Topic: US National Debt / Deficit - How does it end? - page 6. (Read 9057 times)

Building useful infrastructure can have economic merit.
Destroying and rebuilding such infrastructure cannot.

Creating productive jobs can be economically valid.
Creating unproductive, or worse, destructive jobs cannot.

Bombing one's own country to destroy infrastructure and create jobs will not improve the average quality of life.
Employing millions of people to dig holes and millions more to fill those holes in again will not make us wealthier.

When something is destroyed, it will need to be rebuilt after the war is over. If the winning country uses their own "industry" to rebuild the country then that country's economy will benefit. This is one reason why the US economy did so well after WW2

Alright, sure it's not going to bring down the economy until it gets extreme so in that sense it's " generally ok".



I agree, real wealth IS different than financial wealth. Financial wealth is meaningless without real world productivity. You can't magically divorce the two and have a sustainable economy long term.


Where would the money be coming from to pay these unproductive people? Nobody trades value for nothing. In a free market those who are unproductive really only hurt themselves. When the government forces the productive members to pay the unproductive it's a drain on their savings, as well as a disincentive to bother saving in the first place. The more unproductive members there are, the greater the burden on everyone else. This a huge reason the gov. is in debt, it's because of the expanding welfare state and bureaucracy that goes with it. All of this results in a system with increasing numbers of people living off the backs of the productive. The load will simply become to heavy.

Printing new currency and giving it to unproductive people does nothing to help this. It doesn't matter if they spend it on "hi-tech shit" and real investment. That currency is simply counterfeit bills that causes price inflation and hurts savers. Printing currency is great a great tool for expanding government power (welfare, warfare, bureaucracy) i.e. wastefulness and making the politicians look like heroes who can promise people everything.

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Debt from the rothschilds on our childerns dime.

So debt slavery.

It is incredible that people actually believe that. Effectively, you are saying that wealth is increased by doing nothing (and getting paid for it). Where does the wealth needed to pay the bomb builders come from? It doesn't come as a result of making bombs.

My point is that government deficits are generally ok.

I didn't speak of real wealth, I spoke about financial wealth. These are quite different things.

If people were getting paid for digging ditches, it would still be work. These people can then go to shop and buy some hi-tech shit, stimulating REAL production and investment. Yes, resource allocation is ineffective, but money is still added to the economy.

When the Fed buys treasuries, it effectively replaces one financial asset (bond) with another (currency). Considering that bonds are interest-bearing quasi-money, it doesn't change much.
All these actions unnecessarily cause price inflation, which is a complex phenomenon.

Ok, then translate your analogue into fiat money reality. I'll tell you if it's correct.

Nope, war is similar to the broken window fallacy. Destruction does not cause a net increase in wealth. There is a huge difference in productive work and unproductive work. Simply creating work for the sake of "more jobs" to make numbers look good is useless.

http://economics.about.com/od/warandtheeconomy/a/warsandeconomy_2.htm

No it doesnt.  Its just after wars there needs rebuilding and reconstruction

It ends in tears of course
Eventually the $ will have to go back to being backed by a scarce and valuable commodity, the value of which cannot be affected by policy

And on top of that... when the cities need rebuilding it's the "boom years".

War is something that actually generally will actually stimulate the economy which will generally increase wealth. The businesses that build bullets, and bombs and other "tools" of war will need to hire more workers, as will their suppliers. 

I'm not actually sure what your main point is anymore, other than trying to point out accounting details. Are you asserting that fiat currency and unlimited growth in money supply is a sustainable system? Please clarify your position.

I get what you're saying on double-entry and I agree that technically speaking that is correct. What I think you're saying is that no money is ever destroyed, it only changes hands and therefore it's all accounting games. I agree to a point, but what I tried to point out was that War is destruction of REAL wealth. Have you read about the broken window fallacy? What if the government paid people to dig ditches all day and then fill them back in every night? You're missing the point that some work is productive (produces net savings) and some work is of little to no value.

It's my understanding that the FED buys treasury bonds, effectively lending the gov. money. Let me add that it wouldn't matter even if the gov. issued it's own interest free currency and spent it, it would still be inflation. Where does the FED get money? Answer: it creates new currency. Inflation = counterfeiting = taking peoples purchasing power.




Yes you can compare the two, but Keynesians and quacks would rather have us believe otherwise! Don't try and say that we're living in a magical world where phony fiat money can substitute for real world production.

You're talking about funds allocation, but it doesn't change the nature of budget deficits - sectoral imbalances.

No matter how government spends the money - it adds to the financial assets of domestic private or foreign sectors. It's called double-entry accounting principle.
And Treasury doesn't borrow from Fed, because it doesn't make much sense. Fed can't change sectoral balances by buying treasuries, it can only change the assets composition.


Well, you can't compare modern monetary system to primitive barter systems. It's not much more complicated, it's just different.

Fiat money is not a limited or scarce resource, it doesn't need to be grown or extracted. It's just numbers in the database. They can be created or destroyed instantly.
And when the Treasury spends, these "numbers" just migrate from its account at Fed to some account in the private sector (a simplified explanation). It can't be just "flushed down the toilet".

Badly if you aren't already sat down when the music stops.

But if you get a chair early (buy btc and/or gold) then after a few months of maybe supplementing your food intake with insects and dodging bullets you would be sitting pretty.

War is an example of destruction of wealth. They are literally burning those dollars. Now don't get me wrong here, of course those dollars are soldiers wages etc., but most of those thousands of soldiers could be doing something of actual VALUE, like running a business that produces more wealth. Nevermind the bombs, tanks, ships, etc. that are depleting the worlds net wealth by destroying and polluting.

How does budget deficit add to private net financial assets? Are you just talking strictly on paper or what? They're borrowing money from the FED who just creates it from nothing. That's currency debasement, that's inflation, which is just another tax on private sectors savings! They're stealing purchasing power from anyone who saves, which is definitely not adding to net financial assets!

Well what I mean is analogous to the following:

If the private sector produces assorted crops for example, consumes some, then saves the rest. The excess production is wealth. I'm going to assume that you agree that the market is very efficient in general. If we introduce a government who says, "we'll handle the basic needs like roads, military, health, etc." and that government takes a large percentage of our production and inefficiently allocates to certain things, then we might as well be burning those crops, or as I put it, "flushing them down the toilet".

Massive inefficiency, war, etc. is why they continuously run budget deficits, not because they are providing essentials that  they aren't taxing us enough for. Let's imagine if they couldn't print money and nobody would lend them money voluntarily (bonds). They'd have to raise taxes and the game would have probably ended at this point because people would feel the consequences of government wastefulness directly. It's the hidden tax of inflation that allows this to continue, but I don't believe mathematically it can go on forever.

"We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money, we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied soon."

Robert H. Hemphill, Credit Manager of the Federal Reserve Bank, Atlanta, GA

The system will keep going unless the BRICs decide to stop it.

The debt will never be able to be paid in a legit way, so it ends pretty bad lol.

The gov't can't issue 'too much' debt, unless it just burns the money it raises. Because it usually issues just enough to satisfy the domestic private sector's and foreign sector's propensity to net save.

When economy deteriorates, the private sector's propensity to save increases, as does the budget deficit. Budget deficit actually adds to private sector's net financial assets.

There are two counterparties that the domestic private sector can have net financial savings with: foreign sector and government sector. If a country runs current account deficit (the foreign sector surplus), the only situation in which private sector can net save is when the government runs budget deficit.

http://mmtwiki.org/wiki/National_accounting_identities_and_the_sectoral_balance_approach
http://neweconomicperspectives.org/2011/06/mmt-sectoral-balances-and-behavior.html