Is there any example of being in debt not being considered particularly bad?

Question

I was thinking about how useful debt is, in contrast to a common sentiment that it’s a ball-and-chain to be avoided. Without credit, one can hit zero funds with no alternative. With credit, one can borrow from the future, and so even when real money is lacking, one can still somehow produce money when it is needed, to be compensated for at a later time when the conditions are better for it.

I then read that apparently it’s very common for countries to be in debt.

I was wondering if there is any scenario where a society does not care or significantly punish being in debt, and you can basically go as far into debt as you would like. You will need to repay it eventually, but there’s simply no harsh wall to run up against at any point that says, “Sorry, you can’t get access to quick cash anymore.” It would simply always be an option. However, there could be some other incentivizing factor for people to actually employ their credit to generate income so they do actually try to repay their debt. In other words, people want to and do, but there’s just no lending rock bottom.

After writing this, I wonder if I have naively described how loans already work? I think I never realized that a credit score is pretty much that, you are welcome to take on debt so long as you have a history of making your repayments. The better of a track record you have, the more debt you can take out. The point is not that you already paid it back. You’re still in debt overall. But you’re like, a responsible debtor. You’ve clearly always used your loans somehow to be able to generate more money, to partially repay them.

Which leads me to the question (unless I’m completely off base here), is there any example of a person with an extremely good credit score, an extremely high amount of debt, even a negative net worth, but perhaps also some high measure of “cash flow” or something, like a good ratio between each dollar they’ve possessed and each dollar they’ve earned via income, sort of? In other words, they have a history of using their money to create revenue streams.

Answer 1

For individual investors, debt can be considered not to be a bad thing as long as the return on their investment is higher than the interest rate on the debt ($r>i$). For example, if you have the opportunity to invest in a business that pays a riskless return of 20% borrowing any necessary amount of money, as long as interest is below 20%, would make you financially better off than if you did not borrow money. If the return is not riskless the maximum possible interest rate would be lower than 20% but in principle, debt will still be a good idea at some interest rate.

When it comes to real life example, you will not find articles about some random people as an examples. However, a good examples of loans that helped the borrowers to get high returns are loans that started some of the well known US businesses.

Answer 2

Debt in itself is a physiological part of our economies, both private and public debt.

What is considered bad and legally and socially sanctioned is not repaying a debt, or making loss for a long period or, worst, bankruptcy.

But debt is a part of the normal functioning of economic systems, all the financial intermediation, in a sense, is based on debt. Debt, in the sense of the possibility of borrowing money, is an engine of economic activity: think of a firm, it can finance its investment through debt, borrowing money from banks. And this is not an exceptional or bad thing, borrowing is part of the normal activity of a firm.

This is exactly the role of financial intermediaries: they gather saving from savers, that is from people that have a financial surplus and give it to investors, and gain from the interest rate the borrower pays.

This is the institutional role of banks, for instance: savers put their money in the bank deposits and the bank lends money. The role of banks it is not to keep money of people as in a piggy-bank, but they are firms that make profits borrowing money.

This is what we call financial intermediation, without which our contemporary economic systems can't work. Think that the creation of banks in economic systems is only a modern, relatively recent, event in the history of societies.

There are famous writings of Keynes focused on the importance of spending, of investment and borrowing. Keynes said that saving is not a social virtue as classical economists thought. On the contrary, saving can damage the economy, as saved money could result in a smaller aggregate demand, depressing the economy.
Saving can ultimately be detrimental to the economy because increased saving, by definition, decreases current consumption, it stifles demand: that is, saving, which is often considered a private virtue, can be a harm for the economy and the society.

In 1931, during the Great Depression and the resulting unemployment, Keynes writes against thrift and in favour of spending, both as private consumption and private and public investments, and therefore also in favour of private indebtedness or government expenditure financed by deficit:

There are today many well-wishers of their country who believe that the most useful thing which they and their neighbours can do to mend the situation is to save more than usual. […] if there is a large unemployed surplus already available for such purposes, then the effect of saving is merely to add to this surplus and therefore to increase the number of the unemployed […]Therefore, O patriotic housewives, sally out tomorrow early into the streets and go to the wonderful sales which are everywhere advertised.

[…]Nationally, too, I should like to see schemes of greatness and magnificence designed and carried through. I read a few days ago of a proposal to drive a great new road, a broad boulevard, parallel to the Strand, on the south side of the Thames, as a new thoroughfare joining Westminster to the City. […] we can all the same do something by ourselves and that something must take the form of activity, of doing things, of spending, of setting great enterprises afoot.

[…]Activity and boldness and enterprise, both individually and nationally, must be the cure.$^1$

This is not to say that we now must run and spend all our money and making debts. Of course, debt is considered bad if we don't repay it, if banks lend money to wrong people, if debts to a bank aren’t repaid and the bank fails, if we lose and become indebted in gambling, if our investments always fail to give returns, if we make bankruptcy, if we go to prison for debts.

But in many cases debt is not a bad thing, on the contrary.

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$^1$ ^{Keynes, Saving and Spending, 1931. https://www.hetwebsite.net/het/texts/keynes/keynes1931savingspending.htm .}