How I Think About Debt

🌈 Abstract

The article discusses the author's perspective on debt and how it can narrow the range of outcomes that one can endure in life.

🙋 Q&A

[01] How I Think About Debt

1. What is the key point the author makes about debt?

• The author argues that as debt increases, it narrows the range of outcomes that one can endure in life, due to the volatility and unpredictability of events such as recessions, wars, family emergencies, health crises, etc.
• The author contrasts this view with the typical perception of debt as a tool to leverage assets and pull forward demand, where the only downside is the cost of capital.

2. What examples does the author provide to illustrate the longevity and resilience of businesses with no debt?

• The author cites the example of Japanese businesses that are over 500 years old, and some over 1,000 years old, which have endured numerous wars, catastrophes, and economic downturns by maintaining large cash reserves and no debt.

3. How does the author describe the relationship between debt and the range of outcomes one can endure?

• The author uses a visual representation to show that with no debt, the range of volatile events one can withstand is broader, but as debt increases, the range of survivable outcomes shrinks.

4. What two key points does the author highlight when viewing debt as a constraint on endurable outcomes?

• 1. The high likelihood of experiencing major volatility events (wars, recessions, pandemics, etc.) over a lifetime.
• 2. The various types of volatility (financial, psychological, family, health, political, etc.) that could potentially "do you in" when saddled with debt.

[02] Conclusion

1. What is the author's overall stance on debt?

• The author is not an "anti-debt zealot" and acknowledges that debt can be a useful tool when used responsibly. However, the author argues that viewing debt as a constraint on the ability to endure volatility and maintain flexibility is a more practical way to think about it.