If Every Country Is In Debt - Who's The Creditor?

Replies

• 

  Kaustubh Katdare

  ... and we complain about why there are no 'brainy' discussions on CE. The thing is, no one wants to participate in discussions that require extended use of brain. Huh?
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  silverscorpion

  #-Link-Snipped-#
  
  I believe there was already some question similar to this and someone mentioned this link too.. I think the same question was asked for IMF.
  
  Basically, the primary way I think it works is by Hedge %28Finance%29 one debt with another.. So, it must have started with some initial principal to start with. That initial amount could've come in many ways. When such an institute was started, all the member nations could've contributed something to create a working pool of money to lend from. Another way is, the bank may collect some membership fee from its members.. Although it's not much, it's something.. And another important source is the interest from outstanding loans..
  
  Also, as it's mentioned in the website, the loans which are handed out can be made into bonds or debt certificates and those can be used to raise further capital. In fact, this is the basis of investment banking..
  I think this is how the central money lending institutions manage to function..
• 

  silverscorpion

  The_Big_K

  If every nation prints their own money - there would be no reason for any country to be in debt!

  Absolutely!! But, a nation simply cannot do that, unless it wants to remove itself from the global economy and become a closed shell.
  
  For a nation to print currency and let it in circulation, it must have the corresponding amount of wealth. Simply put, if a nation prints new currency worth X, then it must add gold or Forex or some other form of wealth, equal to the same amount X, for maintaining the balance of economy in the country. If not, it'll be disastrous.. If a country simply prints as much currency as it needs and lets it in circulation, the first thing to happen will be, the international value of the currency will come down. Inside the nation, inflation will sky rocket.
  
  The best example for this situation is Zimbabwe. There are currency notes of denomination, believe me, 100 billion Zimbabwean dollars.
  
  
  
  If you Google the exchange rates of 1 USD against 1 Zimbabwean dollar, you'll understand.
  So, unless a nation wants to isolate itself, it can't print currency without having necessary value to sustain it.
  
  You can go through these links to get an idea of how money works, in general..
  
  Gold Standard
  Bretton Woods System
  Gold Reserve
• 

  Kaustubh Katdare

  @Silver: I agree with the points you've mentioned. But I think any country can do fine in the Global economy while being debt free. See, when the FED lends money to the banks, it doesn't do it for free. To be clear - the existence of the FED is NOT required. When they lend money, they sign bonds (which is nothing but a piece of paper). This means, every dollar printed has debt associated with it! If FED directs the US Bureau of Engraving and Printing to print money which it then gives to the US - with debt attached! It's important to note that the FED is backed by major US corporations which are purely profits driven!
  
  Since every dollar has debt associated with it, lending it to other nation generates more debt. Guess what? There's no more money to take care of the debt. The system is cyclic and keeps on generating debt!
  
  ...and FED exactly wants this to keep happening so that they remain in control of the world economy.
  
  SUCKS! 😡