[throwawaymaths]

yes it does.

if i loan you 100. in my head i have 100 of assets coming to me, and you have 100, so the system now has 200.

if you default, "so sorry throwaway you ain't seeing it", i have to write down the expectation im getting that 100 back. which means that i have 0, and the 100 is out in the system, spent. the system now has 100.

it is the case that some people refer to things like bailouts and inflating away your debt as soft "defaulting" but those are special cases and not the general case.

[orwin]

I borrowed 100 from you to buy 100 of expensive stuff to X. I default, the 100 i spent is still in the real economy, and you don't have to reimburse anyone yet. People i paid with the 100 i borrowed still have the money, you have to write you lost 100, but if you do your accounting '''correctly''', that money is actually not really paid or taken directly from your profits (first because it's probably insured or collateralized, but let's ignore that because it add to much complexity): you can basically use my default as your tax break. In the end, maybe you pay back 100, but you'll get 50 from your tax break so ultimately a default of 100 add 50 in the money supply.

(btw: i don't know the number, but my uncle insure companies and their loans for Alliance, i'm pretty sure it's more than 50% that's deduced from taxes when he register a loss, i can't seem to remember our conversation though)

I think that loss counting as tax break is an important part of the system, but in this very case, it does create inflation. Also loan insurers have insurances themselves and the loss is counted multiple time, i'm not sure exactly how the complete system work here works but it seems very efficient at claiming a tax break at multiple level.