Is there such thing as good debt? And how could something good cause so many issues? On top of this is there anyway that we could just run an economy without debt and would we be better off for doing so. Well it turns out we probably can, and in fact there are many economies around the world today that are developing rapidly while going without this system that we just assume is a given.
If we can critically explore these questions it will offer insight into how our modern financial system works, and why it means that despite our best efforts we are almost destined to go into a recession once every 10 years or so.
#debtcrisis #recession #economy
Patreon – https://www.patreon.com/EconomicsExplained
Discord – https://discord.gg/7kM7Tw9
Enquiries – loungejita@gmail.com
Money printer meme video – https://youtu.be/O1hCLBTD5RM
second channel for Q&A Streams – https://www.youtube.com/channel/UCOTgNyfQG4vVP5sCXrJaS4g?view_as=subscriber
References –
Harris, M. and Raviv, A., 1990. Capital structure and the informational role of debt. The Journal of Finance
Chava, S. and Roberts, M.R., 2008. How does financing impact investment? The role of debt covenants. The journal of finance
Holmstrom, B., 2015. Understanding the role of debt in the financial system.
Frost, C.A. and Bernard, V.L., 1989. The role of debt covenants in assessing the economic consequences of limiting capitalization of exploration costs. Accounting Review
Ariff, M., 1988. lsIamic banking. Asian?Pacific Economic Literature
Articles –
https://www.theguardian.com/business/2019/jan/05/global-economic-crash-2020-understand-why
https://www.washingtonpost.com/
https://www.theguardian.com/business/2019/dec/29/its-more-than-a-decade-since-the-financial-crisis-wheres-the-recovery
Graham’s Video – https://www.youtube.com/watch?v=Uw3EhsmLe08&t=1385s
Last time I was this early mortgage bonds were a solid asset class.
Would the lack of debt disrupt the normal supply and demand or is it that debt has disrupted the normal supply and demand.
A huge part of the "financial sector" is pension funds… in other words, much of "the financial sector" is everyday people. (probably not 50%, but definitely double digits.)
you just getting better and this is the best video till now.
The entire part about Islamic Banking was broken down well, but ended up not answering the 'profit' question. I mean I'm neither muslim nor have had any experience with Islamic Banking, but how exactly do they 'make' money per se?
From the video, we know that they invest in assets directly and therefore take on higher risk, therefore needing to ensure that the core investment was well planned.
Let's take the house as an example. The bank buys a $300,000 home outright and then sees fit to lease it to the original 'borrower' (if you will). Lets say the rent is $1000/month. So in theory, 300 months (25 Years) down the line, and the home gets handed over to the tenant through pre-determined contractual obligations, and is now their property. The only changes to the asset value would be inflation and the future market value of the property. The Bank can't make money off the rent and the only adjustment can be in line with inflation. If the rent is higher than this, then the Bank fails, as the profit (percentage) is essentially the same as debt. So it can't be that.
The other idea is that the tenant walks out 10 years later, the Bank has made $120,000 back and needs a further $180,000 to break even. The asset value is now say $400,000 on the market and the Bank sells to a rich petrodollar oligarch, thus not only recuperating the $180,000 left but also making a neat $220,000 profit. This I can see as feasible. This would only really work if the Bank ended up selling. What if the 'tenant' aka our original 'borrower', stayed the 25 years and saw out the terms of the agreement?
Considering the above, the bank would have to hand over the asset to them at the same value as they bought it for (adjusted for inflation). The owner now could sell it for say it's then market valuation (25 years down the line) at $550,000 or just live in it as they have in the past.
Either way, the bank has gotten nothing, or am I missing something. Do they hedge on the fact that tenants will walk away mid term and then it's fair game to sell at future (appreciated) market price? That can't be a safe hedge at all, right?
can someone tell me why banks cant hold debts/ loan during the covid crisis?
Once the common man was a slave working to earn his freedom, several hundred years later he was a serf working another mans fields to survive, now he works for a salary to pay the interest on his various loans.
Some might say our economic system never changed much for the average Joe, the system just has a few more steps now.
So florrynomics gave us the debt crisis. Thanks Florryworry…
Has anyone seen this old anime C: The Money of Soul and Possibility Control
Blublbublublubbblblblblblblbbbblblbbbbbbb…We are going down captain! blub…blub…….. blub.. blub
blub?
I drowned in all the stock footage
I’m a fan, all your videos are very interesting but the stock videos are distracting and have no added value. Maybe consider having different visuals?
These Islamic banks sound an awful lot like hedge funds. They make the investments themselves, and their customers are getting a share of the pie?… That really really just sounds like a hedge fund with lower returns for the average investor (but with security of not losing money).
Reset the Debt.
Do we need debt ? No! We need to take care of each other. Why do the people who always do all the work always owe the people who do nothing but collect the benefits of that work? Debt is a con and slavery.