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The National Debt


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This was brought up in another thread, and i wanted to discuss it more. To me , this country being 22 trillion in debt, is a much bigger issue than many of the ones the current administration is focused on, and it used to be talked about a lot. Not so much any more. Id like to hear some thoughts on a few things.

1. Is there any realistic chance to pay it off ?

2. Opinions on how to accomplish that?

3. What happens if we don't pay it off?

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Keynesian economics (the type we utilized before Trump) would say you pay off your debt in good times and juice the economy in bad times.

 

So instead of a gigantic tax cut because MUH ECONOMIC GROWTH there was a way more sensisble path that would've involved some changes that could spur growth while still being fiscally responsible and working to pay down our debt.

 

We did not choose that path because the GOP still believes in Reaganomics and tax cuts are way easier to give to people.

 

I'm no accountant, so I don't know specifics of how to start paying stuff off, but it seems like some tax changes to raise more revenue or taking a slice from something like defense spending wouldn't be that hard.

 

No idea on #3. There's a school of thought we're just playing hot potato with a bomb that will eventually go off in future generations' faces, but others seem to believe we're too big to fail and we could just essentially print more money if we ran into trouble.

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3 hours ago, Big Red 40 said:

This was brought up in another thread, and i wanted to discuss it more. To me , this country being 22 trillion in debt, is a much bigger issue than many of the ones the current administration is focused on, and it used to be talked about a lot. Not so much any more. Id like to hear some thoughts on a few things.

1. Is there any realistic chance to pay it off ?

2. Opinions on how to accomplish that?

3. What happens if we don't pay it off?

Modern monetary theory says that paying off the debt or even running a debt isn't that big of a deal for any state that controls its own currency. As for #3, MMT says that eventually we'll start to get inflation because of the large amount of currency in circulation because of the debt.

https://www.barrons.com/articles/stephanie-kelton-wantsyou-to-rethink-the-deficit-1536853788

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58 minutes ago, RedDenver said:

Modern monetary theory says that paying off the debt or even running a debt isn't that big of a deal for any state that controls its own currency. As for #3, MMT says that eventually we'll start to get inflation because of the large amount of currency in circulation because of the debt.

https://www.barrons.com/articles/stephanie-kelton-wantsyou-to-rethink-the-deficit-1536853788

She seems to all but close into the answer before the article finishes. Have more than 100% debt to GDP is the cliff most economists note as the point to avoid.

 

Inflation is targeted by the government to avoid real buying power from being lost all at once, which hurts the poor and middle class the most. They have less  assets invested that retain value in relation to inflation. Raises tend to be slow to inflation and a dollar earned today on buys $0.99 tomorrow and $.90 next year.

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9 hours ago, JJ Husker said:

There was some poster hereabouts a few years ago that wasn't concerned about the National debt. At. All. He thought it was a joke that anybody would want to pay it off or down. Anybody remember that guy?

Was it Creighton Duke?

 

I don't necessarily think the debt itself is an issue. There's a lot of economic theory out there that says it isn't. Being a layman in economics I admittedly haven't studied it much, but governments and fiat currencies don't function like a normal business or house hold, so I'll trust their judgements

 

I do think that the growing deficit is a major issue though. No one is going to come knocking at our door to collect, but if GDP can't keep pace then that would be when we see confidence wane and issue begin to start. The goal of the government should be, as CF pointed out, to balance the budget and pay down debt during good times and provide stimulus during bad times.

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2 minutes ago, ZRod said:

Was it Creighton Duke?

 

I don't necessarily think the debt itself is an issue. There's a lot of economic theory out there that says it isn't. Being a layman in economics I admittedly haven't studied it much, but governments and fiat currencies don't function like a normal business or house hold, so I'll trust their judgements

 

I do think that the growing deficit is a major issue though. No one is going to come knocking at our door to collect, but if GDP can't keep pace then that would be when we see confidence wane and issue begin to start. The goal of the government should be, as CF pointed out, to balance the budget and pay down debt during good times and provide stimulus during bad times.

I guess it could've been CD but that didn't trip my rememory machine.

 

I generally agree with your view of the debt. But I would like to see a much more manageable number. It requires a lot of effort to try to keep everything balanced and running smoothly. Seems to me it would be much easier with a significantly lower debt and thus less likely for the house of cards to cave in.

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The people who claim national debt is bad and the people who claim it's no big deal are both wrong.  Reality is somewhere in the middle.  Some debt isn't a problem and it can be used to stimulate parts of the economy.  However, too much can drag down the economy and take away the government's ability to do what it wants to do.

 

For instance, currently in the budget we will pay $364 billion in just interest.  That's tax payer's money, going to nothing but investors that have purchased our debt....much of which is held by foreign governments.  Imagine the infrastructure we could build or the healthcare reform we could do with that?

 

The feds have raised interest rates and it's been a major topic in economic circles.  However, what they have done is pittance compared to what they may have to do if inflation takes off.  THAT will have a bad affect on how much interest we are paying on this debt...which will take away even more from the government doing other things.  

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As the article I linked earlier mentions, there's two sides to the deficit:

Quote

[Interviewer:] The national debt clock that counts up exactly how much is owed by every man, woman and child in America!

[Stephanie Kelton:] When I worked on the Hill, one of my favorite exercises was to find elected officials, staffers, and ask them if you had a magic wand, and you could wave it, and eliminate the national debt tomorrow, would you do it? Of course. Who wouldn’t do that? Yes, I mean, the quickest “yes” you ever got in your life.

OK, what if I gave you a different wand, and I told you, you can wave the magic wand, and you can eradicate the world of U.S. Treasuries. There won’t be Treasury notes anymore. They’ll just all be gone. How many members of Congress, would do that?

 

 

So we should be careful of simplistic solutions like just paying off the deficit.

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1 hour ago, BigRedBuster said:

The people who claim national debt is bad and the people who claim it's no big deal are both wrong.  Reality is somewhere in the middle.  Some debt isn't a problem and it can be used to stimulate parts of the economy.  However, too much can drag down the economy and take away the government's ability to do what it wants to do.

 

For instance, currently in the budget we will pay $364 billion in just interest.  That's tax payer's money, going to nothing but investors that have purchased our debt....much of which is held by foreign governments.  Imagine the infrastructure we could build or the healthcare reform we could do with that?

 

The feds have raised interest rates and it's been a major topic in economic circles.  However, what they have done is pittance compared to what they may have to do if inflation takes off.  THAT will have a bad affect on how much interest we are paying on this debt...which will take away even more from the government doing other things.  

Upfront Disclaimer: I'm not an economist  but this is my understanding of the debt on our economy: We feel the affects in inflation - which isn't calculated like it was decades ago.  I believe food and fuel are no longer a part of the equation - which is really deceptive - driving the inflation # down while it 'feels' much higher than the stated value.   With the govt sucking more and more of the money supply into its coffers via debt, it also artificially drives up the cost of borrowing by the private sector.  My other concern is when do we realize that with so much of our debt being held by countries like China, can that be used against us - if they were to dump their holdings of our debt.  Others have warn that China holds an 'economic bomb' that they can threatened us with when they disagree with our policies.  Could other countries unite and decided to dump the USD as the common FX currency in favor of the Euro or a basket of currencies?  If so that could have a large affect on our economy. 

 

Who is the HP economics professor who can answer these questions?

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19 minutes ago, TGHusker said:

Upfront Disclaimer: I'm not an economist  but this is my understanding of the debt on our economy: We feel the affects in inflation - which isn't calculated like it was decades ago.  I believe food and fuel are no longer a part of the equation - which is really deceptive - driving the inflation # down while it 'feels' much higher than the stated value.   With the govt sucking more and more of the money supply into its coffers via debt, it also artificially drives up the cost of borrowing by the private sector.  My other concern is when do we realize that with so much of our debt being held by countries like China, can that be used against us - if they were to dump their holdings of our debt.  Others have warn that China holds an 'economic bomb' that they can threatened us with when they disagree with our policies.  Could other countries unite and decided to dump the USD as the common FX currency in favor of the Euro or a basket of currencies?  If so that could have a large affect on our economy. 

 

Who is the HP economics professor who can answer these questions?

First, other countries only hold about 30% of US debt. Second, China only holds 6% of the US debt, so a sudden selloff probably wouldn't be that bad:

Quote

China holds around $1.2 trillion worth of Treasury securities, along with another $200 billion or so in debt from U.S. government agencies such as Fannie Mae. There’s another $100 billion worth of Treasuries China reportedly holds through custodians in other countries. So it holds around $1.5 trillion in U.S. government debt, in total. China is the world’s biggest foreign holder of U.S. Treasuries, which worries some analysts. But its holdings only total about 6% of all Treasury debt. All foreign entities combined hold only about 30% of U.S. debt. Americans, in various forms, own the other 70%.

 Third, the US can stabilize the US bond market even if things got crazy (emphasis mine):

Quote

But other crucial developments would follow, mitigating the damage to the United States and compounding it for China. The Federal Reserve, eager to prevent a crisis, would probably change monetary policy and began weakening instead of tightening, as it is doing now by gradually raising interest rates. This would reassure markets, and if it didn’t, the Fed could crank it up a notch or two by buying Treasuries and taking other extraordinary measures. “The Fed is the one actor in the world that can buy more than China can ever sell,” Setser wrote.

 

Lastly, the government isn't sucking money into its coffers via debt. It's actually the opposite as the debt is the money the US government as given out but not collected back in taxes:

Quote

Government debt is just the money the government spent into the economy and didn’t tax back. That’s all the national debt is. It’s a historical record of all of the times that they made a net deposit, spent more than they taxed out, and the bonds are the difference between those.

 

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5 minutes ago, RedDenver said:

First, other countries only hold about 30% of US debt. Second, China only holds 6% of the US debt, so a sudden selloff probably wouldn't be that bad:

 Third, the US can stabilize the US bond market even if things got crazy (emphasis mine):

 

Lastly, the government isn't sucking money into its coffers via debt. It's actually the opposite as the debt is the money the US government as given out but not collected back in taxes:

 

Thanks RD - sounds better.  I'll get off of the  ledge now. :madash

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9 minutes ago, RedDenver said:

First, other countries only hold about 30% of US debt. Second, China only holds 6% of the US debt, so a sudden selloff probably wouldn't be that bad:

 Third, the US can stabilize the US bond market even if things got crazy (emphasis mine):

 

Lastly, the government isn't sucking money into its coffers via debt. It's actually the opposite as the debt is the money the US government as given out but not collected back in taxes:

 

So we can just pay for it? Just do it? 

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