Many many People, companies and national governments owe an extremely large amount of money that they can only make payments on by taking on new debt. If credit dries up, it presents a systemic risk that can only be halted by massive new liquidity injections from the central banks. ...
Who is the lucky guy all this debt is owed to? Does Dawg The Bounty Hunter collect for him? 'Coz if he does, "People, companies and national governments" will surely pay.
It's owed to banks. These banks lend money to almost anyone and when it gets paid back, they keep the interest (profits), but when it doesn't get payed back, they run crying to the central banks for a bail-out. And they get a bail-out, which is why when the dust settles they go right back to loose lending standards. Privatized gains and socialized losses. It is a major reason why we are trying to create an alternative.
I see. So these banks are accumulating more and more of their own worthless paper? And those who are dumb enough to hold massive savings in that worthless paper get poorer for it? But the poor people, the ones who have no savings, lose nothing?
Can't think of a fairer system, to tell you the truth. Go go banks!
I know you're trolling, but for the benefit of anyone else reading this exchange: the reason why the banks are in such trouble is because the money they have lent out is not their money. It belongs to their depositors. It belongs to us. If enough loans default, then not just the banks get wiped out, but we do too. There isn't even a fraction of enough money in the FDIC reserve to cover even one of the Big Five banks going under. FDIC insurance does not prevent bank runs. It just insures that they will all fail at once.