Seonglae ChoDebt in the Economic Machine
Credit Notion
Debt (and the credit system that enables it) is the most important, and often the hardest, part of the economy to understand. It’s the biggest and most changeable component, and it explains why the economy moves in cycles.
When we use debt, we can spend more than we produce for a while, and later we must spend less than we produce to pay it back. That back-and-forth creates repeating cycles:
- Short-term debt cycle: about 5–8 years
- Long-term debt cycle: about 75–100 years
Most people feel these swings, but they experience them up close in day-to-day life, so they don’t recognize them as part of a larger pattern.
The key point is that the swing is not driven only by productivity. It is driven by credit: how much people and businesses can borrow, and how much they choose to borrow.
Imagine an economy with no credit. The only way to increase spending would be to work more and produce more, so growth would be relatively smooth and mostly track productivity.
Because We Borrow, We Have Cycles
Borrowing is like borrowing from your future self. Every time you take on credit, you pull spending forward into the present, and you create an obligation that must be paid later. That is why borrowing naturally creates cycles.
Money vs. Credit
Money is what you use to settle transactions. Credit is what you use to make transactions larger (or happen sooner) than your current cash would allow.
Credit isn’t “bad” just because it creates cycles. What matters is how it is used:
- Bad credit finances consumption that does not generate income and can’t realistically be paid back (e.g., borrowing to buy a TV).
- Good credit finances productive investment that generates income and helps repay the debt (e.g., borrowing to buy a tractor).
At the core, creditworthiness is the ability to repay. That’s why many financial institutions, including KakaoBank, are interested in measuring credit not only with traditional financial data (like loan history and income) but also with non-financial data.
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