In Toronto there is a subway system run by the TTC or Toronto Transit Commission. They often square off certain parts of the subway route (Which is pretty fucking basic) in order to do some upgrades or fix bits. Lately they’ve been shutting down the subway rides into downtown on the weekends.
Anyway, They were doing some upgrades on the track and we were going by pretty slow making sure not to run over anyone while they scampered out of the way. Out of no where the power cut out. Now, I should say that I wasn’t the only one in the train car. The cars are decently long and I was at one end, and some woman was at the other end.
When I walked onto the train it was up at her end where there was a giant bubble of seats empty around her. She was displaying the typical signs of Batshit Crazy and people sort of avoided her. Everyone else was off, getting off at Yonge but I still had another couple stops east to go.
She was laughing, audibly, and I tried to tune it out by listening to some music but it never really worked. It was so chilling that my brain sort of just kept ignoring the music and focusing on her, so eventually I just unplugged the music and sat back, trying not to shit my pants.
So anyway, the power cuts out and here I am sitting at one end, as far away from her as I could possibly be, and the lights turn off for some reason.
She stopped laughing.
In fact, she stopped making any noise at all.
When the lights came back on about 5 seconds later when I had sufficiently shit my pants, she wasn’t at the far end. She was about 3 seats away from me.
Staring at me.
The second the train stopped I bolted for the fucking door.
After she ‘relocated’ she didn’t make another sound, she just kept staring.
If there are hundreds of countries in debt, where did all the money go?
Let’s say you bake bread and I have a dairy cow. Every day you and I trade some amount of your bread for some amount of my milk.
This is great, until one day you decide you’re going to take a break from milk for a couple of days…your orange tree just fruited and you’re going to drink orange juice for awhile. I still want bread, though. So I tell you, “Hey, listen, we’ve been doing business for a long time. If you give me bread like always anyway, then you can let me know anytime and I’ll give you some extra milk whenever you want it. You can give it as a gift or whatever.” You think that sounds good, so you keep giving me bread, and later when you have your parents visit from out of town, you’ll get some extra milk for them.
Now, I’m in your debt as soon as you give me the bread, until I give you the milk. I maybe traded the milk you would have normally consumed for something else, plus I have your bread. You’re ok with this because you trust that when it comes time for me to make good on giving you extra, I will.
Assuming we’re both trustworthy, what has really happened here is nothing more than time-shifting the distribution of goods. Instead of an even trade every day, I get a little more than usual now, and you get a little more than usual later. Everything evens out. Every time we do this kind of a deal, we could track how much bread or milk is owed to the other person by using shells. These shells, in this context, are a form of money.
Notice that normally we don’t actually need any money. It’s only when we want to time-shift someone’s production to some later time that we actually have to create money. So in that sense, the total amount of money that exists is a measure of how much is owed. (If no one owes anyone, we simply leave the shells undisturbed on the beach and do without them.)
You could think of these shells as being a measure of the amount of debt that is owed…but this isn’t quite right. If this was what debt is, then you can clearly see that your question is exactly right…we can’t both owe each other money, right? It just cancels out and we owe each other nothing in that case, and there’s no amount outstanding.
But this isn’t actually debt. What the shells represent in this example is actually credit. (Or, if you want to get more complicated, it’s a form of stock really, because you now have “ownership” of a small part of my operation…and that means you have a stake in it. If my dairy cow dies and I can’t afford to buy a new one, that affects you because you won’t get that milk you’re owed when your parents come to visit, even though I did get your bread.)
So what’s debt, then? Let’s say Bob comes along and says, “Hey, did you know that Sam over the hill makes great wine? I want some of your milk right now, and in exchange, I will buy you some of his wine and give it to you whenever you want it.” I say ok, sounds good, so I give you some milk and we collect some shells to symbolize what you now owe me. This is debt.
Why is this debt and not credit? For one simple reason: Sam never promised to give me or Bob any wine. No one in the entire system has promised to produce anything in exchange for those shells I have. It might be the case that Sam’s wine production is all spoken for; he has regular customers and they take all he can make everyday, so the only way I can get anything is if somehow he finds a way to bring up his production to give Bob so many shells’ worth. (Why would I make this deal with Bob in the first place, then? Because I know Bob, he’s a good guy, and I’m willing to say, eh, it’s his problem and I’ll trust him to sort it out when I want that wine.)
It turns out that in any economy, some amount of debt is actually a good thing. It pushes Sam to explore ways to make more wine because he finds out there is an increased demand for his product. It might lead to some winemaking innovations.
(This is why the emergence of “investment banking” is key to the growth of any economy. What investment bankers do is play the role of Bob, creating enough debt for everything that people want. If you read about the history of the United States, you’ll get to the part where the Founding Fathers were arguing about whether to create a Central Bank for the country. Once they did that, they created the conditions for an investment banking industry and the size of the economy suddenly exploded because people could suddenly afford to buy whatever anyone could figure out a way to produce.)
However, if there is too much debt for just our three little operations, that means we have given a bunch of our previous production to people like Bob that aren’t actually producing anything, and the people that are producing find they can’t supply enough for their regular customers as well as all those that are owed on behalf of others. If those people that were owed were really planning on having that stuff–like I might have invited my parents over thinking I’d have that wine to give them, but now they have to go thirsty–we might come to a point where I say I really need it and Sam says he doesn’t have it, and Bob is caught in the middle.
(This right here is why the government needs to have some way of regulating investment banking. Investment bankers are happy to keep gambling, creating more and more debt, based only on what people want to buy without any regard for what suppliers can reasonably produce. The answer of the investment banker is always, “Don’t worry! If we provide the demand, they’ll figure out a way to provide the supply!” Over the long term, when Sam is pushed by big incentives to research ways of making loads of wine, this is completely right; he’ll eventually find a way to do it if there’s enough shells to collect from people. In the short term, though, if we let investment bankers run wild they’ll create far too much debt way faster than Sam can keep up. Then we get bubbles like the 2008 real estate market crash. This is why the Central Bank was a precursor to investment banking: the Central Bank was the mechanism whereby the govt could regulate and set policy for the entire investment banking industry.)
Notice that when we created debt, we also used shells to represent it. At this point, when we did that, we change what the shells mean. Before, the total amount of shells being held in the entire world represented the total amount of credit in the system. This is a measure of how interdependent people are, how much stake they have in seeing each other succeed. When we used shells to represent debt as well, we have a situation where now the shells represent credit *as well as* how much stuff has been promised to people without consulting the suppliers that actually produce anything, i.e., credit plus debt.
In short, when most of the money out there represents credit, that’s a very good thing because it means a lot of trustworthy people have made promises to each other based on actual plans to meet those obligations. When most of the money represents debt, however, that means a lot of promises have been made with no specific plans to pay them back…it’s left to the future to figure out how to increase production or otherwise get those items to pay folks back. Like I said, a little debt is good; a lot…not so much.
But hopefully this also explains how you can have a lot of debt without anyone being the benefactor. If you suddenly get a lot of Bobs that make a lot of promises but don’t produce anything, boom, total debt goes up without anyone being better off.