Really Stupid Question Time - If Banks Simply Cancelled All Their Debt...

Imagine if the tax system was altered so that debt collection and car park security firms all went bust. The suits wouldn't have anyone to collect their ill-gotten gains for them!

They could cancel money and go back to trade.

I have two chickens, and am looking for five tubes of toothpaste. Are there any takers?

A bank's debt is the balance of everyone's account with the bank! So cancelling a bank's debt is saying everyone with money in that bank now has nothing.

Of course it was a matter of accountancy. If you lend your mate a fiver and she lends it to someone else, then the fiver you are owed, the fiver your mate has borrowed and lent, and the fiver owed by the third person are all "matters of accountancy", even though there is only one physical fiver. Think about what would happen if any of those debts were cancelled.

So now you're talking about customers' debt, not the bank's debt which is the opposite.

Yeah, you could say everyone and every company with money in the bank now has nothing, and everyone with debt now owes nothing. What do you think would happen if that happened? Nobody would ever put money in banks again. It'd be back to cash only or batering.

Fraid you got it wrong. Every quid lent is a quid someone else has deposited they would lose.

Read an economics text. I recommend Economics - Begg Fischer Dornbusch

OT to this but I thought it might seem familiar:

'they' could indeed do that....but that would (heavily) undermine trust in money (or at least government money....

however, what you are suggesting is *exactly* what government like the clown's are now doing via inflation...they're just doing it more slowly.... when it gets fast enough you have mugabe....

ps, it's not a stupid question at all...it is precisely the question you should be asking if you wish to understand socialism... they always destroy production and money....

here is the great keynes.... "Lenin was right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose." 1919

regards

...and unless they did it instantly, (or even if not,) those in the know would make sure they had maximum debts to be written off.

It's like communism: from those according to their ability, to those who have the need... and soon everyone has the need, and none the ability.

So does that mean that every time someone's debt is written off, or a third world debt is written off, someone else is subsequently actually paying that debt back without knowing it?

I'm always amazed how much economics seems to be a matter of opionion

-I reckon it's a natural science, and like most natural sciences, we just don't really understand it that well yet!

'Logician' wrote this:

Which sex are your chickens?

i truly believe he wants to brush the teeth of his chickens

regards

'abelard' wrote this:

Certainly ...always brush their teeth before letting them get down to pecking!

'Maria' wrote this:

Usually, but it often happens behind a cloak of obfuscation.

Govts wipe off a debt and then raise taxes to recover it. Banks might write off a debt and lower interest rates paid to depositors

-or- raise rates charged to other borrowers to recover the loss. They need to balance their books at close of business.

It's a zero sum game. Someone gains and someone else loses. There is no free ride.

I think some people do understand it quite well, but the problem arises when it gets mixed in with politics...

Not really. You see some people spent some of that notional money.

If someone had bought your house with borrowed money that didn't "really" exist, would you be happy to hand back the cash so that the debt could be cancelled?

Not really. Many of those businesses are owed some of that money. They'd be bankrupt if it were declared null and void. Look what's happened to the banks once debts have been cancelled by din't of them being declared uncollectable.

FoFP

"I have a house. I'm looking for six cars, 10,000 bottles of beer,

100 tubes of toothpaste, 25 years worth of food, seventy-six Hawkwind LP's and so on. Does there happen to be a buyer with these items who is looking for my house? Please be prepared to deliver these items over the next 25 years to my preferred schedule".

FoFP

Depends if you're paying attention. You pay more for stuff, or pay more, or receive less interest, to make up for the risk inherent in lending.

This is why it's more expensive to borrow if you're a higher risk.

FoFP

Since we are not getting interest on our savings, less is not an option. Unless of course they intend to charge us for talking care of our money!

'Ophelia' wrote this:

I have heard that mooted recently. Whether it would be applied to savings accounts I dunno.

I don't know whether we are in a good position or not! We own our property and cars and have no debts. It would seem to be the ideal. But is it?

In fact the banks are talking about doing precisely that.

More interestingly, during Japan's debt-deflation there have been points where even the large bondholders paid the banks to warehouse their cash.

FoFP