The National Debt Is Coming Due, Just Like We Told You


#41

There are multi-millions of government spending that could be easily (and CONSTITUTIONALLY) eliminated. There is NO Constitutional basis for a “Department of Education.” There is NO Constitutional basis for a “Department of Energy.” The former “educates” no one and the latter has never created a single erg of “energy.” Eliminating those two agencies alone would save BILLIONS. Yes, several thousand bureaucrats would have to find other employment, but so what? That’s just a start. We could easily do away with the EPA, BATFEO (Bureau of Alcohol, Tobacco, Firearms, Explosives and Oleomargarine–which is nothing more or less than an ARMED TAX COLLECTION agency), HUD and even the NEA and NEH without any appreciable long-term damage to the country. Bingo! No more deficits.


#42

It is in a country with an increasing population…The US has 100 million more people today than in 1980. If you had balanced the budget in 1980, there would be 100 million more people competing for fewer dollars.

Ret will remind me that banks can also create money, true (*sort of) because when banks create money (no they don’t lend savings) they do it through balance sheet expansion.

Course you could go back to the gold standard, but that’s a whole other jar of jellybeans.


#43

Then the value of the dollar would have gone up. We would be buying more goods for less dollars and we would be wealthier.


#44

Sure, people with wealth. Those with debt, would, in all likely hood, be poorer.


#45

Sarcasm?

Steal?

If I take your car and don’t return it, it’s theft. Taxes would be more akin to taking your car (denying you the use of it), but bringing it back with a full tank of gas and a car wash.

Theft? Yeah, that’s a hyperbolic argument that can be dismissed any of 1000 ways, but I’m sure we can agree to disagree and save the hand cramps.


#46

Only if our government takes land from (necessarily) private businesses and gives it to people as payment for services to the government, who, BTW, don’t know how to run those businesses nearly as efficiently. The result is a 25% decrease in economic output.

Then add to that, the US would have to have debts denominated in the currencies of foreign nations. Which would mean that investors, realizing the weakness of the economy would demand more dollars in exchange for foreign monies and the result is a massive spike in the cost of imported goods.

However, that’s not likely as we don’t have a dictator that can seize property on that scale (well we do have civil forfeiture and eminent domain but in fairness, not the same thing) and the debts of the US are all denominated in US dollars, not foreign currencies.


#47

No, as I was (sort of) explaining above. The precipitating cause of the situation in Zimbabwe (and Hungry, and Argentina, and Venezuela and Weimar) did not begin with a government that decided to overprint its money.

In the case of Zimbabwe, it was Mugabe who had debts to pay but lacked the money. Frankly, he would have been better off printing it and paying it that way. Instead, he seized farms that were leased mostly to European companies and gave the land to those that we were indebted to (IIRC it was members of his military who posed a threat of coo). So he took the land away from the highly productive farms and gave them to non-farmers. They could not match the output of the European farmers and the GDP of the country dropped by 25% almost overnight.

With the fall in GDP came a loss of value of the Zimbabwe Dollar (Z dollar) relative to other nations currencies. This made exports extremely expensive. Europen banks retaliated and demanded that loans that Zimbabwe owed should be repaid on an accelerated pace and the only means the government had at this point was to create money and buy foreign currencies to repay it’s debts. This creation resulted in the massive hyper-inflation that resulted as the value of the Z dollar on the world market plummeted because the value of it’s exports no longer matched the dollars in circulation. Further printing only made a bad problem worse.

Money creation comes at the end of a series of bad political and economic decisions, not the beginning.

In the US we create a lot of money because so much of what we spend money on we import. That means a large portion of our money ends up in the hands of a foreign investor. Rought $500-$700 billion each year. Sure most of that comes back when foreigners want to trade the US dollars they’ve earned back into their native dollar, but if you know anything about bond sales to foreign interests (governments, institutions, business and individuals) you know that we’ve exported about $10 trillion dollars that are now in the hands of foreign interests.

The US government sells bonds to ensure those dollars can flood back into the economy and it creates new dollars to replace them and the cycle continues.

Effectively, the US as a nation trades very low prices for low unemployment in places like China. If the trade between the two nations stopped, the immediate impact would be massive unemployment in China and massive shortages on goods here (and a spike in prices).

So no, that’s not what happened in Zimbabwe or any of the other recent historical examples of run-away inflation.


#48

I’m sorry, but since when do you get to decide who represents me?

Having said that, none of those people support Soviet era socialism as defined here: https://www.merriam-webster.com/dictionary/socialism

If you think that’s what they want, then I think I understand your problem. A lack of understanding.

Having said that, I do not suggest that the government should own the means of production or that private property is done away with, but again, it really all depends on how you define your terms. If you are a libertarian and believe that your property belongs to you and that you have no social or moral duties and that no one can demand anything whatsoever from you, then we aren’t on the same page, we aren’t even in the same book and I think I could understand your lack of understanding IF, that is what you believe (or something close to it).


#49

Oh I understand you perfectly. You are in favor of private property rights so long as it does not interfere with your “social or moral duties” which is whatever fits in your concept of the role of government in every day life. Whenever you think that the government has “social and moral duties,” that trumps property rights with little or no due process,

That makes you a fascist which fits in perfectly with the fascination people of your stripe had with Benito Mussolini in the 1920s. For them Mussolini developed the perfect form of government. Anything that was deemed necessary for what they termed as “the common good” could be enacted without any inference from democracy or the legal system. A fascist makes up the rules for whenever is convenient.


#50

Deficit spending is a bad political decision, and our government has been making it for decades. Quantitative easing was a bad political decision too.

Tell me this. If the FED can’t sell enough government-issued securities to fund the deficit every year, where does the difference come from? That is, if there aren’t enough buyers (because other nations decide to not loan us the money by buying US treasuries), where do we get the money to make up the difference between expenditures and tax receipts?


#51

You print it. QED. Problem solved. Adding liquidity to the solution is the solution, not the dilution.


#52

Ken, the answer to your question is simple. Stop and ask yourself, where does the largest purchasers of us debt get the dollars they use to buy US Treasuries? They come from selling goods and services to US consumers. In the case of the Chinese, they hold a total of $3.1 trillion US dollars. Just over $1 trillion in bonds (which are little more than dollar denominated savings accounts) and $2 trillion in US dollar reserves. The Chinese MUST hold US dollars as assets against the printing of Renmibi they do in order to buy up US dollars and maintain a devalued Renmibi. What other choice do they have? Hold US dollar cash accounts and loose millions of dollars to inflation? No. Or worse undermine the US dollar which backs the value of thier currency?

Its the same for Japan. They rely on exports to us to maintain their own economy. If they didn’t buy US bonds they would would only hurt themselves.

Basically, I’ve heard this idea before about the fear that the US might reach a point at which it can’t find buyers of US Treasuries. As long as the US private sector is a massive net importer, which is really to say as long as we are sending them trillions of dollars of intrinsiclly worthless US dollar credits and they are sending us intrinsiclly valuable goods and services (real wealth), exporters to the US are addicted to dollars like crack cocain, and the only thing that will destroy the best deal in human history is if the balanced budget people and the people that want austerity get thier way.


#53

Your entire reply is nothing more than a lame strawman.

You aren’t making any attempt to talk to me, you’re talking at me and having my opinion for me.

Your wrong about several things, whenever you feel like having a conversation you let me know, until then I have little interest in debating or discussing your imaginary idea of who I am and what I believe.


#54

Between 30 to 40 percent of the members of the Democratic Party now describe themselves as “socialists.” Since most of those people are the younger members, they form the basis for the future of the party. If that trend continues, your determination to preserve private property rights in the midst of ever-increasing taxes and regulation will soon be discarded. You will be run out of the party along with the “blue dog Democrats.” Alexandria Ocasio-Cortez has announced that that is her goal, and she appears to be the spokesperson for the “new Democrats.”

If you think I’m overstating the case, look at Barack Obama’s statements on health care, which comprises about 12% of the economy. When Obama Care was passed, Obama told his supporters that this was only a first step toward “single payer,” the concept that the Federal Government will be the sole provider health care insurance. That is Obama’s stated goal and there is no way to get around it because those words came from his lips.

If you think that “single payer” is a great concept, I would ask you to look at the VA Hospital System. The problems with it became systemic. Poor care, false reporting and cover-ups of wrong doing have been common. Do you think that the Federal Government will do better with a system that is many times larger?

The Trojan horse for taking over the rest of the economy through regulation is the global warming hoax. As a former cost accountant and long-time student of economic systems, I can tell you that taking control of energy will control everything. Energy runs everything, and it is an integral component to producing just about every product that we use every day.

If the government gets a strangle hold on the energy systems of this country, we will be effectively living in a dictatorship. So far private sector proposed innovations, like scrubbing systems for coal fired plants, have been summarily rejected by the government without even a study. Big government, controlled by a comparatively small number of people, is rigid, inflexible and often excessively influenced by those who have purchased influence over the system. It is not open and democratic and seldom receptive to new ideas.

That’s why capitalism and freedom work. That systems gives power and voice to the people with new ideas and products.


#55

Hogwash. You seem to think that when government spends, wealth multiplies; quite the opposite. The most efficient use of the money is to not charge it in taxes in the first place; then it can be spent by the private sector, which generally has a better track record for results from investment. When it comes to money (and most other things), “government efficiency” is an oxymoron.


#56

Just because the financial landmine that the government has been beating on hasn’t gone off yet doesn’t mean that it isn’t predictable. The notion that government debt is sustainable when it isn’t in the private sector is perpetual-motion-machine thinking. Yeah, it’s taking longer, but the fall is going to be that much harder.

Not when it’s spent on the backs of others with all the lack of responsibility implied.

Bull. Money doesn’t come out of rear ends. Every bit of money government spends is unavailable to anyone else, even if there are more dollars printed; because the value of the dollars is diluted to cover the same amount of wealth; or less…

Last time I heard, the birth rate in the U.S. was below that necessary to sustain the existing population.

Hogwash. If they had nothing before, then they haven’t lost anything. If they have X number of dollars, those dollars are worth more.

No, it it would be more like taking your car, bringing it back as a beater (if at all), and prostituting your wife in the back seat…

I’ve quoted this before from the book MiG Pilot on the subject of communism and the “New Communist Man:”

“Since everybody can have as much of everything as he wants and everything will be free, we can stay drunk all the time.”

"No, I’m going to stay sober on Mondays, because every Monday I will fly to a different resort.

“I will stay sober on Sundays; half sober anyway. On Sundays I will drive my car and my wife will drive her car to the restaurant for free caviar.”

“And we won’t have to work. The tanks will produce themselves.”

Hey, this New Communist Man, does he ever have to go to the toilet?"


#57

No, when a dollar is added to the economy it circulates. It’s called the velocity of money. It’s well known and not the least bit contrevercial and frankly I’m suprised you don’t relaize this.

As far as taxes, the level of taxes necessary is dependant on prevalining economic conditions. Today I think taxes, especially in the lowest end of the economy could be quite low or even zero.

I think the individual tax exemption could be between $100-$400k per person (wide range because, again, it depends on prevalining economc conditions).

I don’t necessarly disagree with you. Wherever possible private industry is the way to go with respect to investment. Where we’ll disagree is where the line is between what govenrment should do and what private companies should do. For instance, I don’t think privitizing hospitals is a good idea (having worked at a hospital for many years). So I think there are at least a handful of businesses and even industries that are best left in the hands of the government.

As far as “government effeicentcy” goes. Yes there are some spectacular examples of government waste. I spent 12 years in the government sector working in Washington DC I don’t think there is any proof that government is always wasteful except by definition. I’m ok to agree to disagee on this point as I doubt either of us has access to evidence that would substantiate our beliefs on this topic.


#58

You didn’t answer the question. You seem to be saying that other countries will always buy up all our debt, as if they’re compelled to. I don’t see why.

Too much sarcasm. But I fear you’re right.


#59

So tell me, when will it go off?

What level of debt is too much?

People have been squawking about the debt for 60+ years. From a debt of 100’s of millions to $21 trillion and yet here we are, the most powerful nation on earth with one of the highest standards of living. Now to be clear (so I’m not misquoted later), I’m not suggesting that debt does not matter. I’m simply saying that the current level of debt, based on prevailing economic conditions (e.g. resource availability, population, education, rule of law, imports/ exports, labor and so on) is a problem. Could debt become a problem. Sure but we haven’t reached that point yet. There is lots of work to be done and lots of people that want to do work. If the people run out, there is lots of room for innovation (like automation) and the capacity to bring others here from outside the US to work here.

Before I’ll comment on that, you’ll have to give me something a little more substantial.

No, banks create money by expanding their balance sheets. Again, nothing very controversial for anyone that actually understands how banks work.

Balance sheet expansion is limited only by two basic things:

  1. The desire and capacity for people to borrow money

  2. Banks have adequate capitalization (investment)

The last might be that the Fed has ensured that there is adequate reserves in the system to ensure par clearing of payments, however, the Fed has promised that it is the “lender of last resort” should the payment clearing system run short.

Even if you believe that the government acquires money by borrowing it (something I dispute, but don’t wish to argue here), if you were right, then government spending and interest rates should correlate. Right?

So we have government spending as a percent of GDP and the Federal funds rate and 10-year treasury rate. If there is some other comparison that you think proves your claim, let me know I’ll grab the graph for you.

Where the green line is lowest represents the periods of largest spending. yet we don’t see rates increasing as a result. Why? because “crowding out” isn’t a thing.

Let’s be sure we’re talking about the same thing… The story goes something like this: there is a fixed supply of funds available in any economy at any given time and if the government borrows those funds to pay for its deficits, the private sector will not be able to borrow them. Thus, any expansion of government spending will restrain private sector spending. And since most people assume that government spending is inefficient this is usually seen as a bad thing.

The manner in which this crowding out is supposed to effect the private sector is through interest rates (as I’ve shown above isn’t the case). Since there is supposed to be a fixed quantity of money in the system, the more of this money that is demanded the higher its price (interest rate) will be. Even though we see no effects on interest rates as government borrow in large amounts today, adherents of the “crowding out” view claim that we eventually will and hence the government should be cutting down on its expenditure by engaging in austerity.

Ok, so now that I’ve (tried) to establish that…

Neo-Keynesians largely agree with this view. They claim, however, that during times when the economy is in a “liquidity trap” – that is, when people are essentially hoarding money and not investing it there will be no crowding out effects because this money would be sitting idle anyway. However, eventually (as the story goes) when the economy recovers and the liquidity trap comes to an end government borrowing will indeed lead to crowding out.

Endogenous money theorists (like myself), on the other hand, argue that this is not the case. We argue that central banks set a target interest rate and then inject reserves into the system to maintain this interest rate regardless of what the government is spending or taxing. Thus, even in a boom, if the government borrowed lots of money this money would, in a roundabout way, be replaced by the central bank.

This is exactly what we saw under Obama’s near trillion dollar deficit and today with Trump’s $1.4 trillion dollar deficit (including the loss of tax revenue).

Crowding out, then, can never ever be a problem in an economy where the central bank sets a target rate of interest. Interest rates will always be set by the central bank and private sector actors will get access to funds at this price regardless of how big the government deficit is.

There is a birth every 8 seconds and a death every 12. Thus the population is still growing substantially.

https://www.census.gov/popclock/"

On a side not, the world population will level off at about 11 billion. If your interested, I’ll tell you why.

Interestingly, this will have a significant impact on the world economy.

The bottom 40% saves less than 1% of their income. When you factor in debt which becomes more expensive as the value of money rises, the likely result is that losses from the increase in debt costs will far exceed any benifits from saving 1% of ones income.

1% of $25k is about $250. Saved over 10 years at 2% is interest profit of $10.40 a year.

I suspect that rising real costs of debt due to deflation will exceed $10.40 a month for those at the bottom of the economy.

So yes, the poor will get poorer.

At the other end, someone with $10 million in savings will earn over $2 million over ten years at the same rate of appreciation of the value of money.

Funny, but not accurate.

I’ll answer this hyperbole in my response to Ken.

EDIT:

You haven’t responded and I was doing some looking around…

Seems this graph sows a much better correlation between Interest rates and another factor. In this case, the employment rate.

As the unemployment rate falls, interest rates rise. One could make the argument that it’s possible for government to compete for real resources, in this case labor, but there is no competition for money as you suggest.


#60

Because failure to do so will cost them money and hurt their economies due to inflation, however, there is an alternative I’ll go into below.

The foreign sector can either invest the US dollars they hold directly in US private business’ driving private sector revenues thus increasing tax revenue and decreasing the need for the government to borrow, or they can buy the world safest US dollar investment, government bonds, and earn enough interest to keep pace with inflation, or they can look to spend those dollars somewhere else in the world markets that accept US dollars and those sellers will accumulate US dollar assets they will either have to:

  1. Trade back for native currency which would drive up the value of that nation’s currency making their goods more expensive here and hurting their exports to the US.

  2. Hold as US dollar reserves (basically like people have check accounts that earn little to no interest) and lose money.

  3. Trade US dollars for US treasuries (which is basically the same as a saving account at your local bank) in order to maintain the value of US dollar assets. This would effectively push more US dollars from the foreign sector back into the US economy (repartition?) and presumably would make a lot more dollars available for US investment.

So, tell me, do you really believe that people that wish to hold US dollars will put them under their mattress and lose money to inflation out of a fear that they will lose money to inflation?

You see how that sounds?

If you thought the value of your Walmart gift cards were about to decrease in value, what would you do with them?

Presumably you could either sell them at a loss or try to acquire things of real value equal to the face value of the gift card. You wouldn’t hold them.

Basically, what I’m saying is that if the foreign sector really believed that the value of the US dollar was going to decline at some point in the future, they would try to unload their dollars to buy things of real value. Since most things that can be bought with US dollars are here in the US (and if the rest of the world that sold goods in US dollars feared a decline in US dollars they would ask for more of them making US sellers of similar goods less expensive) , a decline in bond sales would be offset by an increase in demand for real goods and services here in the US, increasing tax revenues and making the sale of bonds less important.

It’s a problem that will solve itself.

Right now, there is a HUGE imbalance of trade between the US and the world. An imbalance that has accumulated over 35 years. We (US private sector) have accumulated 35 years’ worth of things of real value (wealth) and they (the foreign sector) have accumulated 35 years’ worth of dollar credits (something like $10 trillion dollars). If the foreign sector wants to come and spend that money here, let them. Sure, we’ll see inflation driven by overwhelming demand, but that would be a nice problem to have as it would drive the need for manufacturing, and other types of employment.

That’s what you want, isn’t it?

So yes, the foreign sector either buys our bonds or they buy our real goods and services, (or they try to trade back to their native currencies which would drive up the value of their currencies relative to the dollar hurting their ability to export here), the problem is self correcting.