Crash Course Chapter 12: Debt

Now we enter part two of the Crash Course. With the background you’ve received thus far, you are now positioned to understand how the Three “E”s, the Economy, Energy and the Environment, intersect and seemingly converge on a very narrow window of the future - the Twenty-Teens. The next twenty years are going to be completely unlike the last twenty years.

We’re going to pick up two more key concepts in this section, and one of them is this: Ever-growing debts implicitly assume that the future is going to be larger than the present.

A financial debt, by definition, is a contractual obligation to repay a specified amount of money at some point in the future. For you and me, there are only two ways to settle a debt:  1) Pay it off or 2) default on it. If you have a printing press like the government does, a third option exists:  3) Printing money to pay for the debt. This method is a poorly disguised form of taxation, since it forcefully removes value from all existing money and transfers that value to the debt holders. I view it as a form of default, but one that preferentially punishes savers and those least able to bear the impact of inflation.

So what is debt, really? Debt represents future consumption taken today. As long as it is my decision to go into debt and the repayment is my responsibility, then everything is cool. However, once we consider that our current levels of debt will require the effort of future generations to pay them back, we start to trend into the moral aspect of this story. Is it really proper for one generation to consume well beyond its means and expect the following generations to forego their consumption to pay it all back?

Our entire economic system, and by extension our way of life, is founded on debt, and debt is founded on the assumption that the future will always be bigger than the past. Therefore it is utterly vital that we examine this assumption closely, because if this assumption is false, so are a lot of other critical things that we may be taking for granted.