Debt

So Greece got another lifeline.  I hope it works for all of them.  One clever phrase which grasps the situation realistically though is "Extend and Pretend" .

But what is debt?  And why is it relevant?  

Debt is owing something to another party who has extended something to you.  Greece owes the IMF and other creditors because they loaned Euros to Greece.  Puerto Rico owes its creditors because they loaned dollars to Puerto Rico.

But what about Great Britain? They opted out of the Euro, keeping the pound sterling as their currency.  When they print more pound sterling to inject into their economy, from whom have they borrowed?  Themselves.  It is merely an accounting entry to issue more pounds.  Can they default?  No.  

And this is the distinction.  

An illustration of two people at a football game helps explain.  

The scoreboard operator at the football game puts points on the board as teams score.  Who loans those points to him?  Who does he owe for the points?  Can he even run out of points?  Such questions are nonsensical...points just appear, as needed.  

Compare that with a hotdog vendor at the same football game.  He buys his hotdogs at a central concession stand, using funds from his savings or takes a loan from someone to buy the 'dogs.  He then sells them for hopefully more than he paid.  He can take that money back to buy more, which drives him back into debt perhaps, then he sells them again.  The test comes late in the game, when he chooses when to stop selling hotdogs. 

The scoreboard operator issues his own currency.  The hot dog vendor gets a loan, from himself or someone else.  They are fundamentally different. 

Greek debt is like mortgage debt or student loan debt.  US or UK or Canadian debt is an accounting entry.  This distinction is crucial.  

And something I think about while I'm running.  

Persevere...and do stay out of debt. 

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