Is debt bad?

Tivadar's post on Monday was delightful and included some simple arguments to answer to those who suggest that austerity measures are the only solution to the European problems. But today I will like to develop his thought a little bit further...

Before we start we have to clarify that the European problem is not about debt, everywhere on the news you hear about debts etc. and that is wrong! It is about debt servicing, because there are countries which have trillions of debt and can pay it (at least for now) without a problem and there are others who can't, as we discussed in the past. This leads to lack of trust and as a result to lack of financing.

Now is debt bad? Everywhere you hear that debt is the devil in disguise! Is it true or maybe not?  We will simplify things a bit; imagine that you want to create a small business and you don't have the starting capital. You will go to the bank ask for a loan and hopefully you will get it. At the point you get your loan and you create the business you have two thing. An asset which produces wealth (business) and a debt (loan).

The same thing applies for countries. If you want to see more growth you have to lend more and more money. Problems start to happen when you invest on things that don't have the expected return and then, for you to repay the debt you have to borrow again. Wrong investments are the cause and borrowing in order to cover past debt is the result.

Now many smart asses say that all countries must start exporting massively in order to reduce their debt and have a surplus in their balance. Yes sure idiot and if that happens then what? The system you propose is unsustainable! If all countries export more than they import who will buy those goods, aliens? ET maybe? This will lead to much more private lending which is far more dangerous!!! Of course the argument that we can see a balanced state where all countries have equal imports and exports and so no increasing debt; is a utopia. Capitalism without growth and without debt isn’t capitalism, what you propose is utopia with blue unicorns and naked girls.

It is obvious that debt is the fundamental principal in capitalism. When you understand this, then you can see the reasons why global economy is on a decline.