OzWizard

This is my first post. This apparently 'simple' question [Does Debt Matter?] is far more complex than it looks and I can't answer coherently without establishing some factual and legal premises (which you are all free to challenge and discuss), viz.: All money is a liability of its issuer; Most western economies operate with ~3% cash (notes & coin) and ~97% "credit"; and [Legal definition] "Credit is provided if ... payment of a debt ... is deferred". N.B. The legal definition given in Item 3 comes from current Australian credit legislation (paraphrased), and "credit" [in Item 2] is NOT the same as Credit [in Item 3]. My reasoning goes like this: Firstly, it follows from [3] that Credit cannot be provided unless a prior debt exists. This is very simple logic: without a pre-existing debt, no payment obligation can exist; if no payment obligation exists, payment cannot be deferred (because it is not even required) so, Credit cannot be provided in that circumstance. Secondly, the great bulk of our money (~97%) which is called "credit" is not, in fact, Credit (as legally defined in [3]). It is the sum total of all of the credit-balances in various customer accounts held by the banks which make up the banking industry. Thirdly, all of those account balances [which are customer assets] are liabilities of those banks. And therein are the clues which lead to my conditional answer: "If the 'debt' originated from a bank 'loan' transaction it does not matter because it is not actually a debt." Why? Quite simply, because you cannot "lend" a liability. To establish a debt, a true loan must involve an asset transfer from lender to borrower. Since no bank "loan" transfers a bank asset to the customer, it is not actually a loan and therefore incurs no debt. So-called "bank credit" is not even Credit and never belonged to the bank that fraudulently laid claim to it when it created it (as a credit-balance) in the customer's account. As it is actually a credit-balance in the bank's liability account, the bank is the debtor, and the customer is the creditor, on that account. What a bank pretends to "lend" to its "borrowing" customer is the credit-item which it creates in its liability account, as the matching 'double-entry' for the debit-item it creates in its asset account, representing the commercial value of the "loan" document signed by the customer, considered as a promissory note. That document is a negotiable instrument; it's worth the money amount written in it (like any formal IOU). No asset of the bank is involved in this "loan" transaction; the only asset involved is that provided TO the bank BY the customer. The customer does have a moral obligation (i.e. to keep his solemn promise-to-pay) but that obligation does not arise from a debt relationship. Since there is no debt relationship, interest charges are NOT justified. The bank is merely society's book-keeper, monitoring the keeping of the customer's promise-to-pay. Since the bank RISKS NO ASSET, the bank suffers no LOSS if a payment is delayed or even if payments stop for six months. If the bank is entitled to anything, it is entitled to 'account-keeping fees' for actual effort involved in recording customer payments made into the account, for as long as the account remains open, and that will be small and uniform for all accounts, irrespective of the size of the account balance.