Topic: US National Debt / Deficit - How does it end? - page 4. (Read 9057 times)

And once again we come to the GDP calculating principle which clearly defines how government spending contributes to the economic output.

I would argue that when the government spends an additional dollar the private sector will spend a little bit less (at first well under a penny, but if government spends gets to high enough levels it will increase). Therefore when the government spends an additional dollar the total economy increases by less then one dollar.

I think I'm kinda confused. Do you want to say that when government spends additional dollar, the economic output effectively decreases?

Not to say that it's not private sector that needs to lend to the gov't, it's the gov't that issues debt so that private sector can easily net save.

When the government spends an additional dollar, the private sector will spend some amount less. The reason for this is because when the government borrows money the private sector will need to lend to it. US government debt is generally considered to be near risk free, and can be used as collateral for loans at almost 100% of it's value. Since the private sector can not borrow 100% of the value of government debt, the amount below 100% that cannot be borrowed against is the amount of lower economic output due to additional government spending.

Let's get your facts straight. Economic output is measured by GDP. Expenditure approach of calculating GDP includes government spending in full, not some percentage. If it's not what you meant, please explain in detail.

In fact what government deficit spending does is taking money from those who don't want to spend and giving them to those who want to, but can't. It's that simple. It creates additional demand economy-wide that otherwise wouldn't be there. Yes, private sector is probably better at investing, but it wouldn't matter is there was no demand.

I have a lot of my own thoughts and fears about where the US national debt is leading our nation and the world. I feel like I’ve done enough of my own studying to have a good understanding of what the likely outcome(s) are but want to get some perspective from other well informed individuals here on bitcointalk.

My conclusion is that the US debt is already so out of control that it will just keep rising until we either default on our loans or we enter a period of rapid inflation as we try to pull a Weimar Republic and print our way out of debt. Maybe someone will contradict this conclusion but I think that the majority will agree that the US financial collapse is beyond preventing at this point even if it is for different reasons than my own.

The real area of interest to me is how does this end? I’ve been reading the book “Patriots” which I believe is the darkest possible scenario for a post economic collapse US. The collapse I am more inclined to believe in is that we’ll face hyperinflation for a short period until the deficit is effectively paid off and during this time our economy will become a basket case. Critical services (electricity, police, firemen, most businesses), communication (Internet, TV, newspapers), and our government will continue to function throughout. The chaos will be at its worst for a matter of months. The worst hit will be the poor who depend on services that may fail such as welfare, food stamps, and other entitlements. There will be regional violence but nothing large scale or long lasting. The loss of life due to things relating to the collapse will number in the thousands or maybe tens of thousands but certainly not millions.

What is everyone else’s view on just how this could play out? Or perhaps are there any who believe this sort of collapse will just never happen?

The "multiplier effect" is part of the Keynesian theory of economics and is followed by many liberals. No matter how the government spends each additional dollar it will always create less then one additional dollar in economic output. (The Keynesians actually do not believe that government money needs to be channeled into productive investments).

Apart from the quantum of spending, we should also look at where the money is going in. If it is just being spent to maintain a bloated bureaucracy and fund some pet projects, then it is effectively going down the drain. On the other hand, if it is being channelled into productive investments, it would have a multiplier effect.

I think that when government spending is at lower, "normal" levels then an additional dollar of government spending will cause overall private spending to decrease very little, if anything at all. However as government spending increases to a high percentage of GDP (including spending on interest on debt) then an additional dollar of government spending will cause private spending to decrease by similar amounts (or potentially more then a dollar if government spending is high enough).

If government borrowing does not crowd our private investment then there would be no need for credit ratings for governments because it would be assumed that the debt would be paid back because they can borrow unlimited amounts without consequence to the private sector.

The government does not spend wisely, and is very inefficient in utilizing resources. Money lent to the government will be used less efficiently then money lent to the private sector.

If you say "per se" then your statement is effectively false.

Having said all this, is it possible that in some cases government spending influences business incentives to a degree that might cause less private investment.  

The blog does have some disclaimers.

Having said all this, is it possible that in some cases government spending influences business incentives to a degree that might cause less private investment. 

Of course it is. Probably. And I noted it by using adverb per se.

It's a government's responsibility to spend wisely, to try to achieve maximum efficiency in resource utilization. But that's not what most governments do.

Wrong, government borrowing doesn't crowd out private investment per se. Government borrowing is a vertical transaction, while private investment is horizontal.

There's an article explaining this fallacy in simple words.
http://econrevival.blogspot.ru/2013/10/crowding-out-and-its-relation-to.html

The blog does have some disclaimers.

Having said all this, is it possible that in some cases government spending influences business incentives to a degree that might cause less private investment. 

Wrong, government borrowing doesn't crowd out private investment per se. Government borrowing is a vertical transaction, while private investment is horizontal.

There's an article explaining this fallacy in simple words.
http://econrevival.blogspot.ru/2013/10/crowding-out-and-its-relation-to.html

For every dollar that is lent to the government, there is one less dollar that can not be lent to the private sector or invested in the private sector. I agree that US government bonds are treated almost like cash, however there is a limit as to how much these bonds can be borrowed against.

Another thing that's strange is how the idea of a recession been so made out to be so horrible. A recession is a necessary correction or adjustment to misallocation of resources. There is much reason to believe that if the government would stop intervening and "stimulating" that this would actually lessen the severity of booms and busts, but of course politicians think and teach that it's the opposite.

This is why it is bad to try to "stimulate" your way out of a recession as the money that is used for stimulus will ultimately need to be paid back via taxpayers (with interest). This is not a very efficient way of causing the economy to grow.