Debt is that which is owed. A person who owes debt is called a debtor. A person to whom it's owed is called a creditor. Debt is used to borrow purchasing power from the future. ==Payment== People or organisations often enter into agreements to borrow something. Both parties must agree on some standard of deferred payment, most usually a sum of money denominated as unit of account of a currency, but sometimes a like good. For instance, one may borrow shares, in which case, one may pay for them later with the shares, plus a premium for the borrowing privilege, or the sum of money required to buy them in the market at that time. ==Types of debt== There are numerous types of debt obligations. They include loans, bond (finance)s, mortgages, promisary notes, and debentures. It is very common to borrow large sums for major purchases, such as a mortgage, and pay it back with an agreed premium interest rate over time, or all at once at a later date. The amount of money outstanding is usually called a debt. The debt will increase through time if it is not repaid faster than it grows. In some systems of economics this effect is termed usury, in others, the term "usury" refers only to an excessive rate of interest, in excess of a reasonable profit for the risk accepted. Large organizations can break their debt into many small units of debt, known as Bond (finance). Each Bond (finance) entitles the holder to the remaining repayments on that unit of debt. Bond (finance) can be traded during the repayment period, and so ownership of the debt is seen as a form of investment. Because bonds are traded on the bond market, they have a fluctuating price. This implies that the overall debt represented by the total number of any particular type of bond also has a fluctuating price. ==Debt, inflation and the exchange rate== As noted above, debt is normally denominated in a particular monetary currency, and so changes in the valuation of that currency can change the effective size of the debt. This can happen due to inflation or Deflation_(economics), so it can happen even though the borrower and the lender are using the same currency. Thus it is important to agree on standards of deferred payment in advance, so that a degree of fluctuation will also be agreed as acceptable. It is for instance common to agree to "US dollar denominated" debt. The form of debt involved in banking gives rise to a large proportion of the money in most industrialised nations (see money and credit money for a discussion of this). There is therefore a complex relationship between inflation, Deflation_(economics), the money supply, and debt. The store of value represented by the entire economy of the industrialized nation itself, and the state's ability to levy tax on it, acts to the foreign holder of debt as a guarantee of repayment, since industrial goods are in high demand in many places worldwide. ===Inflation indexed debt=== Borrowing and repayment arrangements linked to inflation-indexed units of account are possible and are used in some countries. For example, the US government issues two types of inflation-indexed Bond (finance), Inflation-Protected Securities and I-bonds. These are one of the safest forms of investment available, since the only major source of risk — that of inflation — is eliminated. A number of other governments issue similar bonds, and some did so for many years before the US government. In countries with consistently high inflation, ordinary borrowings at banks may be inflation indexed also. ==Debt ratings, risk and cancellation== ===Risk free interest rate=== ''Main article: risk-free interest rate'' Lendings to stable financial entities such as large companies or governments are often termed "risk free" or "low risk" and made at a so-called "risk free interest rate". This is because the debt and interest are highly unlikely to be defaulted. A textbook example of such risk-free interest is a government bond of US government - it yields you the minimum return available in economics, but you get the security of the knowledge that US has never defaulted on its debt instruments. A risk-free rate is commonly used in setting floating interest rates, floating interest rate is usually calculated as risk-free interest rate plus a bonus to the creditor based on the creditworthiness of the debtor. However if the real value of a currency has changed in the meantime, the purchasing power of the money repaid may vary considerably from that which was expected at the commencement of the loan. So from a practical investment point of view, there is still considerable risk attached to "risk free" or "low risk" lendings. The real value of the money may have changed due to inflation, or, in the case of a foreign investment, due to exchange rate fluctuations. The Bank for International Settlements is an entity that sets rules to define what loans qualify as "risk free" or not. It is a very powerful institution, formed by the Bretton Woods system, which has had a pivotal position in central banking since 1947 when it opened. ===Ratings and creditworthiness=== Debt of countries as well as private corporations is rated by Rating agency, s.a. Moody's, A. M. Best and Standard and Poors. These agencies assess the ability of the debtor to honor his obligations and accordingly give him a credit rating. Moody's for example uses the letters ''Aaa Aa A Baa Ba B Caa Ca C'', where ratings ''Aa-Caa'' are qualified by numbers 1-3. Munich Re, for example, currently is rated ''Aa3'' (as of 2004). S&P and other rating agencies have slightly different systems using capital letters and +/- qualifiers. A change in ratings can strongly affect a company, since its cost of refinancing depends on its creditworthiness. Bonds below Baa/BBB (Moody's/S&P) are considered junk bonds or high risk bonds. Their high risk of default is compensated by higher interest payments. Bad Debt is a loan that can not (partially or fully) be repaid by the debtor. The debtor is said to Default_(finance) on his debt. These types of debt are frequently repackaged and sold below face value. ===Cancellation=== Short of bankruptcy, very often debts are wholly or partially forgiven. Traditions in some cultures demand that this be done on a regular (often annual) basis, in order to prevent systemic inequities between groups in society, or anyone becoming a specialist in holding debt and coercing repayment. International Third World debt has reached the scale that many list of economists and Christians are convinced that debt cancellation is the only way to restore global equity in relations with the developing nations. == Effects of debt == Debt allows people and organisations to do things that they otherwise wouldn't be able or allowed to. Commonly people in industrialised nations use it to purchase houses, cars and many other things too expensive to buy with cash on hand. Companies also use debt in many ways to leverage the investment made in their private equity. This leverage (business), the proportion of debt to equity, is considered important in determining the riskiness of an investment; the higher more debt per equity, the riskier. The properties of debt have been blamed for exacerbating economic problems. For example, during the onset of the Great Depression there was Deflation_(economics), which effectively made debt throughout society grow. This resulted in a contraction of consumption since the borrowers were on average people who had to consume less due to the increased proportion of their earnings going towards repayments while the lenders were on average people who would invest their extra purchasing power. The reduction in consumtion reduced business activity and caused further unemployment. Also in a direct sense, more Bankruptcy occurred due to increased effective debt than otherwise might have been the case. It is possible for some organisations to enter into alternative types of borrowing and repayment arrangements which will not result in bankruptcy. For example, companies can sometimes convert debt that they owe into equity in themselves. In this case, the lender hopes to regain something equivalent to the debt and interest in the form of dividends and capital gains of the borrower. The "repayments" are therefore proportional to what the borrower earns and so can not in themselves cause bankruptcy. Once debt is converted in this way, it is no longer known as debt. == Arguments against debt == ''Main article: Criticism of debt'' There are many arguments against debt as an instrument and institution, on a personal, family, social, corporate and governmental level. Economics criticism focuses on debt fostering inequality. Religious critics contend the ethics issues connected with debt, especially the element of randomness, while Feminism concentrates on the perceived coercion of debt contracts. Environmental critics point out the disparity between material use of Natural resources from economic growth and the limited resources of natural production. Examples would be the low ecological yield of natural resources and the limited usable current solar income. ==Levels and flows== ''Main article: debt levels and flows'' Global debt underwriting grew 4.3% year-over-year to $5.19 trillion during 2004. ==See also== * Bond (finance) * Credit * Credit repair * Debt consolidation * Default (finance) * Derivative security * Domestic debt * External debt (foreign debt) * Financial market *Global debt *Government debt (public debt) * Interest * List of finance topics *Personal debt (household debt) * Sovereign debt * Triple deficit * Usury *Thomson Financial league tables * Time value of money == External links == *[http://www.oecd.org/site/0,2865,en_21571361_31596493_1_1_1_1_1,00.html OECD country debt] *[http://www.sosdebt.org/ Debt Help] *[http://www.updebtcreek.com/ Up Debt Creek] Finance Core issues in ethics
This needs stuff on odious debt, like when countries borrow money but dictators spend it on palaces. Also global debt should have numbers. :One paragraph was cut out: :"Similar arrangements ''could'' exist for individuals in that they could agree to repay a percentage of their earnings for a set amount of time in return for a sum of borrowed money. The lender would need to evaluate the future earning capacity of the borrower (this is possible and is often done anyway when lending), but more difficult would be the necessity to track how much they do in fact earn during the "repayment period". Typically, only governments can track earnings of individuals in such a way, and so such arrangements are only currently of use to governments. It is possible to view a portion of taxes as such a form of repayment in return for the cost of government services previously "lent" to citizens, for example education when the citizen was young or government paid maternity leave for the citizen's mother to look after them. Such views occasionally form part of justifications and structuring of some taxation. Some taxes in some countries are only collected from individuals that have received particular services, such as university education. Such an arrangement provides an incentive for the government to make the education useful, since they are sharing in the proceeds from it." :it is mainly on possibilities of personal debt relief. User:J_heisenberg 12/9/04 == Relation to human lifespan. == One line of thought would say that the incentive to buy now and pay later is increased if human lifespan is decreased. But if man lived for 900 years instead of 90 years, man would would probably still want the capital markets just as much as they do now.--User:Jerryseinfeld 14:34, 2 Mar 2005 (UTC)
See other meanings of words starting from letter:
Words begining with Debt:
Debt
Debt
Debt-free,_Tax-free,_Indexed_Fiat_Money
Debt-free_Money
Debtor
Debtor's_prison
Debtors
Debtors'_prison
Debtor_and_Creditor
Debtor_prison
Debts
Debt_(economics)
Debt_AIDS_Trade_in_Africa
Debt_bondage
Debt_bondage
Debt_consolidation
Debt_finance
Debt_levels_and_flows
Debt_levels_and_flows
Debt_moratorium
Debt_of_Honor
Debt_of_Honour
Debt_peonage
Debt_relief
Debt_relief
Debt_restructuring
Debt_slavery
Debt_to_equity_ratio
Debt
Debt is that which is owed. A person who owes debt is called a debtor. A person to whom it's owed is called a creditor. Debt is used to borrow purchasing power from the future. ==Payment== People or organisations often enter into agreements to borrow something. Both parties must agree on some standard of deferred payment, most usually a sum of money denominated as unit of account of a currency, but sometimes a like good. For instance, one may borrow shares, in which case, one may pay for them later with the shares, plus a premium for the borrowing privilege, or the sum of money required to buy them in the market at that time. ==Types of debt== There are numerous types of debt obligations. They include loans, bond (finance)s, mortgages, promisary notes, and debentures. It is very common to borrow large sums for major purchases, such as a mortgage, and pay it back with an agreed premium interest rate over time, or all at once at a later date. The amount of money outstanding is usually called a debt. The debt will increase through time if it is not repaid faster than it grows. In some systems of economics this effect is termed usury, in others, the term "usury" refers only to an excessive rate of interest, in excess of a reasonable profit for the risk accepted. Large organizations can break their debt into many small units of debt, known as Bond (finance). Each Bond (finance) entitles the holder to the remaining repayments on that unit of debt. Bond (finance) can be traded during the repayment period, and so ownership of the debt is seen as a form of investment. Because bonds are traded on the bond market, they have a fluctuating price. This implies that the overall debt represented by the total number of any particular type of bond also has a fluctuating price. ==Debt, inflation and the exchange rate== As noted above, debt is normally denominated in a particular monetary currency, and so changes in the valuation of that currency can change the effective size of the debt. This can happen due to inflation or Deflation_(economics), so it can happen even though the borrower and the lender are using the same currency. Thus it is important to agree on standards of deferred payment in advance, so that a degree of fluctuation will also be agreed as acceptable. It is for instance common to agree to "US dollar denominated" debt. The form of debt involved in banking gives rise to a large proportion of the money in most industrialised nations (see money and credit money for a discussion of this). There is therefore a complex relationship between inflation, Deflation_(economics), the money supply, and debt. The store of value represented by the entire economy of the industrialized nation itself, and the state's ability to levy tax on it, acts to the foreign holder of debt as a guarantee of repayment, since industrial goods are in high demand in many places worldwide. ===Inflation indexed debt=== Borrowing and repayment arrangements linked to inflation-indexed units of account are possible and are used in some countries. For example, the US government issues two types of inflation-indexed Bond (finance), Inflation-Protected Securities and I-bonds. These are one of the safest forms of investment available, since the only major source of risk — that of inflation — is eliminated. A number of other governments issue similar bonds, and some did so for many years before the US government. In countries with consistently high inflation, ordinary borrowings at banks may be inflation indexed also. ==Debt ratings, risk and cancellation== ===Risk free interest rate=== ''Main article: risk-free interest rate'' Lendings to stable financial entities such as large companies or governments are often termed "risk free" or "low risk" and made at a so-called "risk free interest rate". This is because the debt and interest are highly unlikely to be defaulted. A textbook example of such risk-free interest is a government bond of US government - it yields you the minimum return available in economics, but you get the security of the knowledge that US has never defaulted on its debt instruments. A risk-free rate is commonly used in setting floating interest rates, floating interest rate is usually calculated as risk-free interest rate plus a bonus to the creditor based on the creditworthiness of the debtor. However if the real value of a currency has changed in the meantime, the purchasing power of the money repaid may vary considerably from that which was expected at the commencement of the loan. So from a practical investment point of view, there is still considerable risk attached to "risk free" or "low risk" lendings. The real value of the money may have changed due to inflation, or, in the case of a foreign investment, due to exchange rate fluctuations. The Bank for International Settlements is an entity that sets rules to define what loans qualify as "risk free" or not. It is a very powerful institution, formed by the Bretton Woods system, which has had a pivotal position in central banking since 1947 when it opened. ===Ratings and creditworthiness=== Debt of countries as well as private corporations is rated by Rating agency, s.a. Moody's, A. M. Best and Standard and Poors. These agencies assess the ability of the debtor to honor his obligations and accordingly give him a credit rating. Moody's for example uses the letters ''Aaa Aa A Baa Ba B Caa Ca C'', where ratings ''Aa-Caa'' are qualified by numbers 1-3. Munich Re, for example, currently is rated ''Aa3'' (as of 2004). S&P and other rating agencies have slightly different systems using capital letters and +/- qualifiers. A change in ratings can strongly affect a company, since its cost of refinancing depends on its creditworthiness. Bonds below Baa/BBB (Moody's/S&P) are considered junk bonds or high risk bonds. Their high risk of default is compensated by higher interest payments. Bad Debt is a loan that can not (partially or fully) be repaid by the debtor. The debtor is said to Default_(finance) on his debt. These types of debt are frequently repackaged and sold below face value. ===Cancellation=== Short of bankruptcy, very often debts are wholly or partially forgiven. Traditions in some cultures demand that this be done on a regular (often annual) basis, in order to prevent systemic inequities between groups in society, or anyone becoming a specialist in holding debt and coercing repayment. International Third World debt has reached the scale that many list of economists and Christians are convinced that debt cancellation is the only way to restore global equity in relations with the developing nations. == Effects of debt == Debt allows people and organisations to do things that they otherwise wouldn't be able or allowed to. Commonly people in industrialised nations use it to purchase houses, cars and many other things too expensive to buy with cash on hand. Companies also use debt in many ways to leverage the investment made in their private equity. This leverage (business), the proportion of debt to equity, is considered important in determining the riskiness of an investment; the higher more debt per equity, the riskier. The properties of debt have been blamed for exacerbating economic problems. For example, during the onset of the Great Depression there was Deflation_(economics), which effectively made debt throughout society grow. This resulted in a contraction of consumption since the borrowers were on average people who had to consume less due to the increased proportion of their earnings going towards repayments while the lenders were on average people who would invest their extra purchasing power. The reduction in consumtion reduced business activity and caused further unemployment. Also in a direct sense, more Bankruptcy occurred due to increased effective debt than otherwise might have been the case. It is possible for some organisations to enter into alternative types of borrowing and repayment arrangements which will not result in bankruptcy. For example, companies can sometimes convert debt that they owe into equity in themselves. In this case, the lender hopes to regain something equivalent to the debt and interest in the form of dividends and capital gains of the borrower. The "repayments" are therefore proportional to what the borrower earns and so can not in themselves cause bankruptcy. Once debt is converted in this way, it is no longer known as debt. == Arguments against debt == ''Main article: Criticism of debt'' There are many arguments against debt as an instrument and institution, on a personal, family, social, corporate and governmental level. Economics criticism focuses on debt fostering inequality. Religious critics contend the ethics issues connected with debt, especially the element of randomness, while Feminism concentrates on the perceived coercion of debt contracts. Environmental critics point out the disparity between material use of Natural resources from economic growth and the limited resources of natural production. Examples would be the low ecological yield of natural resources and the limited usable current solar income. ==Levels and flows== ''Main article: debt levels and flows'' Global debt underwriting grew 4.3% year-over-year to $5.19 trillion during 2004. ==See also== * Bond (finance) * Credit * Credit repair * Debt consolidation * Default (finance) * Derivative security * Domestic debt * External debt (foreign debt) * Financial market *Global debt *Government debt (public debt) * Interest * List of finance topics *Personal debt (household debt) * Sovereign debt * Triple deficit * Usury *Thomson Financial league tables * Time value of money == External links == *[http://www.oecd.org/site/0,2865,en_21571361_31596493_1_1_1_1_1,00.html OECD country debt] *[http://www.sosdebt.org/ Debt Help] *[http://www.updebtcreek.com/ Up Debt Creek] Finance Core issues in ethics
Debt
This needs stuff on odious debt, like when countries borrow money but dictators spend it on palaces. Also global debt should have numbers. :One paragraph was cut out: :"Similar arrangements ''could'' exist for individuals in that they could agree to repay a percentage of their earnings for a set amount of time in return for a sum of borrowed money. The lender would need to evaluate the future earning capacity of the borrower (this is possible and is often done anyway when lending), but more difficult would be the necessity to track how much they do in fact earn during the "repayment period". Typically, only governments can track earnings of individuals in such a way, and so such arrangements are only currently of use to governments. It is possible to view a portion of taxes as such a form of repayment in return for the cost of government services previously "lent" to citizens, for example education when the citizen was young or government paid maternity leave for the citizen's mother to look after them. Such views occasionally form part of justifications and structuring of some taxation. Some taxes in some countries are only collected from individuals that have received particular services, such as university education. Such an arrangement provides an incentive for the government to make the education useful, since they are sharing in the proceeds from it." :it is mainly on possibilities of personal debt relief. User:J_heisenberg 12/9/04 == Relation to human lifespan. == One line of thought would say that the incentive to buy now and pay later is increased if human lifespan is decreased. But if man lived for 900 years instead of 90 years, man would would probably still want the capital markets just as much as they do now.--User:Jerryseinfeld 14:34, 2 Mar 2005 (UTC)
See other meanings of words starting from letter:
D
DA | DB | DC | DE | DF | DG | DH | DI | DJ | DK | DL | DM | DN | DO | DP | DR | DS | DT | DU | DW | DX | DY | DZ |Words begining with Debt:
Debt
Debt
Debt-free,_Tax-free,_Indexed_Fiat_Money
Debt-free_Money
Debtor
Debtor's_prison
Debtors
Debtors'_prison
Debtor_and_Creditor
Debtor_prison
Debts
Debt_(economics)
Debt_AIDS_Trade_in_Africa
Debt_bondage
Debt_bondage
Debt_consolidation
Debt_finance
Debt_levels_and_flows
Debt_levels_and_flows
Debt_moratorium
Debt_of_Honor
Debt_of_Honour
Debt_peonage
Debt_relief
Debt_relief
Debt_restructuring
Debt_slavery
Debt_to_equity_ratio
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