One Man’s Debt Is Another Man’s Financial Asset

Jared Bernstein wants us to reconceive of debt, and I agree. The problem I have is that a lot of conventional wisdom in the post-bubble developed world seems to be moving toward the literally impossible notion that everyone should be a saver. It’s bad, we’re told, for governments to run deficits. But it’s also bad for households to be indebted. Germany, with its high savings rate and (currently) tight fiscal discipline is to be admirerd and, indeed, emulated. 

I think it’s possible that the excessive popularity of massively multiplayer online roleplaying games is confusing people about this. It is possible, in many gaming environments, for each player to simply accumulate gold. The actual financial system doesn’t work like this. Your debt is my loan. I save money by depositing it in my account at PNC, which is to say I lend the money to PNC who, in turn, lends it out to their clients. Germany is a net exporter because it’s a net saver, but that in turn requires someone else to be a net debtor and net importer. It’s quite possible that the overall scale of the imbalance between lenders and borrowers, importers and exporters, etc. has gotten out of whack. But it’s a push and a pull. It doesn’t make sense to think that everyone can simultaneously borrow less, unless your plan is for incomes to fall across the board.