National Debt

Off Topic Politics and World Issues
21

[quote]bluey wrote:
The debt can not be paid off through taxation because it is too large. What will happen is the debt will be moneterized. This happens when the Federal reserve CREATES “MONEY” OUT OF THIN AIR and buys treasury debt. They then destroy this treasury debt (maybe on a big bonnfire?).

Good deal right?

But now you have all this extra money floating around. It needs to find a home. It does this by bidding up the price of everything. So when you are paying $1,000 for a cup of coffee circa 2015 this is the result of the national debt. Of course your wealth and income will have been destroyed by inflation so you probablly can’t aford the coffee anyway.

Exactly the same thing happened in German after WW1. There people turned to any hard asset to protect their wealth from inflation. Gold and silver turned out to be the most useful. History rhymes remember. [/quote]

Actually this is exactly why the Federal government does not do this. They do not want runaway inflation, and the devaluation of the dollar.

But yes the debt can be paid down just by taxes, if the government starts controlling spending. Also when the economy improves, taxes flood in. This is why tax revenue will eventually go up when taxes are reduced, and why tax increases never produce the taxes predicted, and have even resulted in reduced taxes. (This is especially evident with the capital gains tax.)

Now when Truman was president the debt was 90% of GDP. It was about 30% at the beginning of Regan, who built up the military, speeding up the end of the cold war. By the middle of Clinton’s presidency it was under 70%, and started dropping after the Republicans took over congress, and put their rules into place. (Which should be put back into place.)

It dropped to about 60% of GDP until 911, and has since gone back up to about mid 60’s.

It is just the Ratio of debt to GDP that really matters. If we can boost the GDP, and just balance the budget, the growing GDP and normal inflation will reduce this ratio by itself. Combine budget cuts, and increased GDP and the numbers will plunge.

Oh yeah, I remember reading predictions in 1980 that in 1999 a cup of coffee would cost $25.

22

[quote]lothario1132 wrote:
Mage, I agree. Trade and being “involved” in the world is not only good for everybody, it is our obligation as the most powerful nation in the world to keep the human race cool with itself. We are all one human family, right?

Still… I think that if we were motivated to somehow, we could conquer this planet by 2099. I’m not saying we should, I’m just saying we could. Big difference there.

If you buy into that line of thinking though, you can develop a perspective on things which is kinda weird. For example, all of a sudden our economy numbers like GDP, debt, etc., become fake… in a way. That’s because you realize that this world economy is little more than a game which we humor the other nations to play. If we wanted to end it, we could.

He who can destroy a thing, controls a thing. Kooky, huh? :)[/quote]

This is completely wrong, and not on moral grounds or anything like that. Although still too low, in my opinion, the U.S. defense budget is bigger than that of the next ten countries combined, we are literally a generation ahead of everyone else in military technology, yet subduing an Iraq of 25 million people is proving difficult, to say the least. Even if there were some great unifying reason to do so, which is virtually impossible, the U.S. could not singlehandedly conquer the rest of the world. Nuke it, sure. And go down in flames too.

23

Oh just wanted to mention that the Federal debt is 66.4% of our economy. In Canada it is 68.3%. Here are some others:

France 74.2%

Italy is 120.8%

Japan is 161.1%

Ireland was 111.7% in 1987. It is now 29.9%. Fairly strong evidence that it is possible to improve this ratio.

24

A small comment from one who used to be an economist;-)

While the ratio of debt to GDP/GNP is useful to indicate a nations capability of managing its debt, it is often more practical to look at the ratio between government income and debt to assess the political capability of a nation to manage it. This is simply because the tools to realign those numbers are taxes.

The Korea inflation debt was accompanied by a 31% federal tax increase (incl. Social security) between 1950 and 1952.

I sincerely hope you can manage it because US inflation would be bad news for everyone on the world.

25

[quote]lothario1132 wrote:
I hate for my T-brothers to be in the dark, so:

http://www.publicdebt.treas.gov/opd/opdfaq.htm

Okay, I’m all verklempt. Discuss amongst yourselves… :)[/quote]

lothario1132,

Thanks for this link. I think that it helps many of us that have questions.

26

Interesting info all. I appreciate the input. I will want to re-read several posts and links to gain a better grasp, but much has been learned

Grazzi

27

The big deal is not the deficit, that could be paid down in a relatively short amount of time if the government truly got serious about it. And there is no other viable replacement currency, not the euro (in light of sluggish growth and constitution troubles) and certainly not the yen. The big deal is the current accounts deficit with China, the fact that we import a hell of a lot more than we export from them. They need us because we’re their big market, but it’s still not a pretty picture.

28

[quote]GDollars37 wrote:
The big deal is not the deficit, that could be paid down in a relatively short amount of time if the government truly got serious about it. And there is no other viable replacement currency, not the euro (in light of sluggish growth and constitution troubles) and certainly not the yen. The big deal is the current accounts deficit with China, the fact that we import a hell of a lot more than we export from them. They need us because we’re their big market, but it’s still not a pretty picture.[/quote]

If they need us, why then do we seem to be on the receiving end of a good butt banging?

29

No country in the history of the world has been able to run up debts forever. In attempting to police the world, every country that tried it has eventually collapsed and became a lesser power.
At the end of this century, China will be the hegemon of the world and we will be like England now.

30

[quote]Headhunter wrote:
In attempting to police the world, every country that tried it has eventually collapsed and became a lesser power.[/quote]
That was before modern technology. Things are different now. We are doing all kinds of shit nowadays that would have been pure fantasy even fifty years ago. Although it can, History does not ALWAYS repeat itself.

I doubt it. Things will get weird in China before that ever happens. Don’t be surprised if they become a democracy someday… people only put up with so much shit before they grab guns and do something about it.

There is a VERY big reason that China keeps a chokehold on what their citizens see and hear. Now I’m not saying that Chinese citizens are as easily pissed off as our Revolutionary War forefathers – “I have to pay a little extra for this cup of tea because of England, and we can’t even get any say in what happens to us over here… FUCK THAT, SON!!” – I’m just saying that you can’t keep a nation that big bottled up for too long. The briefest taste of that personal liberty that we swim in… just one cup… and things will change over there.

31

[quote]The Mage wrote:
This problem really is inherent in our culture. How much debt do you have in relation to your annual income? Are you really better off then our government? Can you complain of your debt to income ratio is greater then the governments debt to GDP? The best way to change the government is to change ourselves. (As hokey as this sounds.)[/quote]

Personally I have exactly zero debt, but it’s not because I’m crazy enough to think that will influence the government.

Actually, usually it’s the opposite: the government sets the example. In almost every single case an increase in public debt is followed by an increase in personal debt, for many reasons.

32

[quote]The Mage wrote:
Interestingly there has been research showing a correlation between increases in taxes, and increases in Federal spending. If taxes are raised, Federal spending is increased at a greater rate.[/quote]

Actually I’d like to see those studies, since the ones I have say something very different: that increases in Federal spending never come AFTER increases in taxes. Also, except for WWII, increases in taxes are mostly the only effective means to decrease the public debt – decreases have never be shown to decrease the public debt, directly or indirectly.

So if you have a source, I’d like to see it.

I think we both agree that a decrease in government spending is pivotal at this time. However, we seem to disagree on two points:

  • one, that reducing taxes actually helps that (and increasing them makes it worse) and

  • two, that the track record of Republicans shows any inclination to reduce government spending (on the contrary, they usually spend more money than Democrats since they are as inefficient, but more paranoid and delusional).

33

[quote]TQB wrote:
While the ratio of debt to GDP/GNP is useful to indicate a nations capability of managing its debt, it is often more practical to look at the ratio between government income and debt to assess the political capability of a nation to manage it. This is simply because the tools to realign those numbers are taxes.
[/quote]

Good point.

Annual US Government income is only about 17% of GDP – one of the lowest in the world, and, of course, much lower than the debt (4x lower). That means that if the US Government was a person, it would never be able to get the amount of debt it is in, since “most” banks will not give you a loan that is 4x your annual income, when only half of it being secured by assets… :slight_smile:

34

[quote]highersights wrote:
Simple economics dictate that the Reserve cannot make money unless there is a balance on the card. The larger the debt, the more money they make.[/quote]

That is very true, but as no responsible bank would let you get too much in debt, so shouln’t the Federal Reserve. They lose too if the USD goes down, and/or inflation goes up.

Then again, as I said, understanding that would require them to have a brain, which they don’t.

35

[quote]sasquatch wrote:
GDollars37 wrote:
The big deal is not the deficit, that could be paid down in a relatively short amount of time if the government truly got serious about it. And there is no other viable replacement currency, not the euro (in light of sluggish growth and constitution troubles) and certainly not the yen. The big deal is the current accounts deficit with China, the fact that we import a hell of a lot more than we export from them. They need us because we’re their big market, but it’s still not a pretty picture.

If they need us, why then do we seem to be on the receiving end of a good butt banging?
[/quote]

Not sure what you mean by that. They scam us, sure, steal technology, copy CDs and DVDs, reverse-engineer Western cars and sell them at a quarter the price. But “a good butt banging?”

36

[quote]hspder wrote:
The Mage wrote:
This problem really is inherent in our culture. How much debt do you have in relation to your annual income? Are you really better off then our government? Can you complain of your debt to income ratio is greater then the governments debt to GDP? The best way to change the government is to change ourselves. (As hokey as this sounds.)

Personally I have exactly zero debt, but it’s not because I’m crazy enough to think that will influence the government.

Actually, usually it’s the opposite: the government sets the example. In almost every single case an increase in public debt is followed by an increase in personal debt, for many reasons.[/quote]

Actually it is the reverse. The government is quite representative of us. Glad you have no debt. Imagine what would happen if suddenly that became the norm? That being in debt was considered bad instead of good like it is mistakenly (in most cases) now?

37

[quote]hspder wrote:
The Mage wrote:
Interestingly there has been research showing a correlation between increases in taxes, and increases in Federal spending. If taxes are raised, Federal spending is increased at a greater rate.

Actually I’d like to see those studies, since the ones I have say something very different: that increases in Federal spending never come AFTER increases in taxes. Also, except for WWII, increases in taxes are mostly the only effective means to decrease the public debt – decreases have never beActually what I read about this was a quite a while ago, but look at the chart above. You will notice generally right after taxes go up, there is a lagging increase in spending. (This chart was a pain to get.)

?Economists Richard Vedder, Lowell Gallaway, and Christopher Frenze, in a paper prepared for the House of Representatives Joint Economic Committee in 1987, found that from 1947 to 1986, for every $1 in new taxes, the government spent an additional $1.58. That figure was later revised downward to $1.50.?

If you search online you will find that there have been a lot of people attempting to discredit the findings, including one who provided the chart above. This study is quoted repeatedly.

We do disagree on one, but not on two. Republicans can talk about cutting spending, but recently, other then the short time of the 3% spending cap, they have been just as bad if not worse at spending then the Democrats. They definitely should be held accountable. Some is justifiable, but most is not.
shown to decrease the public debt, directly or indirectly.

So if you have a source, I’d like to see it.

I think we both agree that a decrease in government spending is pivotal at this time. However, we seem to disagree on two points:

  • one, that reducing taxes actually helps that (and increasing them makes it worse) and

  • two, that the track record of Republicans shows any inclination to reduce government spending (on the contrary, they usually spend more money than Democrats since they are as inefficient, but more paranoid and delusional).
    [/quote]

Actually what I read about this was a quite a while ago, but look at the chart above. You will notice generally right after taxes go up, there is a lagging increase in spending. (This chart was a pain to get.)

?Economists Richard Vedder, Lowell Gallaway, and Christopher Frenze, in a paper prepared for the House of Representatives Joint Economic Committee in 1987, found that from 1947 to 1986, for every $1 in new taxes, the government spent an additional $1.58. That figure was later revised downward to $1.50.?

If you search online you will find that there have been a lot of people attempting to discredit the findings, including one who provided the chart above. This study is quoted repeatedly.

We do disagree on one, but not on two. Republicans can talk about cutting spending, but recently, other then the short time of the 3% spending cap, they have been just as bad if not worse at spending then the Democrats. They definitely should be held accountable. Some is justifiable, but most is not.

** Ok, for some reason I cannot get the chart to post.**

38

If a person continually spends more than they earn, then they eventually go bankrupt. Our government continually spends more than it earns. Can we therefore conclude that our government will go bankrupt?

If the laws of economics apply to governments in the same way that they apply to people, then the answer is YES.

There are hundreds of variables, any one of which may delay this happening (or hasten it). But it simply makes sense that, if we continually spend more than we earn, the rest of the world won’t want our IOUs.

39

[quote]Headhunter wrote:
If a person continually spends more than they earn, then they eventually go bankrupt. Our government continually spends more than it earns. Can we therefore conclude that our government will go bankrupt?

If the laws of economics apply to governments in the same way that they apply to people, then the answer is YES.

There are hundreds of variables, any one of which may delay this happening (or hasten it). But it simply makes sense that, if we continually spend more than we earn, the rest of the world won’t want our IOUs.[/quote]

The answer is actually NO:-)

I all comes form the funny thing called money. The USD isn’t a concrete object. If the Federal Reserve had promised to translate dollars into Olympic bars, then there would be a concrete object and it either would succeed in sourcing them of default.

In reality the USD is based on trust in the US economy and in its future capacity for growth. This the reason is why outside lenders can fairly easily absorb the (hopefully temporary) effect of spender George. They are however likely to demand higher interests on lending to the US. (As these are through auctions, it is an automatic effect) The effects inside the US will also reflect higher interest rates, but not associated with the kind of boom economy that usually accompanies them. In a worst case scenario the end result would be stagflation. Remember the 70’s?

40

[quote]hspder wrote:
That is very true, but as no responsible bank would let you get too much in debt, so shouln’t the Federal Reserve. They lose too if the USD goes down, and/or inflation goes up.
[/quote]

Bad for who? I have about 350 farmers that are praying for a weka dollar and higher interest rates.

Hmmmm…why do you think that is?

As for the U.S. debt - it is a rallying point for the left - another excuse to raise taxes. Funny thing - I don’t remember anyone bitching and moaning about the debt from about 1992 - 2000. I wonder why.

Hspder assures us that we should be taxed like the Europeans. I call bullshit and say that if anyone thinks that they are undertaxed - they are more than welcome to send what they think is fair to the U.S. Treasury.