That old adage: If you owe the bank a million, the bank owns you. If you owe the bank $2.5 billion, you own the bank.
You can only lend money to people (or States) you see as equals. Large scale lending essentially ties your economies together (like the US and China).
I highly recommend Debt: The First 5,000 Years by David Grabber. He does a great deep dive into the history of debt (both personal and with States). It's an amazing read.
> You can only lend money to people (or States) you see as equals. Large scale lending essentially ties your economies together (like the US and China).
Debt can also be a thinly disguised bribe if there’s no real expectation that it’s ever going to be paid back. That’s how most lending to extremely poor countries works. The US or other “donors” lend money to the local tyrant to support domestically unpopular policy; the local tyrant pockets a large amount, distributes some to their cronies and some goes on the titular reason for the aid and at some point in the future the debt gets written off. Then the cycle repeats. The US does not view any other states as equals. China has lent a lot of money to Sri Lanka and Cambodia among others. It does not view either as an equal.
> I highly recommend Debt: The First 5,000 Years by David Grabber. He does a great deep dive into the history of debt (both personal and with States). It's an amazing read.
It’s also riddled with factual errors, from saying Apple was founded by engineers working on their ok laptops or that the Fed isn’t part of the USG, among many, many others.
Long post on a small selection of the ways the book gets things wrong.
When I bought my house 20 years ago, it cost me about 20% more than rent, and now about 30% less than market rents.
In ten years, I’ll own it free and clear, a feat that would have been impossible if I was just flushing money down the toilet in rent.
Ditto with national debt. If I borrow a billion dollars and provide health care, education or defend the state, what value am I allowing to be created?
You borrow some money, buy a house, do it up, sell it for more, pay off the debt with some left over for your trouble.
That's using debt as a tool to make more money than you could have made if you didn't have access to credit to buy the house.
Or you borrow some money, build a car-factory, sell some cars, pay off the debt, and then have an income stream you couldn't have had without having access to credit to pay to build the car-factory.
Let’s say I have $1m in cash and I want to buy a house worth $1m. I could either buy the house with my cash, or take out a loan to buy the house and invest my cash into another asset.
Almost any investment will produce a greater yield than the interest cost of the mortgage because the mortgage is secured debt. A mortgage might cost 3% while stocks can return 7-10% or more.
In this scenario, taking on the debt even though you don’t need to is financially advantageous most of the time. In this sense debt is a tool.
Debt is also a tool that lets you afford a house that you can’t buy with cash on hand but where your income is easily enough for principal + interest. What’s better: a) saving for 30 years after you start working and buying a house in cash (maybe paying higher rent that whole time?) or b) taking on a mortgage, getting your house now (as soon as it’s responsible), and paying it off over 30 years. Most people will choose the latter.
Thus debt is a tool that also allows you to buy things far sooner (in life or business) than you could afford to with cash.
There are other things that can be done with debt like borrowing against existing assets (to avoid having to liquidate the entire asset just to get a little cash) or borrowing against expected revenue streams and so on. Most of these tools permit greater economic growth than is possible without.
Depending on where you live the situation may be on reverse. You may have a €100k mortgage at ~7% and be unable to get a better investment from your local banking system for the same amount of cash.
