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11-16-2010, 01:21 PM | #16 |
Here is how I interpret your points: I think you have the wrong impression of the deficit and the debt because the money is not owed solely to the domestic private sector a large portion of the national debt is owed to the social security trust fund and another large portion of the debt is owed to foreign creditors. Social security slipping into spending mode instead of saving mode in a couple of years will mean lower demand for new debt and refinancing that debt through foreign creditors. For the people born after 1970 it will mean higher taxes and fewer government services. Social security is a little crack where the rock hit our windshield, it doesn't seem like a big problem today but the forecast is for the weather to be 100 degrees tomorrow. We can fix it for a couple of bucks today but if we wait too long it will cost a whole lot more. The problem needs to be fixed before the baby boomers hit the social security roles so that they can prevent the bank error in their favor from making the bank insolvent for their children and grandchildren. Its the right and honorable thing to do. | |
11-16-2010, 01:33 PM | #17 |
The banking cartel owns the debt. They also raised it. First get rid of the cartel. Then we can talk. | |
11-16-2010, 01:41 PM | #18 |
Anyway you slice it, a huge part of repaying the debt is going to come from forgiving portions of it through the social security system. | |
11-16-2010, 02:08 PM | #19 |
Sounds and looks like banking cartel gobbledygook to me. Get rid of it. Then we can talk. | |
11-16-2010, 02:13 PM | #20 |
Quote: You don't think the deficit is a problem because addressing it now would destabilize recovery Quote: You think social security is fine, probably because you plan on dying before 2037 when beneficiaries will be receiving 75 cents on the dollar of promised benefits. Quote: I think you have the wrong impression of the deficit and the debt because the money is not owed solely to the domestic private sector a large portion of the national debt is owed to the social security trust fund and another large portion of the debt is owed to foreign creditors. Quote: While this is usually presented as foreign “lending” to “finance” the U.S. budget deficit, one could just as well see the U.S. current account deficit as the source of foreign current account surpluses accumulated in the form of U.S. Treasuries. Indeed, as discussed above, a trade surplus against the United States allows a nation to accumulate dollar reserves at the Fed. These can then be traded for U.S. Treasuries, an operation that is equivalent to transferring funds from a “checking account” (reserves) at the Fed to a “savings account” (Treasuries) at the Fed. And when interest is “paid” on Treasuries, this is just a credit of dollars to that “savings account.” In a sense, it is the willingness of the United States to simultaneously run trade and government budget deficits that provides other countries the wherewithal to “finance” the accumulation of Treasuries. It is highly misleading to view this as “lending” to the U.S. government—as if the dollars spent by the federal government originate overseas. Quote: Social security slipping into spending mode instead of saving mode in a couple of years will mean lower demand for new debt and refinancing that debt through foreign creditors. Last edited by skyredoubt; 11-16-2010 at 02:18 PM. | |
11-16-2010, 03:04 PM | #21 |
I don't think the US economy, or any economy, is really designed to ever operate at 100% of capacity forever and I would argue that the full capacity economy creates other problems related to overconsumption, like pollution, and resource exhaustion, like burnt out workers and infertile fields. It is also very intolerant of disruptions of the supply chain of perishable goods and services because any blackout will cause a ripple effect throughout the economy.
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11-16-2010, 03:21 PM | #22 |
I don't think the US economy, or any economy, is really designed to ever operate at 100% of capacity forever and I would argue that the full capacity economy creates other problems related to overconsumption, like pollution, and resource exhaustion, like burnt out workers and infertile fields. It is also very intolerant of disruptions of the supply chain of perishable goods and services because any blackout will cause a ripple effect throughout the economy. One of the best things we could do with government spending right now is to invest in infrastructure to exactly solve the problems you mention. Weatherize homes, invest in alternative energy research, build high-speed rail links, expand public transportation, fix deteriorating infrastructure. This will both immediately add a lot of jobs to the economy and will serve as investment in more sustainable and better future. This is something the private sector just cannot do on its own. Examples are countless. Right now New Jersey commuters waste millions of productive hours getting into Manhattan because NJ Transit has to share the Hudson river tunnel crossing with Amtrac, causing huge delays. NJ governor refused to allow the project to build additional tunnel to go on because NJ cannot afford it. So, instead of the government picking up the bill in its entirety, enormous human resources will keep pouring down the drain, in front of our eyes. All because of concerns for a non-existing problem of deficit. Just noticed you're from New Orleans. What do you think is a bigger problem - lack of funds to build levees to protect the city from Katrinas or addition to deficit it might cause in the short run (in the long run it pays off, of cause, by preventing the damage in the first place)? | |
11-16-2010, 08:38 PM | #23 |
Very interesting.. thanks......... Quote: Discussion of government budget deficits often begins with an analogy to household budgets: “no household can continually spend more than its income, and neither can the federal government.” On the surface that might appear sensible; dig deeper, and it makes no sense at all. A sovereign government bears no obvious resemblance to a household or a firm. First of all, the U.S. federal government is 221 years old, if we date its birth to the adoption of the Constitution. Arguably, that is about as good a date as we can find, since the Constitution established a common market in the United States, forbade states from interfering with interstate trade (for example, through taxation), gave the federal government the power to levy and collect taxes, and reserved the power to create money, regulate its value, and fix standards of weight and measurement—from whence our money of account, the dollar, comes from—for the federal government. No head of household has such a long lifespan. This might appear irrelevant, but it is not. When you die, your debts and assets need to be assumed and resolved. Firms can be long lived, but when they go out of business or are acquired, their debts are also assumed or resolved. However, there is no “day of reckoning” or final piper-paying date for the sovereign government.........Note also that in spite of all the analogies drawn between governments and households, and in concert with the statement that debts cannot be allowed to grow forever, corporations that are going concerns can and do allow their outstanding debt to grow year-over-year, with no final retirement of debt unless the firm goes out of business. In other words, long-lived firms do indeed spend more than their incomes on a continuous basis. (FOR Parallax) The key, of course, is that they attempt to balance their current account and keep a separate capital account. So long as firms can service their debt, the debt can always be rolled over rather than retired. This is why some deficit doves advocate capital accounts for government. We will make a stronger argument: even the infinitely-lived corporation is financially constrained, while the sovereign, currency-issuing government is not subject to the same constraints. Second—and far more important—households and firms do not have the power to levy taxes, issue currency, or demand that taxes be paid in the currency they issue. Rather, households and firms are users of the currency issued by a sovereign government. Both households and firms do issue liabilities, and some of these liabilities can to varying degrees fulfill some functions of “money.” For example, banks issue demand deposits, which are the banks’ liability that can be used by households or firms as a medium of exchange, a means of debt retirement, or a store of value. However, all of these private “money things” (bank deposits or other private IOUs) are denominated in dollars, and only the sovereign government of the United States has the constitutionally provided right to fix standards of weight and measurement—that is, to name the dollar money of account. There is no need to interpret this too narrowly. It is clear that U.S. residents can voluntarily choose to use foreign currencies or even idiosyncratic measures of worth in transactions (local currency units such as the Berkshares in the Northeast). But when all is said and done, the ability of the U.S. government to impose dollar taxes and other obligations (e.g., fees and fines), and to require that those taxes and obligations be paid in dollars, gives priority to the use of dollars (and to the denomination of most transactions and obligations in dollars) within its sovereign territories that no other currency enjoys. Third, with one brief exception the federal government has been in debt every year since 1776. For the first and only time in U.S. history, the public debt was retired in January 1835 and a budget surplus maintained for the next two years, in order to accumulate what President Jackson’s Treasury secretary, Levi Woodbury, called “a fund to meet future deficits.” In 1837, the economy collapsed into a deep depression and drove the budget into deficit, and the federal government has been in debt ever since. There have been seven periods of substantial budget surpluses and debt reductions since 1776. The national debt fell by 29 percent from 1817 to 1821, and was eliminated in 1835 (under President Jackson); it fell by 59 percent from 1852 to 1857, by 27 percent from 1867 to 1873, by more than 50 percent from 1880 to 1893, and by about a third from 1920 to 1930. Of course, the last time we ran a budget surplus was during President Clinton’s second term. Has any household been able to run budget deficits for approximately 190 out of the past 230-odd years and accumulate debt virtually nonstop since 1837? Quote: Moreover, concerns about government deficits and debts have masked the real issue: deficit hawks are unwilling to allow a (democratic) government to work for the good of the people. We accept that there are real differences of opinion regarding the proper role of government in the economy. Some would like to see the functions of government curtailed; others would like to see them expanded. These are legitimate political stances. What is not legitimate is to use fear over deficits to restrain government from achieving the public purpose that is democratically approved. A debate that is freed from the constraints imposed by myths about how government really spends would allow us to move forward to gain consensus on the public purpose the American people expect government to pursue. Last edited by jeffkrol; 11-16-2010 at 08:54 PM. | |
11-16-2010, 09:02 PM | #24 |
Actually, if I am not mistaken, the last big US politician to admit that deficits do not matter was one of the most odious ones - Dick Cheney. He did so, of course, to justify spending for the wars in Afghanistan and Iraq, but he was totally right on that point nonetheless. The Democrats ripped into him for that - wrongly; but then there are really few people who understand how spending works.
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11-17-2010, 02:48 AM | #25 |
Actually, if I am not mistaken, the last big US politician to admit that deficits do not matter was one of the most odious ones - Dick Cheney. He did so, of course, to justify spending for the wars in Afghanistan and Iraq, but he was totally right on that point nonetheless. The Democrats ripped into him for that - wrongly; but then there are really few people who understand how spending works. | |
11-17-2010, 08:55 AM | #26 |
Just noticed you're from New Orleans. What do you think is a bigger problem - lack of funds to build levees to protect the city from Katrinas or addition to deficit it might cause in the short run (in the long run it pays off, of cause, by preventing the damage in the first place)? 1. Western New Orleans 2. East Bank Jefferson Parish 3. West Bank Orleans and Jefferson Parishes 4. Lower 9th and St. Bernard 5. Eastern New Orleans (ranked by population) Eastern New Orleans is the largest geographically, was tied with the lower 9th as being equally hard hit by katrina, and had the least flood protection. Western New Orleans, the New Orleans everyone knows with the French Quarter and streetcars, was also significantly flooded but sustained minimal wind damage and the other two areas were basically fine with minor wind damage and minor flooding in certain areas. The levees were just one piece of the infrastructure (roads, power lines, water mains, sewers, etc.) that needed to be rebuilt or repaired and it could have happened a lot faster if we relocated people from the east to the rest of the city. The east is a relatively new area developed only in the past 50 or so years when the town was booming from oil in the 1960s and 1970s, so there are very few historical preservation concerns. Early on, the idea of just clearing certain areas and reducing the footprint was proposed but it quickly devolved into a very divisive and emotional debate and eventually it was decided that the entire pre-katrina footprint would be redeveloped and supported by the city. Today, the east is still the least recovered area and has seen the least private investment while the rest of the city has basically fully recovered. I live out in the east and it is pretty much pioneer style living because we have all of the car dependency of a suburb with none of the benefits; there is only one grocery store; the closest general merchandise retailer like wal-mart, target, or a mall is 20 miles away; it is 15 miles to the closest hospital; and there are very few sit down restaurants. The city is dealing with constant budget crises because a smaller population is trying to support the same size city. The key, of course, is that they attempt to balance their current account and keep a separate capital account. So long as firms can service their debt, the debt can always be rolled over rather than retired. This is why some deficit doves advocate capital accounts for government. | |
11-17-2010, 09:31 AM | #27 |
Not all of the deficit spending is going to pay for capital projects. In the country's case we don't get anything for the $400/gallon gasoline being burnt by hummers in Afghanistan. A lot of the direct spending from the stimulus went into keeping people employed as police, firefighters, teachers, and civil servants not creating public works that will last for generations. The idea of capitalizing spending does make some sense but what we have been spending on recently aren't capital projects. Now they have no room to maneuver, the President himself gave in to the deficit hysteria nonsense and we're screwed. The Democrats and Obama were a great disappointment, but now with Republicans controlling the House it will only get worse. It's a rough road ahead. | |
11-17-2010, 09:32 AM | #28 |
No, it is because it is not a problem, period. Only economy operating under capacity is a problem. Only unemployment is a problem. Deficit is not a problem in itself. Surplus is not a problem in itself either. Both can be problems depending on the macroeconomic setting. In the periods of high inflation the government should move towards reducing deficit/increasing surplus to drain the economy of excess money, for example. But running surpluses is often a dangerous path, as all the periods of surpluses in US history were followed by recession, since the private sector was drained of savings (that's the only way for the government sector to run a surplus). Although, I would add that another major cause of lack of demand is what's happened to the consumer. Due to whatever policies, it is a fact that except for the very highly paid Americans, wages have stagnated for at least a decade, while true costs have skyrocketed - I'm not talking about the CPI, I'm talking about how much medical we have to pay, and in many places, how much real estate taxes. The policy to counter this involved schemes that turned into bubbles: easy credit against the 'inevitable' increase in real estate value, for example. Now that this has come to an end, the average American isn't looking to spend megabucks on consumer crap on credit, or to buy/lease a new car every 2 years. The average American is trying to make ends meet, has perhaps finally understood that income and wealth isn't automatically coming their way, and so has understood they must be paying down their loans in order to have a chance at being solvent somewhere down the road. And that average American is taking this lesson and accepting the persuasion that the same applies to the Federal government. -- The focus on Social Security is a red herring to a good degree - not that it doesn't require a tweak or two to extend its life - which draws attention from the REAL time bomb in the budget: medical costs. Quote: CBO projects that if current laws do not change, federal spending on major mandatory health care programs will grow from roughly 5 percent of GDP today to about 10 percent in 2035 and will continue to increase there-after. Those projections include all of the effects of the recently enacted health care legislation, which is expected to increase federal spending in the next 10 years and for most of the following decade. By 2030, however, that legislation will slightly reduce federal spending for health care if all of its provisions are fully implemented, CBO projects. That reduction in the level of spending in 2030 yields lower projections of health care spending in the longer term--even though, owing to the great uncertainties involved in projecting such spending many decades in the future, enactment of the legislation did not cause CBO to change its estimates of longer-term growth rates for spending on the government's health care programs. Under current law, spending on Social Security is also projected to rise over time as a share of GDP, albeit much less dramatically. CBO projects that Social Security spending will increase from less than 5 percent of GDP today to about 6 percent in 2030 and then stabilize at roughly that level. All told, CBO projects, the aging of the population and the rising cost of health care will cause spending on the major mandatory health care programs and Social Security to grow from roughly 10 percent of GDP today to about 16 percent of GDP 25 years from now if current laws are not changed. (By comparison, spending on all of the federal government's programs and activities, excluding interest payments on debt, has averaged 18.5 percent of GDP over the past 40 years.) To put U.S. fiscal policy on a sustainable path, lawmakers would have to substantially reduce the growth in outlays for those programs relative to the amounts that CBO is projecting--or else match that growth with equivalent declines in other federal spending, corresponding increases in federal revenues, or some combination of the two. In other words, as a problem Medicare etc is nearly twice the size as Social Security, and unlike SS, there's no natuaral moderating factor. This is why Obama and the Democrats pushed health care reform. | |
11-17-2010, 11:12 AM | #29 |
Interesting assertions there - these run contrary to what the current defecit hawk discussion points out: excessive government borrowing crowds out private sector investment (i.e. companies making a profit find it safer to buy treasuries and/or their own stock). Which, in the current post-debt bubble economy, seems to make sense. Regarding banking sector, see also When governments are financially constrained (go to the section "Does the private sector get squeezed by state borrowing?") Quote: The significant point to understand that there is no finite pool of saving that is competed for by any level of government. At the level of commercial banks, loans create deposits so any credit-worthy customer can typically get funds. Reserves to support these loans are added later – that is, loans are never constrained in an aggregate sense by a “lack of reserves”. So credit-worthy private borrowers are not constrained by the state borrowing. Further, total saving grows with income. Importantly, deficit spending by both federal and state governments generates income growth which generates higher saving. It is this way that MMT shows that deficit spending supports or “finances” private saving not the other way around. | |
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