First  Prev  1  2  Next  Last
Debt by countries
17416 cr points
Send Message: Send PM GB Post
23 / M
Offline
Posted 6/30/15 , edited 6/30/15

BlueOni wrote:


kinga750 wrote:

Thank you for that. This was my understanding but I didn't have the words to express it properly.


You're quite welcome. It's a complicated subject, and paring it down to its bare bones while still getting everything one needs to get across out there is tricky business. I probably could've pared it down a bit more, but this seems serviceable. The paper upon which a large part of my discussion of debts and deficits here is based is located at:

http://scholarship.law.gwu.edu/cgi/viewcontent.cgi?article=1025&context=faculty_publications


I remember reading that paper the last time I saw it posted. Not a fan of it. It feels sensationalist to me.
Quite frankly, although I agree that we don't need to pay off the debt, and I have no issues with a deficit that grows more slowly or at the same speed as the maximum amount the economy can be taxed at, I don't particularly see why running a surplus is a bad thing. To start with, I don't see why we couldn't lower taxes.
Particularly since I don't trust the economy to grow faster than politicians are willing to spend money.
If the interest payments on our debt ever become larger than the maximum amount the economy can be taxed, we're required to print our way out of it. (that amount, assuming our GDP is 15*10^12 and the maximum amount we can tax is 50% with 5% interest on the debt is .5*15*10^12=7.5*10^12 and then if that's the 5% interest, the debt is (7.5*10^12)*20 = 1.5*10^14, or 150 trillion dollars in debt. If we can pay at most 20% of GDP in taxes to the debt, then, it'd be 20*.2*15*10^12 = 60 Trillion.)
I don't want our country to be anywhere near that question. There's no reason to push how high we can get the debt before people doubt our ability to pay it off. All we need to do is not spend all our money inefficiently.

Edit: This was riddled with typographical errors.
36116 cr points
Send Message: Send PM GB Post
F
Offline
Posted 6/30/15 , edited 6/30/15

Nobodyofimportance wrote:

I remember reading that paper the last time I saw it posted. Not a fan of it. It feels sensationalist to me.
Quite frankly, although I agree that we don't need to pay off the debt, and I no issues with a deficit that grows more slowly or at the same speed as the maximum amount the economy can be taxed at, I don't particularly see why running a surplus is a bad thing. To start with, I don't see why we couldn't lower taxes.
Particularly since I don't trust the economy to grow faster than politicians are willing to spend money.
If the interest payments on our debt ever become larger than the maximum amount the economy can be taxed, we're required to print our war way out of it. (that amount, assuming our GDP is 15*10^12 and the maximum amount we can tax is 50% with 5% interest on the debt is .5*15*10^12=7.5*10^12 and then if that's the 5% interest, the debt is (7.5*10^12)*20 = 1.5*10^14, or 150 trillion dollars in debt. If we can pay at most 20% of GDP in taxes to the debt, then, it'd be 20*.2*15*10^12 = 60 Trillion.)
I don't want our country to be anywhere near that question. There's no reason to push how high we can get the debt before people doubt our ability to pay it off. All we need to do is not spend all our money inefficiently.


My invocation of the paper is first and foremost for its plain explanation of basic public finance principles (what debt and deficits are, how governments borrow money, what people gain from buying bonds and what they can and can't do with them, all that), though I also invoked it for its main message: debt isn't an intrinsic negative, nor is deficit. Its invocation of the Golden Rule wasn't my primary purpose in citing it.

We both agree that wantonly driving national debt upward is not a responsible exercise, seeking to either reduce deficits or run temporary surpluses isn't intrinsically negative (though I would say the time to do such things is during a period of economic feast rather than one of famine), and that lowering taxes isn't always a bad idea. We also agree that where spending is to occur it ought to be purposeful, constructive, and efficient. From there it's the tough questions: when and how. Those questions, however, are a touch beyond the scope of an informal discussion forum. If I'm going to try to work those questions out I'd expect to be on a payroll.

Edit: Found what you were getting at.
Sogno- 
46862 cr points
Send Message: Send PM GB Post
Offline
Posted 6/30/15
hmm well all the long posts are confusing im pretty dumb tbh but i have also seen Greece a lot on the news lately but... i dont think our debts to china (or other countries) should be compared to that. tho at the same time i dont like the idea of us owing anybody money

i will never forget that one guy from Greece who paid for a year's worth of premium for me in this Austrian mmorpg we played lol that guy was awesome
16249 cr points
Send Message: Send PM GB Post
M
Offline
Posted 6/30/15 , edited 6/30/15
The most important thing to keep in mind is that the US monetary system is based on Modern Monetary Theory (MMT). The EU system is more of a 'hard' currency. It is hard in that Greece has no control over it. It is managed by an outside entity. In addition this hard currency is what Greece's debt is issued in.

This makes a rather huge difference in the effects of debt and the consequences. Greece benefited in the past from having this hard currency. Because people did not have to worry about Greece devaluing it's currency there was confidence Greece would not inflate away it's debt and on the exchange get screwed, which is fairly common. So Greece had lower rates than they actually earned. Then in the financial troubles of 2008 it all came to a head and things got bad quickly. Not being able to manipulate it's currency means Greece has to pay back bonds in a hard currency it doesn't have money to pay back. So suddenly their borrowing rates skyrocketed. They don't have money to pay back old loans and don't have income for new ones. A bad place to be.

Meanwhile, the US under it's MMT can only default if it wills it to be so. First, understand the institutions and objects have in this system. The fiat dollar on it's own has no value. The government makes it valuable by making you pay your taxes in it. So you HAVE to use it even if you don't want too. So now there is demand. Next, the federal reserve is like a bank teller and the treasury is the bank. The treasury goes "Oh I owe you money? Have a check!" then the federal reserve goes "Oh this is a check, have some money!". There is a big difference in your normal bank - teller relationship here. Suppose the bank wrote a check with a 0 balance and someone tried to cash it. The federal reserves goes "You have a check, here have some money!" and gives them money.

But how does this happen? How can the federal reserve continue having out cash despite the treasury not having any money? Most banks would be in default and be forced into bankruptcy. It is rather simple (Even if the ripple of effects may or may not be). The cash the federal reserve hands out is cash it makes. Someone tries to cash a $1 trillion dollar check? No problems. Have a newly minted $1 trillion note. Just let me record this on my books that I minted new cash and gave it to a person with a check.

All debt the US owes is in US currency and not a hard currency the US does not control like other nations currency or precious metals. Therefore it quite literally takes an act of congress for our system to default. Also, under this system, the debt load does not matter so much as the effects of inflation. Example, during the financial crisis the feds increased the monetary base 3x ( https://en.wikipedia.org/wiki/Monetary_base#/media/File:U.S._Monetary_base.png ) and we never saw inflation for it. The velocity of money was very slow so the feds could basically print as much money as they wanted (And they did) without any ill effects. Now if the velocity picks up inflation might get bad in which case, the fed which controls the fractional reserve of other banks will say "Time to cut the slack!" and force it to slow down.


While the US system on MMT isn't perfect, it is a much better system than the Euro one.


EDIT:------------------------

Pt2:

I just wanted to add this since other people are talking about bonds in the threads. The whole system of the US auctioning bonds is a relic of the times of when the US had a hard currency. Back then if you wanted to spend more dollars you had some choices. For example you could devalue your currency. Instead of 1oz of gold per dollar now we only give .75oz per dollar(you could also back currency with other nations currency so substitute gold for yuan or pesos or something), or something along those lines. You could continuing issuing money and hedge your bets that you will not ever have to give out more gold than you have but risk default/bankruptcy of your nation or you could just borrow. As you can see borrowing is usually a much safer alternative which still allows you to spend.


But the US doesn't need to issue debt. It can just pay it as it is needed. But congress never abolished the debt auctions or kept the process up to date since the time Nixon took us off gold.
Otter Modder
50191 cr points
Send Message: Send PM GB Post
24 / M / Florida
Offline
Posted 1/26/17
Forum Clean up. Old 2015 threads Locked.
First  Prev  1  2  Next  Last
You must be logged in to post.