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When Having the US Debt Paid Off Was a Problem
Hugh Pickens writes "NPR reports that not so long ago, the prospect of a debt-free U.S. was seen as a real possibility with the potential to upset the global financial system. As recently as 2000, the U.S. was running a budget surplus, taking in more than it was spending every year — and economists were projecting that the entire national debt could be paid off by 2012. So the government commissioned a secret report outlining the possible harmful consequences of retiring the debt completely. For one thing, paying off the national debt would mean the end of Treasury bonds, a pillar of the global economy. Treasury securities are crucially important to the world financial system in a number of ways: banks buy them as low-risk assets, the Fed uses them for executing monetary policy, and mortgage interest rates vary based on Treasury rates. 'It was a huge issue ... for not just the U.S. economy, but the global economy,' says Diane Lim Rogers, an economist in the Clinton administration. In the end, Jason Seligman, the economist who wrote most of the report titled 'Life After Debt (PDF),' concluded it was a good idea to pay down the debt — but not to pay it off entirely. 'There's such a thing as too much debt,' says Seligman. 'But also such a thing, perhaps, as too little.'"
Dear /.
debt is a good thing, you can't have enough of it.
Yours sincerely
the IMF
-- no sig today
If there is no US debt, implying no need for Treasury bonds, that means there's nothing for people to invest in?
Man, I've heard some absurd statements before, but this one takes the cake!
I do not fail; I succeed at finding out what does not work.
This makes a lot of assumptions. First, if we really had paid off all the debt and had a surplus, Congress would have found plenty of ways to spend the excess cash, in particular, infrastructure. Or they could have rebated back the difference to tax payers. More importantly, once the debt level got low, Congress has shown repeatedly that they are willing to increase spending on everything under the sun, good and stupid alike, so the actual chance of paying off the debt completely and running into problems with no treasury bonds being issued, is highly unlikely.
The govt. can still issue bonds even if they have no debt, to assist the global market, the question being what they do with the cash that is raised.
Tequila: It's not just for breakfast anymore!
Public debt ensures that all tax paying citizens are on the hook. Even someone who is responsible and is able to manage their personal money suddenly become beholden to whoever holds the debt. What better way to hijack an entire country?
Palm trees and 8
I never liked Clinton either but I'm starting to revise my opinion based on the last two clowns that replaced him. He looks better everyday.
They made a study. And they looked at their glass sphere and the remains in their coffee mug and came up that maybe, no debt is a problem. The result is _perhaps_ there is something like too little debt. But they do not need to worry. The surplus during the early 2000 was due to the New Economy bubble. Every one made some extra money by lending and borrowing until the whole mess blow up, the fed reduced the interest rates and the financial companies worked on the housing crisis, which triggered financial crisis of today, which triggered the state finance crisis. And all debt of all countries increased from the last dip after New Economy and the present crisis. And the same applies to crises from the past.
The Jews had a ruling once (if I remember correctly) after 49 years they divided all livestock among all families equally. As that was the representation of wealth, they collected all the money of the world and divided it equally among the people. Maybe we should do that. Or at least take all state debt of all countries and declare it gone. Ok the banks would most likely end to exist. But hey we could build new ones.
Unfortunately, debt *is* money. If you have never seen the video, do yourself a favor and watch it:. Trust me, it is worth your time:
http://www.moneyasdebt.net/
It is fascinating and scary.... and real. Our whole economy is now built on debt, and it really is not a good thing.
Look, I never liked Clinton, but it's surely not his fault when the "fiscally conservative" Republicans who came after him act "fiscally conservative" and balloon both the debt and deficit with their warmaking. Of course the potential long-term result of the Clinton administration's policies wouldn't actually come to fruition after the Republicans got involved and screw everything up. It's not Clinton's fault that the Republicans did this.
Bush was a fiscal conservative?!? Since when? Even outside the wars the stupid b*st*rd kept spending. Remember the trillion dollar pill bill?
And frankly, let's not forget that it isn't just the president who decides the budget. Clinton delivered a budget that was $210B in the red. It was Newt and congress that balanced it (and generated the surplus).
Money is borrowed into existence. Paying off debt causes the destruction of money.
Right now there is about 9.5 trillion in money, 50 trillion in debt, of which 14 is public.
If the government pays off it's debt it would cause a massive depression because all the money would disappear.
This is why you have exponentially growing debt.
http://media.chrismartenson.com/images/credit-market-doublings.jpg
Basically the monetary system is totally messed up and has been since 1971. What's required is monetary reform.
Deleted
Using the US government as your debt-collection agency so you can park your capital somewhere while you golf with Obama or whatever it is you do, is EXACTLY the kind of thing that results in the deindustrialization of the economy.
When TFA says: "banks buy them as low-risk assets" it is betraying the truth of the "economics" profession reflected in Modern Portfolio Theory's so-called "risk free asset". The reality is that this "risk free asset" is the foundation of the centralization of wealth via what classical economists referred to as "economic rent": The portion of return on the economy which is, for all practical purposes, simply the result of there being an economy.
A rational political economy would distribute all economic rent evenly in a citizen's dividend thereby replacing all government transfer programs (with their attendant public sector rent seeking) with market demand for what the people (as opposed to the wealthy or the politically influential with their lobbyists) need..
Since it is clear that the US Federal government is now captured by the rentiers (rent seekers) of both the private and public sectors, it cannot admit rational political economic thought. So the responsibility devolves to the States. There is a proposal for State legislation to remediate some of the pathology created by a positive feedback loop of centralized power, but realistically, even the State governments are so depleted of resources by this vicious cycle that there is little hope for them to salvage the Republic.
Seastead this.
It also did not include actualizing the social security debt or some of the other debts / trickery that was used to create the supposed surplus. It's explained here:
http://www.craigsteiner.us/articles/16
You can verify it here (U.S. Treasury site):
http://www.treasurydirect.gov/NP/NPGateway
Enter 09/30/1997 through 10/01/2001 for range and look at 9/30 for each year.
Well actually Clinton did sign that budget eventually. And the next year it went much smoother. The one thing about Slick was that he was a smart politician. Once he saw the advantages to balancing the budget he quickly moved so that it became "His idea." Just like when he tried Health Care Reform. Unlike President Obama, once Clinton saw what a crazy powder keg that was going to be and how no one would be happy when it was over he quickly dropped that like a hot potato.
In the 1950's each $1 borrowed produced approx 95 cents of GDP. By 2008 that had dropped to 12 cents. At the moment it's -45 cents. For every $1 borrowed the USA errodes 45 cents of it's wealth. If USA fed spending continues at it's current pace? It will take 20% of the rest of the worlds GDP to fund that spending by 2020. Europe is toast. They're about to go to the Chinese for funding. That will come will strings I'm not sure the West is ready for. There will be no money left for the USA to use by 2020. The rest of the west will have used it. Meanwhile the USA's industrial productivity is dropping year by year. Those "organise anywhere" people are getting what they want. A dismantling of capitalism. I'm not sure they're gonna like like it. Industrial productivity is the only way out. But that's not going to happen while you have the Fed funding and subsidising projects that will lift energy and industrial input costs. HHHmmm, I wonder what sort of reaction an economic dictator will get when they tell the USA how to run their country in return for continued support? I, for one, am not looking forward to all this unravelling.
That's what happens when you hit Reply All.
If I were to print money in my basement, I would go to jail. Why then are banks allowed to do it? Banks get to create money out of thin air every time they get people to sign a loan. This is because they are allowed to loan out 9x more money than they take in from people making deposits. That is why banks LOVE it when you deposit money in your savings account because it gives them permission to loan out 9x more money. Not only can they collect interest on that money that they create out of thin air, but if you can't pay them back, they get to seize your assets!
The hand that giveth is above the hand that receiveth. Private banks are above the governments who borrow money from them. Bankers are the masters of deception and fraud. The only things they create are debt and inflation through fractional reserve lending (fraud). Both of those are bad. They create all kinds of problems (such as the "business cycle"), and force people to participate in speculative investing or else watch their savings get inflated away.
Fractional reserve lending was pioneered by Nathan Rothschild and stemmed from greed -- he wanted to lend out more gold than he actually had! Anytime a bank expands the money supply by loaning out more money than they actually have, they are stealing from you who have saved. I understand the need to expand the money supply in order to prevent deflation. However, the government, not a private central bank, should be the one to do that. If the government created money, then they could spend that money rather than having to tax it away from the citizens.
It is no coincidence that the IRS was created shortly after the Federal Reserve Bank was created. How else would the government get money to pay interest on the money it borrowed? If you are in debt, you are a slave to your creditors. In 1913, "our" government allowed itself to become enslaved by the private Fed. The power to issue currency should reside with a government who is accountable to the public. The government exists to serve We The People. We The People should never allow ourselves to becomes slaves to our government (via entitlements, welfare, government healthcare, etc) who is a slave to the central bankers. Woodrow Wilson, and the few members of Congress who were actually present in the capital building 2 days before Christmas in 1913, made the terrible decision to give the power to issue currency to a privately held central bank (that doesn't even need to pay taxes!). The Fed is not really accountable to the public. Yes, the Fed board members are appointed by the President, but that very important decision should not be left up to a single man who may be too easily corrupted.
Governments do not need to borrow money from a bank. They can create money debt free! They are supposed to be doing that according to the US constitution:
"Congress shall have the power to coin money and regulate the value thereof." Since the value of money is determined by the quantity, Congress should be controlling the quantity of money, not banks!
Read up on Bill Still's ideas for monetary reform in his book "No More National Debt". If you don't want to read, then watch these films:
The American Dream
Money as Debt
The Money Masters
The Secret of Oz
Inside Job
http://en.wikipedia.org/wiki/National_debt_by_U.S._presidential_terms
Let's look at one figure, the percentage change in the national debt. Take the two terms (Regan, Bush) before Clinton, and the two terms after him (Bush). Negative numbers are decreases, positive increases.
The last time a Republican president decreased the National debt was Richard Nixon in his first term in 1973, +3.0%. This was over 9 presidential terms ago, over 36 years.
So when Republicans try and trash Clinton's economic record, they always quote misleading figures. Also known as lying.
Why is Snark Required?
Well, the problems we currently face are mostly caused by US policies of the last 10 years which are better described by "organize nothing, remove any regulations, cut taxes, finance wars we can not afford ourselves". So look who were the decision makers in the US during this times.
In the 1950's money was borrowed to fund research and development. This resulted in putting men on the moon and spurred the computer age and caused 20 years of growth. That is called an investment. Investment debt is a good thing. Consumer debt is a bad thing. Buying TVs on credit cards is a bad thing. That is the equivalent of what they politicians are doing with our money right now. They are wasting over $2 trillion dollars on the equivalent of paying people to stay home and watch TV and have kids that will grow up to stay home and watch TV and have kids. As much as people complain about the military budget it pales in comparison to the amount that is spent on social programs. What the politicians are doing now is the equivalent of borrowing money from one credit card to pay off another.
If you are not allowed to question your government then the government has answered your question.
The claims that we had erased the federal debt and had gone on to a surplus were based on long-range projections that were totally inaccurate, and had never been realized.
Possibly because the long-range projections didn't include 2+ unbudgeted wars, a near doubling of the regular defense budget, a huge expansion of medicare without any new revenues specified to fund it, big "temporary" tax cuts for billionaires, a huge loss of tax revenues due to the economic meltdown, etc.
It doesn't take a genius economist to figure out why the US debt is going up-up-up. You've just got to learn to ignore what politicians say and watch what they do.
Sheesh, evil *and* a jerk. -- Jade
That analogy itself is messed up. You made an assumption that money was based purely on work. But if you want to follow the history of money that way, you have to realize that at one point money was traded for commodity.
Let's imagine that money is a measurement of favor. I lug you some rocks, then I will be entitled to some kind of favor from you tomorrow. Maybe you'd give me a feast with a whole chicken. But I wasn't in the mood for a chicken that time, so I decided to put off receiving favor from you. After two years, I expect to still be entitled to that feast of whole chicken. But with inflation, for some reason you'd only give me half of the chicken, because you claim that my favor has devalued over time. What gives?
Democracy is for the people; you only vote once per season and we'll do the rest of the work for you don't have to.
You are misrepresenting what Summers (who I don't care for) said.
I read an article by a Nobel-winning economist (different committee than the Peace Prize). He said that coming out of a deep recession is like coming out of a skid. Let's say you were going too fast on an icy road and driving with more confidence than the road surface warranted. You start to slide into a ditch. Do you slam on the brakes and turn away from the ditch? Why not?
The same way, huge economies have a lot of angular momentum. You're sliding into the ditch, you have to turn into the skid and either feather the brakes or actually give it some gas.
Hey, I don't know, I just figured we needed an automotive metaphor about here and I remembered the article. Personally, I think of economics the way Dr Sheldon Cooper thinks of psychology. That it's not really a science. Economics departments are low spots in the road where all the assholes settle.
You are welcome on my lawn.
It was the Omnibus Budget Reconciliation Act of 1993 Clinton and the Democratic
Nonsense.
From http://rpc.senate.gov/releases/1997/BUDDEAL2.JT.htm:
Prior to Republicans assuming control of Congress in 1995, President Clinton refused to embrace the idea of a balanced budget. Clinton's first budget called for an astronomical tax hike of $220 billion that Democrats in Congress increased to $240 billion. Clinton's first three budgets -- released in 1993, 1994, and 1995 (for FYs 1994, 1995, and 1996 respectively), left deficits of $241.4 billion, $201.2 billion, and $194 billion by his own estimation (which CBO scored at $228.5 billion, $206.2 billion, and $276 billion respectively). In the meantime he vetoed the Republicans' budget in 1995 -- a budget that would have cut taxes and been the first to have balanced since 1969. Not until election year 1996 did he even aspire to balance, producing a budget that left an $81 billion deficit in its final year.
From No, Bill Clinton Didn't Balance the Budget:
And 1993 -- the year of the giant Clinton tax hike -- was not the turning point in the deficit wars, either. In fact, in 1995, two years after that tax hike, the budget baseline submitted by the president's own Office of Management and Budget and the nonpartisan Congressional Budget Office predicted $200 billion deficits for as far as the eye could see. The figure shows the Clinton deficit baseline. What changed this bleak outlook?
Newt Gingrich and company -- for all their faults -- have received virtually no credit for balancing the budget. Yet today's surplus is, in part, a byproduct of the GOP's single-minded crusade to end 30 years of red ink. Arguably, Gingrich's finest hour as Speaker came in March 1995 when he rallied the entire Republican House caucus behind the idea of eliminating the deficit within seven years.
Seriously, this idea that all debt is automatically evil is silly. There's absolutely nothing intrinsically wrong with it. It's a tool. We have tools like live CDs, antivirus, screwdrivers and such; the economy has tools like loans, bonds and such.
Where you run into trouble is if you can't service the debt. So really you want to avoid getting into so much debt that this is likely to be a problem. How much is too much? Depends how much you can service.
There are two ways to look at that, and both are kind of right.
If the bonds have too high of a rate, people will just put their money there and take the sweet payoff. A definite subsidy. If they are too low, people will put their money elsewhere, looking for a better return. The problem is, that turns into bubbles. There is a case to be made that the housing and finance bubbles were caused by too much money chasing after too few returns. If you can only get 2% from the Fed, then you are going to be scrambling for more somewhere else. That, perversely, lowers rates and increases volume. Bing, bang boom, you have a situation where it costs almost nothing for people to take on all kind of debt, and any little thing can cause the bubble to deflate. (Hell, even with $14T in debt, it only costs the gov't 4% of its budget to pay the nut.) So debt that is too cheap subsidizes big money too.
Debt should be expensive. (in general, some is too high and some is too low right now) Debt that is too cheap encourages poor decision making.
Monetary policy is important. Having a stable dollar is important. look at the Federal Reserve
This resulted in putting men on the moon and spurred the computer age and caused 20 years of growth.
Give credit where it is due, and don't forget the spoils of war -- the German rocket technology and science, which propelled the US space science into the late 70s. The rest of the world was paying their war time debts up until the 80s.
Based on this post you have no idea what you are talking about.
You have to go back 50 years to before money was hijacked by our current system of theft.
Money was a store of value that was commonly used in exchange. That's it. Most of the world used precious metals for various reasons. Copper, Silver, Gold, ect. The reason is because it was valued by people and was a compact store of value. It came into existence by mining and coining.
You have to look at how much money is in existence vs all other goods. If the ratio of money to goods is increasing then the money becomes worth less and price go up and you have inflation. If the ratio of money to goods is decreasing than money becomes worth more and prices go down and you have deflation. The beauty of this system is that you have a natural mechanism to control the money supply. When you have deflation and money becomes more valuable people find it profitable to go into money making (ie mining and coining). When you have inflation people find it more profitable to make goods. This keeps things in balance.
This all changed when we left the gold and silver standards in the 60's and 70's. This allowed them to print money with nothing backing it. You then have had constant inflation and the destruction of the dollar. Most of the problems today are the result of this system. It is designed to steal the wealth of the people and transfer it to the powerful and it is working perfectly.
I love Jesus, except for his foreign policy.
Based on historical facts, your implication that it was all the Republicans would be false. That graph shows that it was both the Democrats and the Republicans, and that the greatest year over year increases occurred while the Democrats were in control.
Interesting term, "rent". Try seeing what happens when you don't pay rent on an apartment.
If the U.S. fails to make payments on its debt, then those debts will be in default. The value of treasury bond holdings would collapse in a mass selloff. This would affect every financial institution in the United States, including those fuzzy little Credit Unions. Many, many institutions would require FDIC/NCUA intervention, and the funds aren't really large enough to deal with a problem on that scale. The U.S. would have to either print money (thus devaluing the dollar on the world market, leading to shortages), or let the banks and credit unions fail, leading to many people losing their savings.
So, instead the government *must* make its debt payments. We've got long-term unemployment right now. That means there are a lot of people who aren't paying taxes, and probably won't be in the near future. In fact, even when they do find a job they're likely to be less productive than they were for many years. Unemployment and underemployment also strains the social safety net, the government must pay more to maintain a basic standard of living and keep crime in check. Taxes can't be raised quickly without impacting production, and in fact cutting taxes is basically the government's only tool to increase production. At the same time, if the government can't balance the budget interest rates on U.S. debt will slowly increase. We typically will borrow for 1-5 years, and when the bond comes due we'll pay some portion of the bond with cash and take out another bond on the rest, sort of like having multiple 5-year mortgages. This means that an increase in interest rates actually affects the existing debt, not just new debt, so interest payments would increase quickly. Eventually, we won't be able to afford market rates and we'll have to find a lender willing to let us borrow at a more reasonable rate. In exchange for the loan they'll demand we make certain changes (similar to a bankruptcy court ordering your possessions be sold). These changes will be painful, but not as painful as those required to immediately balance the budget and pay off bonds as they come due. That's what's happening in Greece right now.
TL;DR - Tell Greece that borrowing doesn't come with additional obligations.
The right to protest the State is more sacred than the State.
In raw dollars, yes. As a percentage of GDP, it goes down under Democratic administrations. Even though it is going up under Obama, it is going up way less than the trend set by Bush II.
So practically speaking, it is true that even if the States were able to salvage the Republic, this issue of State sovereignty (indeed, Individual sovereignty) would still need to be addressed in a way as radical as that which addressed the original admission of the slave states to the US.
Seastead this.
That would be a problem - if the money in question weren't a) backed by collateral, and b) replaced as the loan is paid off. The amount of money circulating is thus a constant. (Even though it doesn't seem so to people who are bad at any other math than counting the change when they buy tinfoil for their new hat.)
Since banks can only loan a fixed multiple of their deposits (and this multiple is set by Congress) and since the amount of money in the economy is set by an agency whose authority derives from Congress... Guess who controls the quantity of money? It may not be as directly as you can comprehend, but it's there none the less.
Yeah, it pretty much *is* a coincidence. Those actually familiar with history know that the Government has been borrowing (and repaying) money since the days of the Revolutionary War. (I leave it as an exercise for the student to look up and compare the dates of the Revolutionary War and the creation of the IRS and compare them.)
I'll get on that as soon as I finish the The Protocols of the Elders of Zion.
Any single bank can only lend out 90%, but the amount of money supply expansion ends up being roughly 900% after many deposit/lend cycles occur. As I was saying, the value of money is determined by the quantity. According to the Constitution, the value (and hence quantity) should be determined by Congress, who is supposed to be accountable to the public, but in reality is mostly bought off by corporations through lobbyists.
We're not complaining about the military budget, we're complaining about the military spending. War spending is not in the budget. Trillions have been spent on the war, but were not in the budget. Military war spending is about on par with Social Security, then you have budgeted spending, and it then costs more than SS.
My economics teacher made it fairly simple to understand. Paraphrase: The amount estimated by our own government for unbudgeted military spending for the first 5 years of the war would have been enough to cover University tuition and health care for every citizen for about 10 years, based on average tuition and insurance spending.
Money spent locally would have stayed in the economy, while money spent on explosives and fuel for tanks is money gone forever.
Tell that to the Greeks. Frankly, I doubt that the United States is in a position to win a potential war with its foreign creditors, considering how much of our manufacturing infrastructure has been sent abroad.
Palm trees and 8
Remember how Nazi Germany solved their economic problems in 1930s? Social situation in the US is not yet bad enough to hijack the so-far-peaceful protests and spin enough hatred against some fictional threat with propaganda to start a war. But people are slowly getting desperate and they'll listen to anyone with a quick & easy solution pretty soon.
OTOH under a mining-based system you have massive inflation when, say, the Americas are discovered and you start bringing in massive amounts of gold and silver you stole there.
Metals are just as arbitrary as fiat money. If you want inherent value, base your currency on fresh water, preserved foods, and weapons.
The amount of money circulating is thus a constant.
False. Constants don't change -- that is why they are called constants. Bank A loans out 0.9*deposit_X, which then gets deposited into Bank B. Bank B then loans out 0.9*0.9*deposit_X. Rinse and repeat say 100 times. Money_created_from_thin_air = 0.9 + (0.9^2) + ... + (0.9^100) = 9*deposit_X.
The ideal currency is one whose purchasing power remains constant over time. That could easily be done using a feedback control loop, such as a PID controller. Whenever there is inflation, the government could tax. Whenever there is deflation, the government could print debt free money. Either way, the government gets money, but under this system it can get some of the money without needing to tax it away from citizens. There is no need for a middle man (Federal Reserve Bank) to take its cut and give it to its private shareholders.
since the amount of money in the economy is set by an agency whose authority derives from Congress
You mean "derived", not "derives". The Fed was created by a very few members of Congress who were paid off by private bankers back in 1913. Desribe it however you want, but control of the Fed by the public is way too indirect. Period.
Yeah, it pretty much *is* a coincidence. Those actually familiar with history know that the Government has been borrowing (and repaying) money since the days of the Revolutionary War.
If you are implying that the Government has always been borrowing money since the days of the Revolutionary War, you are wrong. Lincoln's greenbacks issued during the Civil War were debt free currency. Coins created at the US mint even today are also debt free currency.
I'll get on that as soon as I finish the The Protocols of the Elders of Zion.
I've never heard of that book. Did you read it?
You said "This is because they are allowed to loan out 9x more money than they take in from people making deposits." They don't get to loan out 9x. All they get is the 0.9x and the hope that some of it will come back. The money supply is not what the bank "gets", it is just a picture of what happens.
the military budget it pales in comparison to the amount that is spent on social programs
I'm assuming you're talking about welfare. If so, have you checked your facts recently?
Or are you trying to argue that anything that benefits people (social security, healthcare...) contributes to "paying people to stay home and watch TV"?
Source: http://www.usgovernmentspending.com/year_budget_2011USbf_13bs1n#usgs302
nickmh opined:
Meanwhile the USA's industrial productivity is dropping year by year. Those "organise anywhere" people are getting what they want. A dismantling of capitalism. I'm not sure they're gonna like like it.
Industrial productivity is the only way out. But that's not going to happen while you have the Fed funding and subsidising projects that will lift energy and industrial input costs.
Absolutely wrong.
Industrial productivity is not going to increase domestically as long as it is significantly cheaper to manufacture products overseas (i.e. - in China, India, Indonesia, etc.). Meanwhile, domestic income tax revenue will continue to decline as former line-level manufacturing employees permanently lose their middle-class incomes, while the self-styled "job creators" buy Congressional complicity in sheltering their own spiraling incomes from taxation (see: General Electric, etc.), and in generating 10-figure tax-funded handouts to themselves (see: the oil industry). Saying the problem is, "the Fed funding and subsidising projects that will lift energy and industrial input costs," is an attack on the flimsiest of straw men. The true problem is the combination of relentless globalization, predatory trade policy by the new industrial giants (China, again, and India, again), and MBA-dominated domestic corporate managment's obsessive focus on short-term profitability at the expense of the long-term viability of the companies whose interests they pretend to serve.
Welcome to the Roaring Twenties, redux.
Check out my novel.
Social situation in the US is not yet bad enough to hijack the so-far-peaceful protests and spin enough hatred against some fictional threat with propaganda to start a war.
I thought that already happened in late 2001?
The whole "airplane/missile/drone-and-two-tall-buildings-Reichstag-fire" thing followed by war against people of different religion, culminating in mall cops grabbing my junk because I want to get on a commercial airliner... ?
What if a credit card was used to buy antibiotics which kept a kid from dying horribly, and that kid grew up to contribute to developing an important invention? Is that investment debt or consumer debt? What if instead of antibiotics the item bought was a book that inspired that kid to enter a productive line of work? How about then. What if instead of a book, it was a TV, and the inspiration came from Sesame Street or whatnot? What then?
Also, where is this giant population of people that sit home and watch TV all day that some people seem so mad about -- I don't know any.
The simple truth is that money itself is just a form of credit, and credit is what makes the economy move at a pace sufficient to keep us all from starving. Credit can also be abused, squandered, and horded, and people of all economic standing as well as government and private institutions have tons of opportunity every day to either use it productively, or misuse it destructively.
Someone had to do it.
The big mistake is when you "turn into the skid" when you're not skidding the way that was done during the Reagan Administration. There was absolutely no reason at all to have deficit spending under Reagan, but he had to have his "Star Wars" initiative, which STILL hasn't shot a single missile out of the sky and was nothing but welfare to the right-wing donors.
The deficit spending stuff is for when there's trouble, like now. Problem is, Republicans do it when there's no trouble, like 1980-88 and 2003-2006 so that when the trouble comes under the next president, they turn out their pockets and say, "Sorry!"
The fear that was going around in the late 90s that we'd actually pay off our debt was taken care of when the first things G W Bush did was give a nice bump to the richest 2% and then start two wars, paying for them with plastic.
You are welcome on my lawn.
I'm curious, how will cutting taxes will increase production? Corporations are sitting on over $2 trillion in cash and the wealthy are desperately searching for ways to invest their money. Giving them more money won't help if there isn't the demand to make investments worthwhile. Around 70% of the US economy is consumer spending and nearly half of consumers already don't pay any Federal income tax. I'm mostly a capitalist at heart but when the wealth disparity gets skewed to the point it has in the US lately those on the lower end of the scale are forced to cut back their spending to just the basics. That's not helpful to the overall economy. Better if the wealth was spread more widely. The health of an economy has more to do with the rate that money moves through it than it does with the total amount of money in it.
Where do you think the government gets the money to repay its debts? There are two possibilities: tax revenue
The federal government never ever pay debts from tax revenue. Taxing is nothing more than a mechanism to reduce the aggregate money supply in the private sector. Once money has been taxed it is gone into the void. (for the federal government or any other currency owner that is)
The federal government doesn't own money. It doesn't make any sense, as it is the issuer and recaller.
As such, the only way for the federal government to repay debt is by creating new money. And with that realization, you quickly come to the understanding that the government doesn't have to borrow money if it doesn't want to. However, borrowing is a simple and easy way to manage interest rates and tie up private/foreign sector savings over a longer term so that it is impossible to flood the market with currency in a short interval. Hence, sovereign currency owners borrow to make the currency more stable.
As for Greece. They aren't a currency owner, so it sucks to be them.
Bank A loans out 0.9*deposit_X, which then gets deposited into Bank B. Bank B then loans out 0.9*0.9*deposit_X. Rinse and repeat say 100 times.
Ok. Bank A loans out 0.9*deposit_X, which then gets deposited into bank B. Bank A has 0.1*deposit_X. Bank B loans out 0.9^2*deposit, which then gets deposited into bank C. Bank B has 0.09*deposit_X. Bank C loans out 0.9^3*deposit...
... + (0.9^99 - 0.9^100) = 0.999973439
(1 - 0.9^1) + (0.9^1 - 0.9^2) +
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Mod parent down for perpetuating the myth of the money multiplier. "When banks create money by extending credit (loans create deposits), this occurs completely within the banking system and results in a liability for the bank (the deposit) and a corresponding asset (the loan). The customer has an asset (the deposit) and a corresponding liability (the loan). This nets to zero." Get it? You completely forgot that any money banks loan out are deposited at other banks. Deposits are a liability for the bank, and cancels out the lent out money exactly. Only government deficit spending creates a net amount of money (and taxation creates a net negative amount). http://pragcap.com/resources/understanding-modern-monetary-system
"Politicians and diapers must be changed often, and for the same reason."
You keep talking nonsense. Banks are not really limited in lending out by reserve ratios! This is because during the day they lend out AS MUCH AS POSSIBLE, and then if their reserve accounts at the Fed are insufficient, they borrow on the overnight market you hear mentioned frequently in such discussions. Banks are only constrained by their captial/asset ratio.
"Politicians and diapers must be changed often, and for the same reason."
From 312 though the 10th century, the solidus maintained a constant weight: http://en.wikipedia.org/wiki/Solidus_(coin)
After the debasement which occurred in the 10th century, the solidus was discontinued, and replaced with the hyperpyron http://en.wikipedia.org/wiki/Byzantine_coinage. These coins were discontinued as the empire declined, due to the military adventurism that spread their empire, but destroyed their capital base, leading directly to the breakup of the empire into successor states, which fell easy prey to the Turks.
The size of an empire does not reflect its stability. If capital is expended rather than consolidated in wartime (as is the case some 95% of the time), then the empire is destined for collapse, as happened with Alexander, the Great Khans, and the British toward the end of their empire (Early expansion of the British empire consolidated capital, as did the earlier expansions of the Mongols). Some empires which consolidated capital CONSISTENTLY were ancient China, pre-Communist Russia, and pre-1913 (ie pre-fascist) United States (though the US had a major screw up in the Civil War, but earlier capital consolidation and later peacetime consolidation more than made up for it).
Those empires could survive political turmoil because of the capital consolidation that they practiced both during peacetime and wartime. Consolidation of capital doesn't simply mean "get ze gold". It means doing as Sun-Tzu espoused--"taking whole". Maintaining honest money is a major part of that, because use of fiat scrip, while allowing greatly increased government spending, destroys the economy just the same as if every printed dollar had been taken from the people using that currency in a non-progressive manner (or even a regressive manner, as the rich tend to see such things coming, and flee to gold or other currencies before the inflation becomes too much). But honest money is the only part. It means not destroying manufacturing bases, either with bombs or with burdensome regulations. It means allowing people to have the freedom to do what they think is best for themselves without placing a large burden on them, or worse, enslaving them. Sadly, such lessons are totally forgotten by our modern military, who didn't think twice about destroying the entire civilian infrastructure of any nation they choose to invade, and then printing up billions to "help" them by losing track of pallets full of cash, which go to support corrupt elements in the new puppet government.
I agree, which is the purpose for the following statement:
Or are you trying to argue that anything that benefits people (social security, healthcare...) contributes to "paying people to stay home and watch TV"?
In his own post, he refers to social programs as things which "[pay] people to stay home and watch TV." By his own definition, and my interpretation of its meaning, he is completely wrong. He made a very ambiguous (not to mention loaded) statement and I called him out on it.
I'm not attempting to impregnate my own opinion here (or maybe I am, but not on purpose), but you can't defend his statement by saying things like education are covered under his definition of "social programs."
Also, that chart is about the nicest way anyone could possibly portray the "defense" budget. As mentioned in a later comment, the defense budget is actually sourced much differently than the alleged "social programs."
In other words, the "defense" budget in the United States is greater than the next 20 countries (ranked by their defense budget) combined. And just FYI, only 11.5% of that budget goes into that R&D you praised. But hey, I guess that's doing pretty well since we only seem to think 4% of our federal budget belongs in education! (now my opinions are showing)
True, because no money is created out of thing air - in the end, no more money exists than has been created by the Fed. Period.
Well, since we live in a decidedly less than ideal world - your point is what?
In some universe where the Fed distributes money to private shareholders, you've have a point. However, we don't live in such a universe.
Had I meant "derived", I would have said "derived". (Actually, I would have said "is derived" which is the properly phraseology.) I find it interesting that you originally claimed that the amount of money was set by the banks, but now you agree it's set by the Fed - only it's too indirect. You not only can't speak proper English, you can't keep your story straight.
The mind boggles at the amount of either hallucinogenic drugs or utter self delusion it takes to make such a statement - one utterly at odds with history. You're not only a clueless loon, you've worked very hard to attain that state.
Google it, it's right up your delusional alley.