Topic: US National Debt / Deficit - How does it end? - page 5. (Read 9057 times)

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.

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.

What does it mean? Care to elaborate?

This is only an economic theory. What it fails to account for is the fact that government borrowing must be offset by a less amount of lending in the private sector.

I suggest you reading Modern Monetary Theory basics, which explain why government debt doesn't matter in the modern (fiat) monetary system.
If you go deep enough, you'll get what I mean here.

All money that government spends does eventually need to be paid for by taxpayers. Even if the government never pays back the debt they incur to spend this money the government will need to have otherwise higher taxes in order to service the debt forever.

All of you suggestions for government to spend money on other things (science, medicine, education, ect) could be more efficiently done in the private sector.

You haven't read the discussion from the beginning it seems. Because this premise is wrong in the modern monetary system:

There's always something to improve. If infrastructure is perfect, then spend money on fundamental science, medicine, education, whatever.

While the 3rd scenario does sound good on paper, in reality it is not. The fact is that government is worse at spending money then the private sector is (in other words it is spent less efficiently). You imply that the government would pay for all this which means that taxpayer money would not be spent efficiently (all money that government spends will eventually be paid for by taxpayers), unless you are part of the 47% who pay no taxes and rely exclusively on government you should care about this. For example the 2009 stimulus package that president Obama and the democrats passed ended up costing around $300,000 per ~$40,000 per year job created as a result of the stimulus.

Another problem is that you assume that we need more/better infrastructure. In many cases we do not and the money would be spent on things that would not even be used. One example of this is the $100 billion bullet train to no where in CA. Not only is the project expected to generate vastly less amounts of revenue then it will cost to build, but it is estimated to be greatly underutilized.

Ok I guess I don't understand central banking. You win! It's fine to keep issuing debt and in turn encourage the expansion of welfare and warfare.

Who is Schiff?  Peter Schiff? Rothbard? LOL You just lost any credibility

I think the problem here is Roadtrain understands how Central Banking works and you don't.

You don't have to read any economists work.  Just go to the Federal Reserve website and start there first

No, they aren't the same.
You missed my point.

Scenario #1: People are unemployed.
Net effect: poverty, human capital depreciation.

Scenario #2: People are digging ditches.
Net effect: we have ditches, poverty is reduced, still human capital depreciation.

Scenario #3: People are building infrastructure: roads, bridges, etc...
Net effect: we have improved infrastructure, human capital is preserved, poverty is reduced.

I prefer the third scenario, while you seem to prefer the first.

See correction above in BOLD. I say, "create new currency" and you say, "debt issuance" or "deficit spending". They are the same, except the terms you use make it unnecessarily complex sounding.


I will make my final attempt at explaining this:

Scenario #1:

You build a house. You burn it down. You build another house.
Q: How many houses do you have?
A: 1

Scenario #2:

You build a house. You don't burn it down. You build another house.
Q: How many houses do you have?
A: 2


A child can understand that the same effort went into both scenarios, but that scenario #2 resulted in additional net wealth. How can you not understand how unproductive this is?

You don't need to argue with me, the empirical evidence proves that Socialism is complete bullshit.

I'd recommend reading some Murray Rothbard, Mises, Schiff, etc.

Just a random number.

No, it's taken from deficit spending, i.e. debt issuance.

It's irrelevant, it could be tax-free money.

Where the hell do you get this "create new currency" thing and constantly put these words in my mouth? I never said that in my post.
And inflation is much more complicated than "expansion of the money supply".

It's a dilemma that socialists and capitalists can argue about forever. I won't.

No. Capacity underutilization means that there's an excess installed productive capacity. It means that production can be increased without inducing significant inflation pressures.

No, that's not what I suggested. That's kind of a Helicopter Ben thing.

Yeah, of course if you run to extremes there will be inflation. That's a task of the government to spend wisely to avoid inflationary and deflationary pressures.

Explain the bold part.

Government debt is not needed to be paid back to zero, it's a monetary instrument, it can be issued, can be repaid, if monetary conditions warrant. It's not a burden for the generations, it's an asset.

Another excellent way to put it!

Where did the $100 Billion come from?

1)If it was taken from tax revenue then all they've done is taken $100B from some people and given it to others. Why does it matter which group spends? Why couldn't the original holders of the $100B spent it into the economy themselves? To put it another way, you've take away $100B from the first group who now has that much less to spend. Essentially it's a wash, but you've also manage to incentivize inefficiency as well.

Also, if the government took the $100B and paid it as wages to the ditch diggers, then those people would also be taxed on the money again. I think the argument could also be made that the more times the money is redistributed and re-taxed it probably results in wasteful overhead, but I don't know, and it's practically irrelevant to my main point.

2)If they created new currency and spent it into the economy, then all they did was dilute everyone else's dollar holdings. Again, it wouldn't matter if it was spent by the unproductive ditch diggers on real goods, because the effect would be the same. As new money circulates through the economy the falsely perceived increase in wealth causes prices to be bid up. This is why the term inflation traditionally referred to an expansion of the money supply and price inflation is an effect of it. If wages keep up with inflation it might not be as bad, but typically they don't. People on fixed incomes and savers are also punished. Ask yourself why it's illegal for the average Joe to counterfeit money? So, why is ok for the gov?

Those 4 million unproductive people in your example would be much better employed, but not at the expense of everyone else. They need to find productive jobs by creating value as entrepreneurs or being hired by a existing productive company.

First, let's skip the economy-is-operating-below-capacity scenario because if you put people to work doing nothing, then the economy is still operating below capacity even though everyone is "working".

The root of what you are suggesting is that the Fed prints $100 billion and just gives it to everyone.

Ok, why only $100 billion? Wouldn't $300 trillion be better? What would happen if the Fed gave every person in the U.S. $1 million? According to your logic, it would mean the end of poverty because everyone would be a millionaire.

Let's make it simpler. Instead of giving away money, let's suppose that the U.S. simply declared that $1 is now $1000. The economy would explode and everyone would have enough money to buy whatever they want, right?

Ok, I have indulged in your fantasy, now for the realism. The result would not be prosperity, the result would be inflation. Things would look great for a short period time, but then increased demand will causes prices to increase. Spending would increase, but so would prices. In the end all you will have done is devalue the currency.

If the U.S. borrows the money instead of printing it, then what you are doing is taking wealth from your children. Who is going to pay back the debt? Certainly not the ditch diggers! They aren't doing anything productive so they will always require your subsidies.

Ok. Let's imagine a situation when U.S. budget is in balance. There are several million unemployed. The economy operates at below full capacity. The the gov't decides to implement a program called "Ditches for cash". It spends about 100 billion dollars a year to employ somewhere between 3 and 4 million unemployed people.

What do we have then? Disposable incomes in the economy increase by $100 billion, translating into increased spending, which increases capacity utilization and employment.
Because of increased taxes collection, the actual deficit is below $100 billion, let's say $70 billion. (Actually, if no money of these $100 billion is saved by the private sector, deficit will be zero) These $70 bln will be added to the private sector's net savings.

What's wrong here, besides the fact that this kind of work is unproductive? Anyways it not necessarily needs to be digging ditches, it might be some kind of infrastructural projects. Losing human capital is no better than doing unproductive work.

I'd guess it's a common error because that's the type of economic thought taught in schools, no? It's conveniently in line with the state expansion of welfare and warfare. It's over complicated and made to appear as legitimate, sound economic reasoning because underneath it's a massive fraud!

Indeed.  I wonder why this is such a common error though.  Do you suppose that the "war stimulates the economy" crowd are typically assuming that "all work is equally productive"?

Might it be that this axiom also leads to puzzlement when a person creates a great deal of wealth with relatively little work?  If I subconsciously held that "all work is equally productive" then, when presented with the seeming paradox of the very rich, I'd deduce that there must be some unfairness/theft/exploitation occuring at some level.