6.3 Debt write-off ?

But what does the debt write off mean ?

Somebody has to lose deposits ( debt = profits = deposits)

  1. Describes situation preceding proposed debt reduction.
    Exporting businesses have 3 sets of uncovered money in their banks.
  2. If say 2 sets of debt would to be forgiven, it would mean that if they requested all their money form the bank, bank could not ask for cash in exchange of their assets, as they would be written off and their value would be zero.
  3. As a result, the businesses thinking they made a fortune by exporting, would find themselves without halve of their profits, meaning they worked for free.  And this is really a painful discovery. All their efforts, risk taking and all would come to nothing.
    But reality is harsh:  they will not get any money from their bank, as the importing government is really not able to repay.

So the only option to prevent banking system going bust is Quantitative easing – replacing nonperforming loans with freshly printed cash.

The underlying knowledge behind this is the following:

-          The exporting nation worked too much and gained nothing in return ( money from QE cannot be regarded as real value)

-          If they would not try to export above the balanced international trade, they would have to work significantly less hours, have more free time, be able to go to pension earlier ( after all, somebody has to stay at work to produce that trade surplus)

-          Would have saved natural resources for their future generations


-          On the other side, importing nation, if it was not to import, their industries would be prospering more, their unemployment would be lower and their technological abilities would be growing as result of production.


Bottom line:  Exporters in this scenario are for the fools, working for free.
                         Even it may look at the beginning that they are making money, it is just an illusion. 
                        They would be much better off if they would care about themselves.