Money and debt have two functions: a medium of exchange and a store of wealth.

. Debt is one person's asset and another person's liability.

. Debt is a promise to repay a certain currency (e.g., USD, EUR, JPY, MXN, etc.).

. Holders of debt assets believe that debt can be converted into currency and then into goods and services. Therefore, they are highly sensitive to the relative changes in the loss rate of the currency's purchasing power (i.e., inflation rate) and the compensation rate for the loss (i.e., interest rate).

. Central banks can only create the currency and credit they control (e.g., the Federal Reserve can only provide USD and USD-denominated credit, the Bank of Japan can only provide JPY and JPY-denominated credit, etc.).

. Central banks and free-market borrowers and lenders are interdependent, and over time, they typically create more and more debt assets and debt liabilities.

. The larger the total debt, the greater the challenge for central banks. Central banks need to balance pressures from different directions to prevent debt imbalances and avoid the economy falling into deflationary or inflationary depressions.

. In a debt crisis, policymakers (i.e., those who control monetary and fiscal policies) can usually balance these opposing forces because they have the power to redistribute the debt burden, but sometimes the balancing effect is not ideal.

. Central banks often alleviate debt crises by massively printing more of the currency in which the debt is denominated. While this stimulates investment asset spending and the economy, it also weakens the exchange rate (all else being equal).

. If a country's exchange rate falls more than the decline in its currency's interest rate, holders of debt denominated in that currency will lose money. If investors believe that a country's exchange rate decline cannot be compensated by high interest rates, it is very unfavorable for the country's exchange rate trend. — Big Debt Crises