 views

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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How to find US total debt?

Sorry i'm not really an economist but I don't know where else to ask. I'm reading Ray Dalio's Big Debt Crises and he has several graphs for total US debt burdens https://imgur.com/a/tPX3LuH where it's ...
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Is investment in real estate a real investment?

In the book The Financial Crisis and the Free Market Cure in chapter 3 author said that investment in real estate is not really investment. It is jobs that create ...
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1answer
37 views

Statistics of links between public debt and recessions

When the debt of a country gets above a certain level, is there a bigger chance for an economic crisis, recession or even civil unrest? I know things are different today. But did anyone bother to ...
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Why do banks take deposits if they do not need them to make loans?

I have taken some economics courses in university, where I was introduced to fractional-reserve banking. From my understanding, in fractional-reserve banking, the bank has motivation to encourage ...
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Why might it make sense to buy bonds in a company facing restructuring?

In this video, Sal Khan states, "If you really thought that Lehman Brothers in the long term was going to come back, what you might want to do is somehow try to become one of its bondholders, and ...
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Biggest foreign owners of China debt?

It is already known that China and Japan are the biggest owners of US debt - about one trillion dollars each. But who are the biggest owners of China debt? I mean the foreign owners.
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Does China issue treasury bonds too?

The USA is issuing a lot of treasury bonds and investors are buying it. But does China issue such bonds too? If yes, then how many such bonds did they issued and who are the largest owners of those ...
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272 views

Why does the Loanable Funds Market model use the real interest rate instead of the nominal interest rate?

As far as I understand, the majority of loan contracts specify a nominal interest rate, NOT a real interest rate. So a hypothetical loanable funds markets would have people suggesting potential ...
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Why would non-investment grade debt be issued at the investment-grade debt market?

Newsweek quoted Bentley University Prof. David Gulley Ph.D., Univ of Kentucky-Lexington, 1990 M.A., University of Kentucky, 1989 B.A., Alma College, 1986 A \$10 Trillion Corporate Debt Bomb Is ...
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Why did Germany use hyperinflation to free itself from an external debt?

Im reading about how Germany used almost any solution To free itself from its WWI debt: hyperinflation, calculating payments on the basis of the economy's potential, rescheduling annuities and finally ...
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What are the uses of overnight loans?

As far as I understand an overnight loan is a loan that is settled the next day. Who are the entities that would find it useful to take a loan just for a day? and, what would they use an overnight ...
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Are government bonds internal or external debt?

I was watching this video and since it's a bit oversimplified I wanted more information. I was curious because internal debt is in the local currency from local lenders, while external debt is in a ...
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70 views

What does the Fed do with their profits?

As far as I understand the system the Fed prints money which it then uses to buy bonds. Bonds are basically statements of debt meaning that the Fed receives interest from the parties it has bought the ...
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47 views

Which is safer in the long-term, diffuse debt or concentrated debt?

I want to deepen my understanding of risks as posed by debt burdens among actors of an economy. After some literature review, it seems the matter is nuanced; points can be made for both sides. I'll ...
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42 views

Does the government ever pay back its debt from the OMO to the Fed? [closed]

I'm getting confused about how exactly does money being created by the Fed. From investopidia.com: ...
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239 views

How can people save in a equilibrium economy?

Two people on a desert island: John produces 100kg potatoes and sells them to Paul for \$100. Paul catches 100kg fish and sells it to John for \$100. GDP is \$200\$, right? Next year, they improve ...
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68 views

How can increasing debt boost potential returns?

May 26 2020. Why Even Carl Icahn Couldn't Save Hertz From Chapter 11 - Bloomberg Hertz’s debt binge began when it was acquired by private equity firms from Ford Motor Co. in 2005; the new owners ...
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How can a sovereign debt ratio be high, but debt-servicing ratio be low?

I'm quoting this May 22 2020 interview with NYU Stern Prof. Nouriel Roubini. In other words, you’re saying that because of structural weaknesses in the economy, even modest inflation would be crisis-...
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299 views

How can we get negative **real** interest rate?

According to Fisher's equation, Real interest rate=Nominal interest rate - expected inflation rate So, how can we get negative real interest rate? I'm in doubts. On one hand, purely from algebraic ...
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57 views

Is there unnecessary duplication for borrowing in this circular flow of income diagram?

Here is a circular flow of income that I took from Krugman's macroenomics textbook. We can see that when firms want to borrow they can go to the financial sector and borrow savings of national and ...
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91 views

How do the Government, Firms and the Foreign sector pay their debts in this circular flow of income?

Here is a circular flow of income that I took from Krugman's macroenomics textbook. Please notice, in this diagram households just give their savings to banks (which are part of the financial sector) ...
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1answer
35 views

What happens on a banks balance sheet when the borrower submits loan payments?

When the banks lends me money my demand deposits end up in his liabilities and my loan is on his assets. Lets say I paid that money to somebody who has an account at another bank. Lets ignore how the ...
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Do states compete with each other when they emit debt?

Let's say that, for some reason (a crisis or similar), many first-world countries' states need to emit public debt to be able to pay the services the normally provide (pensions, health etc.). As I ...
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1answer
51 views

What would happen if the U.S. “refinanced” its national debt?

Interest rates are at historical lows. I believe they went negative in parts of Europe recently. Since interest on the national debt is one of the biggest, if not the biggest, expense item of the U.S. ...
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How can government mitigate the long-term effects of current shut downs?

I’m not well versed in economics by any stretch of the imagination. But I am confused with certain measures taken thus far by the government. There is currently a temporary shutdown of vast sectors ...
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What happens if you cannot lend more than what you have?

This is hypothetical but what would happen if you cannot lend more money than you have? Say you have £100, the maximum you can lend is £100. But somehow you lend £200 to Joe, and Joe spends all of it ...
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Banks are allowed to print money out of thin air. Black magic or what? [duplicate]

Today it is wide spread notion that the commercial banks cat create a money out of thin air. Simply by typing numbers on computer. Every time a bank gives a load to a borrower, the loan money do not ...
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Stimulus (Rescue) Package [duplicate]

With regard to the recent 2 trillion dollar coronavirus package, is the money just being printed or borrowed? A gentleman from the tax payer union claims the taxpayer will eventually be on the hook.
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Shouldn't the total global debt amount to zero and not $253 trillion?

In Jan 2020, the Institute of International Finance (IIF) came out with a report (read summary here) that the total global debt is expected to climb to a new all-time high of more than $257 trillion ...
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How to reconcile fact that “real interest=nominal interest - inflation” with prediction of the interest rate theory about expensivity of loans?

According to the interest rate theory higher price level will lead to following chain of events in the short run: Marginal propensity to save will decrease(ratio of spending/saving will change, people ...
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Do countries with high taxes end up with low government debt but high private debt?

I'm curious if my observation that some Scandinavian countries (Denmark, Sweden) have high taxes, low government debt, but high private (in particular high household) debt is applicable more generally ...
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National debt question

I have a question regarding the national debt. I understand that foreign governments and/or central banks hold somewhere north of $6 trillion of US Treasury securities. I have found minimal ...
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Why does the United States' national debt matter?

This might sound like a naive question, but I mean it quite honestly (please be aware that I am merely a high school student): Why does the United States' government debt matter? To be sure, based on ...
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Do local taxes help in paying back foreign debts?

I always wonder if increasing local taxes could help countries in paying off the foreign debts? I think taxes generate income in local currency. While foreign debts (from IMF, World Bank etc.) are to ...
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77 views

Current Account vs Net Exports

In Mian, Sufi and Verner (2017), the authors look at the impact of an increase in household debt on both net exports and the current account, and find a significant negative coefficient in the ...