The world owes $345 trillion (but who truly holds the debt?) - CaspianReport [View all]

Summary of Global Debt System

This excerpt explains how the modern global debt system evolved and operates as a self-perpetuating cycle where nations essentially owe money to themselves and each other.

Key Historical Points:
- 1971: Nixon ended dollar-to-gold conversion, creating pure fiat currency
- Result: Global debt exploded from billions to $345 trillion today (3x global GDP)
- Origins: System traces back to 1694 Bank of England, which pioneered government bonds

How the System Works:
- "70% of US debt" is owed to Americans themselves through banks, pension funds, and institutions
- Banks use deposits to buy government bonds, creating a closed loop
- Countries borrow from each other in interconnected webs (Japan → Saudi Arabia → Brazil → US)
- Governments must continuously borrow more to repay old debts

Why Debt Persists:
- Economic growth depends on it - borrowing fuels spending, which drives business and employment
- Stopping would cause immediate economic collapse
- COVID-19 example: US borrowed $3.1 trillion in 2020 to prevent economic shutdown

The Risks:
- Rising interest payments consume more of national budgets
- Inflation from printing money to cover debts (Zimbabwe's extreme case in 2008)
- Developing nations face debt traps with higher borrowing costs
- Perception-driven: System works only as long as lenders remain confident

The fundamental conclusion: debt is no longer an economic tool but "the foundation of the entire system" itself—a perpetual motion machine that defies economic sustainability.