A Fable on Debt and Debt Management

Abstract

Kalecki told a fable about how a forged banknote may circulate in an impoverished community paying off debts. The fable reveals the necessity for liquidity in a financial system conceived as a group of mutually-indebted agents, who can maintain payments on their debts as long as they have enough liquidity, or can sell debt claims to each other, or a banking system exists which can create credit to buy debt claims, or a central bank exists to buy in debt claims. This means that income from actual production and exchange of ‘real’ goods and services is unnecessary to maintain debt payments.