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Every debt is someone's asset
Deposits and liabilities
A bank deposit shows how it works. The bank holds the cash as an asset, but it owes that cash to the depositor, which is a liability. Financial liabilities cover far more than traditional debt, from pensions to deposits. Traditional debt alone sat around 2.9 times global GDP in 2024, roughly $322 trillion.
Why debts net to zero
Since the world only lends to the world, these instruments net to zero on a global scale. They work as accounting tools that track who owns what share of the world's real assets. That leaves the net worth of the world as the value of its real assets, about $600 trillion, with almost twice that amount tied up in paper assets that represent it.
Why households still count them
Households still count their stocks, bonds, and deposits in their own net worth, because those financial assets give them a claim on the wealth the rest of the economy generates. A mortgage shows the role they play: a bank turns deposits and a loan into the funds that let a household buy a newly built home, and the payment passes through to the builder as income.
How do bank loans create deposits?
When a bank approves a loan, it typically credits the borrower's account with a new deposit instead of handing over cash that came from someone else's savings. The loan becomes an asset on the bank's books and the new deposit becomes a liability. The Bank of England explained this in a 2014 Quarterly Bulletin article on money creation in the modern economy. It concluded that most of the money in circulation exists as bank deposits created through lending.
Why does a pension count as a liability?
A defined-benefit pension is a promise to pay retirees a set income for life, so the sponsor records the present value of those future payments as a liability. The retirees hold the matching claim as an asset. Because that value is discounted back to today, it moves with interest rates: higher rates shrink the recorded liability and lower rates enlarge it. The international accounting standard IAS 19 bases the discount rate on yields of high-quality corporate bonds.
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