Last night, just before i went to sleep, after exhausting myself watching Seinfeld reruns, for some reason i started thinking about Lact Hunt’s comment that an economy which gets overburdened with debt has a very hard time growing. I don’t really understand the mechanism for this, because most finance is confusing and not at all intuitive for me. But, of course, I have also been thinking about Stephanie Kelton’s proposition that inflation and spare economic capacity is really the limiting factor for soverign money printing and debt issuing. So perhaps we can borrow the money, as much as we want, but the debt will strangle the economy? Then it occurred to me that whenever there is debt there is a kind of mismatch. A person or business that has capital they can loan and create debt for someone else, that entity is in possession of capital but not in possession of the skills and opportunities to make good use profitable use of it, except by loaning it to someone else. Somehow they got the capital. Somewhere at some point in time someone did something to get that capital and fundamentally, at its base that activity was not providing a loan but actually doing something, making something or providing a service or something useful in the real world as opposed to the human created world of finance. Maybe the capital moved around through inheritance or speculation or loans, but the original source of wealth is productive work. So whenever someone is taking a loan they, presumably, have productive work with which to pay back the loan, either in the form of a job or a business doing something useful. The entity making the loan does not have something productive to do with the capital or doesn’t want to make the effort so they loan their capital to the productive person or business. Its been that way for thousands of years but it doesn’t change the fact that capital being loaned is capital in the possessed by someone who doesn’t have a productive use for it. So maybe when you get a society overburdened with debt, what you have, in effect, is most of the capital in the hands of people who can’t or don’t want to do anything productive with it and this is obviously a problem because all the benefits of that accumulated capital, well not all the benefits, but all the benefits except the amount by which the productive enterprises exceeds the cost of the capital, so a lot of the benefits accrue to entities which are not engaged in making the world better but are simply living off their accumulated capital.