New answers tagged debt
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Adding my afterthought here. There are two groups of people:
the small group, not-so-responsible: they spend more than they earn.
the responsible: it actually needs some effort to track how much one spend a year. Because spending can causes asset price increase, one may spend more than s/he earns, but still have total net worth increase. The illusion that s/...
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The question is belied by some basic misconceptions. Just to list a few:
The comparison of GDP in nominal terms and implied statements about growth.
The definition/measurement of GDP (where saving is apparently not part of GDP).
The (completely) arbitrary prices of goods being prescribed for this economy.
The meaning of equilibrium.
John produces 100kg ...
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It may help to forget money for a moment and focus on real goods. What saving ultimately means is that by working harder now, people can gain more leisure in the future. If the only goods are perishable foodstuffs, then indeed net long-term saving is impossible. People will have to do just as much work in the future to feed themselves, regardless of how much ...
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You dont even have to have money or other people to make transactions with to save. In economics savings is a proportion of your output/income that is not consumed.
For example, you can have a Robinson Crusoe on an island all alone and he can save. An example, Crusoe will collect 10 pieces of wood uses 5 for fire and other 5 are left for later. That is by ...
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At the national (macro) level in a closed economy, total savings must equal total investment. Total savings are total output - total consumption.
If there is no "savings technology" with a depreciation rate below 100% in your economy then there can be no savings. I.e. there has to be a way to store things without losing 100% of what you store.
Can John ...
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Your definition is not applicable to governments. The definitions used depend on governments.
For governments with external debt (Foreign currency debt), there are standard definitions: link to IMF external debt document.
But for a country like the United States without external debt, there does not appear to be a standard definition. People generally ...
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This is because the cost of servicing debt depends critically on the interest rate on that debt. When interest payments are low the cost of servicing debt will be lower as well.
A general debt servicing ratio can be expressed following this Fed study as:
$$ DSR = \frac{i_t}{1- (1+i_t)^{-s}} \frac{D_t}{Y_t}$$
While the authors from Fed apply this debt ...
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There is a market for inflation-linked bonds. The quoted yield on the bonds is the equivalent of a real yield, with the inflation rate corresponding to expected inflation.
The real yields On US inflation-linked bonds are currently negative. Link to FRED data.
There is no mystery to this.
Nominal yields are effectively pinned to the expected path of the ...
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The Fisher equation does not necessarily implies the chain of causality is from the inflation or nominal interest rate to the real interest rate.
The real interest rate is given by the intersection of the IS LM curve - as shown on the diagram below. The real interest rate depends on the availability of savings. The same way as recently the futures oil price ...
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Explanation for kids
Japan is a middle-aged doctor who took out a second mortgage maybe they shouldn't have. They are still wealthy, and still have a great, high income job. So people will take more chances loaning them money, even if the debt is starting to pile up. If worse comes to worst, this doctor can always sell their vacation condo to make ends meet....
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No because the financial markets do not provide firms with capital they provide them with funds to buy capital which is a difference. You can call those funds financial capital but it’s not capital in economic sense.
In common usage in English capital is often used as a synonym for money. For example in Oxford dictionary under the word capital the second ...
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How do the Government, Firms and the Foreign sector pay their debts in this circular flow of income?
For the households it would through the savings arrow. Borrowing from macroeconomic perspective can be and in most advanced textbooks (such as Romers advanced macroeconomics) is often treated as a negative saving.
Hence when the households and businesses borrow they incur negative saving and when they repay debts it can be viewed as a positive increase in ...
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