More on debt

There is another way of looking at debt.  That is by dividing the stock of debt at a time into domestic (or internal) debt and external debt.  Domestic debt is that owed to residents of the economy.  (A resident is one who has a centre of economic interest in the economic territory of the economy.)  External debt is borrowings by residents from nonresidents.

So now we really have a matrix domestic/external; private/public.  I will leave the task of identifying the components of each of the cells as an exercise for the reader.  The public/external cell consists of transactions such as the Chinese purchase of Treasury Securities issued by the US general government.  The public/ domestic is like Calpers and its bond funds.  (I wonder where Bill Gross and PIMCO fits in here).  Private /domestic is household borrowing for mortgages and private /external is external commercial borrowings.

So the moot point about all this is that is does not matter who or what sector the borrower and lender are in, what matters is what is done with the sum borrowed.  Has it been frittered away in luxury consumption, or has it been put to work wisely, increasing utilities for all after some time?

So there is good debt and bad debt.  Saying more would take one into the realms of debt-by-debt analysis which I once heard the World Bank was doing.


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