In 2019, the cost of interest on the national debt will hit $390 billion. This is nearly 50 percent more than in 2017, according to the Congressional Budget Office. The increase is due to interest rates returning to about 3.0 to 3.5 percent. The Federal Open Market Committee increased the fed funds rate 25 basis points to a range 2 percent to 2.25 percent and there are plans for several more interest rate increases.
Increasing interest payments on US debt will squeeze out any other federal spending.
There are also increasing commitments to pensions and healthcare.
Interest will be heading to traditional levels of 4.2%. Debt will continue to rise by around $800 billion to $1 trillion per year. Debt in 2019 will be $22.5 trillion.
3% interest rates would have $675 billion interest each year.
4% interest rates would have $900 billion interest each year.
Brian Wang is a Futurist Thought Leader and a popular Science blogger with 1 million readers per month. His blog Nextbigfuture.com is ranked #1 Science News Blog. It covers many disruptive technology and trends including Space, Robotics, Artificial Intelligence, Medicine, Anti-aging Biotechnology, and Nanotechnology.
Known for identifying cutting edge technologies, he is currently a Co-Founder of a startup and fundraiser for high potential early-stage companies. He is the Head of Research for Allocations for deep technology investments and an Angel Investor at Space Angels.
A frequent speaker at corporations, he has been a TEDx speaker, a Singularity University speaker and guest at numerous interviews for radio and podcasts. He is open to public speaking and advising engagements.
The problem with HSA’s are in the above charts. 81% of earnings are untaxable, with no savings retained, so no HSA’s for this group. HSA’s will still require insurance, so how many families can afford health insurance and an HSA? Not enough to make a difference. Put this idea with re-arranging deck chairs in the Titanic.
As far as unions go, that’s where the Trump Midwest vote should have gone – strengtheniing unions to bargain for a bigger % of GDP, rather than workers getting the record low they now get
Unfortunately (actually, stupidly) , people believed Trump’s’ BS – now they will be in worse position as it all unravels.
They must turn this around! 42% of this is Government Pensions and Healthcare. The single biggest blunder our government evern made was allowing agencies to unionize in the 1940’s. Even FDR said it was a huge mistake. That blunder has led to huge over-promising in pay and benefits for government workers and disastrous inefficiencies. It’s simply unsustainable. In California alone, nearly 70% of the budget goes to pensions. On healthcare, Ben Carson gave us the solution, but it was torpedoed by John McCain. That would be “Health Savings Accounts” which have proven incredibly successful in other countries. In an HSA system from birth we’d have our own private investment accounts that would accrue interest throughout our lives. A small tax on that would go to the needy and people with overrun medical expenses. Our HSA accounts would accumulate throughout our healthiest years and be available to us to draw on in later life. Even better, HSA’s are inheritable, so unused funds could be passed down and accumulate over several generations. And the best part is that aside from a small tax, they would be untouchable by government. Therefore, to fix this looming disaster, we much implement Health Savings Accounts, de-unionize all government agencies, remove tenure, renegotiate pensions, and implement 401k’s like the rest of us… Better now, then when we have no choice. Either way, it’s coming like it or not…
They must turn this around! 42% of this is Government Pensions and Healthcare. The single biggest blunder our government evern made was allowing agencies to unionize in the 1940’s. Even FDR said it was a huge mistake. That blunder has led to huge over-promising in pay and benefits for government workers and disastrous inefficiencies. It’s simply unsustainable. In California alone, nearly 70% of the budget goes to pensions.
On healthcare, Ben Carson gave us the solution, but it was torpedoed by John McCain. That would be “Health Savings Accounts” which have proven incredibly successful in other countries. In an HSA system from birth we’d have our own private investment accounts that would accrue interest throughout our lives. A small tax on that would go to the needy and people with overrun medical expenses. Our HSA accounts would accumulate throughout our healthiest years and be available to us to draw on in later life. Even better, HSA’s are inheritable, so unused funds could be passed down and accumulate over several generations. And the best part is that aside from a small tax, they would be untouchable by government.
Therefore, to fix this looming disaster, we much implement Health Savings Accounts, de-unionize all government agencies, remove tenure, renegotiate pensions, and implement 401k’s like the rest of us… Better now, then when we have no choice. Either way, it’s coming like it or not…
At the time there was no China growing 7% per year
There is no reason why we can’t raise the tax rate and pay off our debt. We did it after WWII. And President Clinton got us in the black.
1950’s econ textbooks. Outdated. Money supply and inflation (in the US, not necessarily in other countries) have nothing to do with each other. In fact, the relationship statistically is negatively correlated, but that is purely coincidental. Just because there is more money in the system doesn’t mean you get a raise and can buy more stuff that is scare so prices increase. You can have inflation of housing prices, for instance, that will increase general price levels (as people find out their home is an ATM), but that has nothing to do with money supply.
Yes, you are always being lied to. By politicians (and economists who believe them). It’s a political sleight of hand. Normal folks can relate to “good housekeeping” and “live within your means”. It’s a virtue, debt is bad, reckless. “Let’s go nuts with spending” isn’t exactly a slogan that will gain you votes. So accusing the other side of being profligate scores easy political points. The government, though, is not a household. In the Clinton years there were a couple years of federal budget surplus (be careful, it doesn’t mean the debt was reduced – it wasn’t!). That was largely due to huge tax receipts from the booming economy and social security payments than some kind of “living within our means” policy – but it had a nice political ring to it.
So what you are saying is that deficits are not a problem, unless a Democrat is in the presidents chair? Were we being lied to then, when deficits “WERE OUT OF CONTROL!!!” or now when they really are out of control?
So, looking at a pie chart of federal spending, the vast majority is Social Security, Medicare, Medicaid and military. Everything else is a tiny fraction line item. I’m all for whacking Medicare and Medicaid, can you answer why the GOP (controlling the House, Senate and Presidency) have not cut them yet? The answer would be enlightening. Do you think conservatives can stay in office if they whack Social Security? Also, finding a conservative alternative to Social Security is pretty simple, why have they not done it yet?
Tax cuts did not add to the debt. Not when they are bringing in record revenues. The only thing adding to the debt is more spending, period.Last: This is about spending on the INTEREST PAYMENTS of the debt, not about the debt itself, a fact you keep ignoring and trying to change the subject thereof.
Could you explain why you changing the subject to something else entirely means I have to explain myself to you in anyway whatsoever?
So you are saying that by adding to the debt to pay for these tax increases, printing more money and adding it to the dollar pool basically, this has nothing to do with having the Fed increase interest rates as a hedge against inflation?
Could you explain why creating tax breaks and adding it to the debt, meaning we print more dollars, not have anything to do with the Fed raising rates to fight inflation? Is inflation not caused by adding more money to the currency pool, meaning all those extra dollars are chasing the same amount of goods and those goods costing more dollars to buy the same goods?
“Sovereign debt is the ONLY mechanism allowed for introducing “new money” into an economy. “No it isn’t. WHENEVER a central bank or currency board buys credit instruments, it does so with newly created money. Doesn’t have to be sovereign debt. It could be corporate paper or even mortgages.Likewise, whenever they sell any of that debt, they receive money and it is then taken out of circulation.”Bretton Woods II, internationally agreed upon treaty, national sovereign debt interest payments are paid out with new, uncirculated banknotes.”I do not now of any treaty called Bretton Woods II. Last, banks do not create money. Only central banks/currency boards do. Banks create credit, which they then deposit for money if they do not have enough to make good on issuance of the loans such credit is created for. They can borrow it from other banks or borrow from the central bank as lender of last resort. Only in the latter situation is new money created. But it is also taken out of circulation and destroyed as soon as the bank pays off that loan back.
“Depositors own that money, “No, they don’t. Depositors traded their money for an IOU — promise to pay. That is what demand deposits are. You trade money for a credit instrument (which banks create — credit, not money). That is both the realistic situation as well as the legal one. Sovereign debt does not create inflation. Monetized sovereign debt can. But it could be reversed simply by unmonetizing said debt (selling the Treasury Bonds the Fed has, basically).
I think so do…but then Tom deviates just enough where I start to doubt that….then Tommy screws up and I go back to thinking that the two are one and the same again.
Ummm…when really meaningful inflation happens, the rich rarely pay as much as you think. It is the poor and middle class who suffer. But after it is done and reliable currency is re-established, a de-facto debt jubilee has happened and everyone benefits from that.
The Federal Reserve was created to get the Federal government in hock as much as possible. The 16th amendment was ratified so the Federal government could pay as much interest (not principle) on the debt as could be extracted.All a plot by the banksters. Those who fought them like Abe Lincoln and Tsar Nicholas…well, things sure didn’t turn out so well for either, eh?
Wrong. Gary is not correct. The tax cuts have nothing to do with rising interest rates on the existing national debt accumulated for decades.
“Oh FYI, tax takes are not even coming close the making up for the deficit. “Nobody said that there were. The deficit is entirely caused by too much spending. Period.
1) Rising interest rates on the debt accumulated before Trump has NOTHING to do with the tax cut. 2) The tax cut is bringing in record revenues and is not the problem. Out of control spending is the problem.
Deep State Central Bankers are 100% the cause of the rise in these interest rates. Yet Trump will get the blame. That was the plan and they are following through with it.
At the time there was no China growing 7% per year
Oh FYI, tax takes are not even coming close the making up for the deficit. If someone told you the tax cuts are paying for themselves, well it should be easy to determine who is lying to you.
Sorry, Gary is correct. The GOP is not following either conservative (i.e. Austrian) economic theories or Keynesian. If they were acting as conservatives, they would be slashing Medicare, Social Security and Medicaid. If they were Keynesian, they would be raising taxes to pay down the debts run up during the recession before the next business cycle while the economy is up. The GOP is in uncharted territory and the only legitimate question is how much inflation is being created by flooding a debt fueled increase in the dollar supply. They’re doing the same thing they did under Bush2, remember “deficits don’t matter”?
There is no reason why we can’t raise the tax rate and pay off our debt. We did it after WWII. And President Clinton got us in the black.
1950’s econ textbooks. Outdated. Money supply and inflation (in the US, not necessarily in other countries) have nothing to do with each other. In fact, the relationship statistically is negatively correlated, but that is purely coincidental. Just because there is more money in the system doesn’t mean you get a raise and can buy more stuff that is scare so prices increase. You can have inflation of housing prices, for instance, that will increase general price levels (as people find out their home is an ATM), but that has nothing to do with money supply.
Yes, you are always being lied to. By politicians (and economists who believe them). It’s a political sleight of hand. Normal folks can relate to “good housekeeping” and “live within your means”. It’s a virtue, debt is bad, reckless. “Let’s go nuts with spending” isn’t exactly a slogan that will gain you votes. So accusing the other side of being profligate scores easy political points. The government, though, is not a household. In the Clinton years there were a couple years of federal budget surplus (be careful, it doesn’t mean the debt was reduced – it wasn’t!). That was largely due to huge tax receipts from the booming economy and social security payments than some kind of “living within our means” policy – but it had a nice political ring to it.
For the majority of that debt, it is because people cannot have the standard of living in retirement the Democrat’s policies have implied–and in many cases just lied to say–they can have; and I mean day to day living and also medical treatment. The wealth is not there for them to have it, and cannot be.
Not everybody else, just Democrats and other Leftists are wrong…And by wrong, I mean stup!d, evil, or ignorant in some combination.
Mor0nic Democrat, tax take is at an all-time high, which prove you lie. Which for a Democrat is usual.” this is neither the right time or temporary” <– There is never a right time to regularly outspend your means, but what I hope is not semi-permanent is the continuation of Obama-era spending patterns. But then in Trump! the GOP did nominate and elect a Democrat-lite, so I believe Trump! is getting what he wants in the budgets…
So what you are saying is that deficits are not a problem, unless a Democrat is in the presidents chair? Were we being lied to then, when deficits “WERE OUT OF CONTROL!!!” or now when they really are out of control?
So, looking at a pie chart of federal spending, the vast majority is Social Security, Medicare, Medicaid and military. Everything else is a tiny fraction line item. I’m all for whacking Medicare and Medicaid, can you answer why the GOP (controlling the House, Senate and Presidency) have not cut them yet? The answer would be enlightening. Do you think conservatives can stay in office if they whack Social Security? Also, finding a conservative alternative to Social Security is pretty simple, why have they not done it yet?
Tax cuts did not add to the debt. Not when they are bringing in record revenues.
The only thing adding to the debt is more spending, period.
Last: This is about spending on the INTEREST PAYMENTS of the debt, not about the debt itself, a fact you keep ignoring and trying to change the subject thereof.
Could you explain why you changing the subject to something else entirely means I have to explain myself to you in anyway whatsoever?
So you are saying that by adding to the debt to pay for these tax increases, printing more money and adding it to the dollar pool basically, this has nothing to do with having the Fed increase interest rates as a hedge against inflation?
Could you explain why creating tax breaks and adding it to the debt, meaning we print more dollars, not have anything to do with the Fed raising rates to fight inflation? Is inflation not caused by adding more money to the currency pool, meaning all those extra dollars are chasing the same amount of goods and those goods costing more dollars to buy the same goods?
“Sovereign debt is the ONLY mechanism allowed for introducing “new money” into an economy. ”
No it isn’t. WHENEVER a central bank or currency board buys credit instruments, it does so with newly created money. Doesn’t have to be sovereign debt. It could be corporate paper or even mortgages.
Likewise, whenever they sell any of that debt, they receive money and it is then taken out of circulation.
“Bretton Woods II, internationally agreed upon treaty, national sovereign debt interest payments are paid out with new, uncirculated banknotes.”
I do not now of any treaty called Bretton Woods II. https://en.wikipedia.org/wiki/Bretton_Woods_system#Bretton_Woods_II
Last, banks do not create money. Only central banks/currency boards do. Banks create credit, which they then deposit for money if they do not have enough to make good on issuance of the loans such credit is created for.
They can borrow it from other banks or borrow from the central bank as lender of last resort. Only in the latter situation is new money created. But it is also taken out of circulation and destroyed as soon as the bank pays off that loan back.
“Depositors own that money, ”
No, they don’t. Depositors traded their money for an IOU — promise to pay. That is what demand deposits are. You trade money for a credit instrument (which banks create — credit, not money).
That is both the realistic situation as well as the legal one.
Sovereign debt does not create inflation. Monetized sovereign debt can. But it could be reversed simply by unmonetizing said debt (selling the Treasury Bonds the Fed has, basically).
I think so do…but then Tom deviates just enough where I start to doubt that.
…then Tommy screws up and I go back to thinking that the two are one and the same again.
Ummm…when really meaningful inflation happens, the rich rarely pay as much as you think. It is the poor and middle class who suffer. But after it is done and reliable currency is re-established, a de-facto debt jubilee has happened and everyone benefits from that.
The Federal Reserve was created to get the Federal government in hock as much as possible. The 16th amendment was ratified so the Federal government could pay as much interest (not principle) on the debt as could be extracted.
All a plot by the banksters. Those who fought them like Abe Lincoln and Tsar Nicholas…well, things sure didn’t turn out so well for either, eh?
Wrong. Gary is not correct. The tax cuts have nothing to do with rising interest rates on the existing national debt accumulated for decades.
“Oh FYI, tax takes are not even coming close the making up for the deficit. ”
Nobody said that there were. The deficit is entirely caused by too much spending. Period.
1) Rising interest rates on the debt accumulated before Trump has NOTHING to do with the tax cut.
2) The tax cut is bringing in record revenues and is not the problem. Out of control spending is the problem.
Deep State Central Bankers are 100% the cause of the rise in these interest rates. Yet Trump will get the blame. That was the plan and they are following through with it.
Oh FYI, tax takes are not even coming close the making up for the deficit. If someone told you the tax cuts are paying for themselves, well it should be easy to determine who is lying to you.
Sorry, Gary is correct. The GOP is not following either conservative (i.e. Austrian) economic theories or Keynesian. If they were acting as conservatives, they would be slashing Medicare, Social Security and Medicaid. If they were Keynesian, they would be raising taxes to pay down the debts run up during the recession before the next business cycle while the economy is up. The GOP is in uncharted territory and the only legitimate question is how much inflation is being created by flooding a debt fueled increase in the dollar supply. They’re doing the same thing they did under Bush2, remember “deficits don’t matter”?
For the majority of that debt, it is because people cannot have the standard of living in retirement the Democrat’s policies have implied–and in many cases just lied to say–they can have; and I mean day to day living and also medical treatment. The wealth is not there for them to have it, and cannot be.
Not everybody else, just Democrats and other Leftists are wrong…
And by wrong, I mean stup!d, evil, or ignorant in some combination.
Mor0nic Democrat, tax take is at an all-time high, which prove you lie. Which for a Democrat is usual.
” this is neither the right time or temporary” <-- There is never a right time to regularly outspend your means, but what I hope is not semi-permanent is the continuation of Obama-era spending patterns. But then in Trump! the GOP did nominate and elect a Democrat-lite, so I believe Trump! is getting what he wants in the budgets...
I strongly doubt that but I suppose it doesn’t really matter because they are both hopelessly ensnared in a totally dysfunctional political philosophy where they are the only person which is right and everybody else is wrong.
Yes, precisely why the GOP shouldn’t have increased the deficit with their tax cut. There are times when it’s OK to temporarily increase the deficit but this is neither the right time or temporary.
That’s not the definition of the peak of the Laffer curve. The peak of the curve is when tax receipts increase when the tax rate is lowered.However, the Laffer curve is really 3 dimensional, so the tax receipts might fall this year, but be increased over the next decade* (because increased growth is going to have more effect over time).Anyway, while it is possible that the USA is to the right of the 10-year or 20-year Laffer peak, it is not at all a simple result. You need a serious body of work to demonstrate this, not just a simple “the economy went up”.* Don’t forget to discount the tax receipts you are accumulating over time by the interest rate you are paying on the debt.
I strongly doubt that but I suppose it doesn’t really matter because they are both hopelessly ensnared in a totally dysfunctional political philosophy where they are the only person which is right and everybody else is wrong.
Yes, precisely why the GOP shouldn’t have increased the deficit with their tax cut. There are times when it’s OK to temporarily increase the deficit but this is neither the right time or temporary.
That’s not the definition of the peak of the Laffer curve. The peak of the curve is when tax receipts increase when the tax rate is lowered.
However, the Laffer curve is really 3 dimensional, so the tax receipts might fall this year, but be increased over the next decade* (because increased growth is going to have more effect over time).
Anyway, while it is possible that the USA is to the right of the 10-year or 20-year Laffer peak, it is not at all a simple result. You need a serious body of work to demonstrate this, not just a simple “the economy went up”.
* Don’t forget to discount the tax receipts you are accumulating over time by the interest rate you are paying on the debt.
No way! Luca
No, the majority of the US debt has been created by Obama alone, and much of the remainder while Democrats held House where budgets must originate.BTW, clinton overenjoyed the “peace dividend” which brings us now to enjoy Russia and China’s attempts to expand at the expense of their neighbors and the peace of the word, and also the bubble which was–as named–merely the usual bubble.Trump! currently overenjoys the bushels of low-hanging fruit picked merely by ending Obama’s idiocy. The bottom of those baskets approaches, and he should do more to manage expectations.
No, but you are just a lying tr0ll.
Thumps up!I coulnd’t have said it better! It should be obvious that more financial wealth equals more debt, because a good part of that wealth will search for a safe haven to park the money.And interests paid on the debts is not going into a black hole… it goes back the the pockets of the investors (privates). And, historically, private capital have higher yields that public invested capital, so, it will boost economic growth further. At it’s core, interests paid are a negative tax that boost economic growth.What’s the fear, then? Too much debt? In a country that emits debt in his own currency, bankrupt is impossible. Worse case scenario a quick wave of inflation can re-establish the sustaintability of the public budget (= massive redistribution of wealth from the financial rich to… everibody else, as side effect). Or the central bank can buy back the titles, monetize them (= print them), and hide them into a mountain (they are actually thinking to do this in Japan).But clickbait titles on debt cathastrophe that spells doom are easy profit for nowadays “journalism”.No matter malthusians and cathastrofist has been REPEATEDLY beaten to death by facts, the mother of the idiots are always pregnant. They won’t run out of levies anytime soon (and is actually a good thing for the smart ones).
You and Tom are the same person
Deficits don’t matter. Not for the U.S. Not really. Not as long as investors believe the government can pay the interest, and principal is rolled over anyway. It doesn’t matter if the deficit is $20 trillion or $200 trillion (if you count all the “unfunded” liabilities). The only thing that matters is investor confidence. So far, that confidence is extremely high. The reason for a US federal deficit is plainly obvious – the federal government spends more than it takes in. This has been the policy of Uncle Sam for 60 years. The only exception is 1999-2001 with a balanced budget and surplus. Basically that deficit ranges from 2-4% of GDP and after the the 2008 depression it was 10%. Now it’s back to about 3.5%. The government has this flexibility to continuously pursue deficit spending because it knows there are always investors out there who will buy the debt. Accounting-wise it’s a wash. If .gov spends $100 and takes in $90, they need to borrow $10, which is a surplus on the investor side (a deposit). Will deficits matter if, for example, .gov decides to 10x the deficit? Maybe. In other words, there is a theoretical point at which investors will balk at the supply of debt and not bid on it, thereby driving the price down and the yields up. But that point has NEVER happened. Ever. The ultimate backstop is that the Fed can buy the debt, Peter pays Paul and just park it in reserves that will never see the light of day. The market demand for US government debt far exceeds supply. The main reasons are that the amount of investible funds in the world (oil funds, pension funds, insurance funds, mutual, etc etc) all need a place to go. There is over $225 TRILLION of that money sloshing around. The US is a safe haven relative for everyone. Also, the USD is the ONLY reserve currency on the planet. This makes it unique. Yes, it means the US “prints” more money if deficits increase. But as long as there are investors, this is not a problem. The deficit, and money supply, also has very little to zero influence on price inflation. A common fallacy in economic textbooks because the US can operate totally differently from any other country. Just google inflation rate and money supply. Inflation is largely commodities driven. The oil shock in the 70’s. In fact, since the early 1960’s, inflation has been NEGATIVELY correlated to money supply! Ie the more money the Treasury prints, the lower the inflation. Obviously this is not casuality but goes to show how little textbooks mean anything these days. Besides, Federal deficits are a minor aggregate amount compared to debt overall with households and companies. The latter two are the main determinants for the health of the country. Why? because investors need to have the appetite for that much, much bigger chunk for the country to work.
No way!
Luca
No, the majority of the US debt has been created by Obama alone, and much of the remainder while Democrats held House where budgets must originate.
BTW, clinton overenjoyed the “peace dividend” which brings us now to enjoy Russia and China’s attempts to expand at the expense of their neighbors and the peace of the word, and also the dot.com bubble which was–as named–merely the usual bubble.
Trump! currently overenjoys the bushels of low-hanging fruit picked merely by ending Obama’s idiocy. The bottom of those baskets approaches, and he should do more to manage expectations.
No, but you are just a lying tr0ll.
Thumps up!
I coulnd’t have said it better! It should be obvious that more financial wealth equals more debt, because a good part of that wealth will search for a safe haven to park the money.
And interests paid on the debts is not going into a black hole… it goes back the the pockets of the investors (privates). And, historically, private capital have higher yields that public invested capital, so, it will boost economic growth further. At it’s core, interests paid are a negative tax that boost economic growth.
What’s the fear, then? Too much debt? In a country that emits debt in his own currency, bankrupt is impossible. Worse case scenario a quick wave of inflation can re-establish the sustaintability of the public budget (= massive redistribution of wealth from the financial rich to… everibody else, as side effect). Or the central bank can buy back the titles, monetize them (= print them), and hide them into a mountain (they are actually thinking to do this in Japan).
But clickbait titles on debt cathastrophe that spells doom are easy profit for nowadays “journalism”.
No matter malthusians and cathastrofist has been REPEATEDLY beaten to death by facts, the mother of the idiots are always pregnant. They won’t run out of levies anytime soon (and is actually a good thing for the smart ones).
Deficits don’t matter. Not for the U.S. Not really. Not as long as investors believe the government can pay the interest, and principal is rolled over anyway. It doesn’t matter if the deficit is $20 trillion or $200 trillion (if you count all the “unfunded” liabilities). The only thing that matters is investor confidence. So far, that confidence is extremely high.
The reason for a US federal deficit is plainly obvious – the federal government spends more than it takes in. This has been the policy of Uncle Sam for 60 years. The only exception is 1999-2001 with a balanced budget and surplus. Basically that deficit ranges from 2-4% of GDP and after the the 2008 depression it was 10%. Now it’s back to about 3.5%.
The government has this flexibility to continuously pursue deficit spending because it knows there are always investors out there who will buy the debt. Accounting-wise it’s a wash. If .gov spends $100 and takes in $90, they need to borrow $10, which is a surplus on the investor side (a deposit).
Will deficits matter if, for example, .gov decides to 10x the deficit? Maybe. In other words, there is a theoretical point at which investors will balk at the supply of debt and not bid on it, thereby driving the price down and the yields up. But that point has NEVER happened. Ever. The ultimate backstop is that the Fed can buy the debt, Peter pays Paul and just park it in reserves that will never see the light of day. The market demand for US government debt far exceeds supply. The main reasons are that the amount of investible funds in the world (oil funds, pension funds, insurance funds, mutual, etc etc) all need a place to go. There is over $225 TRILLION of that money sloshing around. The US is a safe haven relative for everyone.
Also, the USD is the ONLY reserve currency on the planet. This makes it unique. Yes, it means the US “prints” more money if deficits increase. But as long as there are investors, this is not a problem. The deficit, and money supply, also has very little to zero influence on price inflation. A common fallacy in economic textbooks because the US can operate totally differently from any other country. Just google inflation rate and money supply. Inflation is largely commodities driven. The oil shock in the 70’s. In fact, since the early 1960’s, inflation has been NEGATIVELY correlated to money supply! Ie the more money the Treasury prints, the lower the inflation. Obviously this is not casuality but goes to show how little textbooks mean anything these days.
Besides, Federal deficits are a minor aggregate amount compared to debt overall with households and companies. The latter two are the main determinants for the health of the country. Why? because investors need to have the appetite for that much, much bigger chunk for the country to work.
No war, no worry. No war in one year, can save $$$$$$$$.
tom above is a nut and a throll of course Much of the deficit the US has today has been created by Republican presidents but his head is full of sugar so he cant get it I beilieve the ONLY president i recent times who decreased the deficit in % of gdp has been clinton
Wow. Almost poetic. Sincerely an interesting read.Hard to believe this comes from the same guy who vehemently defends “Mock Effect” propellant less propulsion…As long as you’re not calling people m0rons, it’s a good read.
No, fool, it began when the strategy was openly adopted–by Democrats–of buying votes by redistributing tax money as an “entitlement”.
Because the economy consistently improves when taxes are cut.
How was this problem started? First there was Reagan who took the deficit from around 400 billion to nearly 3.5 trillion (700-800% increase, about 90% per year), then came Bush 1 who added another 1 tril to about 4.4 trillion, and finally the icing on the cake of 5+ trillion by Bush 2 to roughly 10 trillion by December 2008. Clinton added a 150-200 billion. The interest had hit close to 450 billion (more than 50% of US military spending and about as much as we spend on public schools) a year by the time Obama got in. During Obamas presidency 3.5+ trillion was spent servicing the debt crated by those prior republican presidents. Debt increased about 6-7 trillion under Obama, I wonder why. Republicans have a tenancy of burning cash the second they get in charge, then when replaced by Dems, they scream to cut spending and threaten to burn it all down if they don’t get what they want after losing power.
And how do you know that?
⇒ My understanding is that the government must create money in proportion to what it spends. This implies that government spending in excess of economic growth leads to inflation. Is that correct, or am I seeing this from a cartoonishly simplistic perspective?Again, “you’ve got it” on both accounts. The government need not spend more than it takes in taxes, fundamentally. Yet, without the mandate of having to “pay the bills”, without deficit spending the treasury doesn’t have much in the way of marching orders to author and auction treasury bonds. It can, of course: it is an AUCTION — and actually a very open one. The price paid for a $100,000 Treasury Bill or $1,000,000 US Bond is completely up to the market to determine. If — say — we’re in a period of suspicion-of-bad-economic-prudence, then like any tin pot Third World country, our Treasury notes and bonds would settle in those auctions for prices low enough that their printed-on-the-front interest would yield a much greater real return. Likewise, the exactly-the-same treasury bills and bonds, in an era of high-demand-for-safe-investment will be auctioned for substantially higher than their face value, yielding lower interest, “just enough” to satisfy the demand for safe tax-free investment instruments. That’s the essential tension. Perception of “US Government Finacially Conservatıve Prudence” internationally, and the need (or desire) of the US Treasury to auction off a stack of T-bills and bonds every Tuesday morning. That latter condition — the need or desire to auction off a stack — is in turn directly a response to both The Fed’s autocratic view of needing to Guide and Moderate the Economy, and its dual need to Pay the Outstanding Expenses-due. So yes… the government indirectly needs to BUY institutional (mostly) and banking (most of the rest) money by auctioning the bills and bonds, every week. To pay for government expenses. When a government spends in excess of economic growth though, this does NOT imply that such spending is imprudent. It may well be fully authorized by the House, with open eye and cautious enthusiasm. Such, for example, would be the case for opening up a large, new “Moonshot” program (perhaps to Mars.)Don’t worry about whether you’re playing with cartoon figures. The core of your understanding appears sound.Just saying,GoatGuy
That’s the Democrats’ strategy, but my hunch is that it only works if they deliver the goods. Delivering requires resources. He who has the gold gets the votes. If the entire population is equally affected by inflation, then I would expect inflation to shift some % of voters into poverty and, therefore, into the Dem party. However, if you bifurcate society s.t. those who work do fine while wards of the state lose purchasing power, inflation makes wards of the state miserable while productive citizens fail to notice it. That harms Dems. Through a combination of shrinking government resources and booming private industry, I think Reps can create that bifurcation and, ultimately, increase their ranks. By controlling the gold, they can get the votes. In the past, Democrats expanded benefits by raiding various coffers. Today, there are no more coffers to raid. Dems must now spread a finite pool of public resources over some minimum % of the population. If they offer more benefits, they cause inflation, which reduces the value of existing benefits. They’d be robbing Peter to pay Paul. Even worse for Dems: tax reform redefined inflation s.t. the official value understates the true value. Benefits linked to inflation will lose value (faster than they did before…), and Dems will have a shrinking pool of resources with which to buy votes. At some point, this becomes untenable. Government workers already complain about low wages. Meanwhile, the booming economy is increasing both private wages and the # of people working private jobs. Those in private industry are keeping up with – if not exceeding – inflation. Society is bifurcating! As long as private industry offers a sufficient # of jobs at sufficient wages, Reps benefit from inflation. Thanks to tax reform and deregulation, Reps have the gold – and they’ll get the votes. So yes, the Dem strategy is to create poverty and promise economic salvation – but that’s only worked because they had something to deliver. The Rep strategy is to build private industry while shrinking government resources, thus earning voters and preventing Dems from delivering. This appears to be working. There are signs of disenchantment with government programs: young people don’t believe they’ll collect social security, competent people leaving government employment for lucrative private jobs, tenured professors taking corporate jobs, naive graduates taking teaching jobs in inner cities only to bail out a year later, etc. The government programs, government benefits, and government jobs are falling short of expectations. They’re certainly falling behind private alternatives. I’ll be interested to see how Dems pull out of this.
You should have explained idea of debt more clearly and why not paying it by state is catastrophical.
No war, no worry. No war in one year, can save $$$$$$$$.
Wow. Almost poetic.
Sincerely an interesting read.
Hard to believe this comes from the same guy who vehemently defends “Mock Effect” propellant less propulsion…
As long as you’re not calling people m0rons, it’s a good read.
” The resulting inflation would then harm poor people. ” <– Err, you know Democrats only regard that as opportunity, right? They don’t actually care if they make people more poor, they benefit from it.
As he well should.Not only is the peak of the Laffer curve not in and of itself a proper goal, we are well to the right of it in any case.
What would be the difference between a balance sheet question and a cash flow question? You tell me.. dude..
What neither the Democrats or GOP Establishment alone or together could do — silence the Tea Party impulse — the Trump!alos have accomplished.To oppose the prolifigate budgets Trump! has signed with the GOPE’s approval is to be marginalized entirely; now more than ever, the GOP is not in any way a conservative party. It is unable to see what is mould on a branch what is tyranny which should not be policy.
in continuation…To go by the results of their prognostications, only the Austrian School economists have any idea what they are doing or talking about.GoatGuy, you don’t.There is no genius to the Bretton Woods agreement or any other treaty which has so much as modified let alone repealed any laws of economics, all laws of economics are fully in force, continually and irrevocably. While acknowledgement of what they are may be in abeyance, the Gods of the Copy Book Headings persist. What the individuals in an economy do and hold to be of value gives the fiat currency of that economy value, and nothing else does.What sovereign debt is, among other things, is the $220tnplus in total unfunded liabilities that government and quasi government institutions in the United States have promised to pay Americans, and the value to make those debts good is not and will not be there. Who is made to scream and how loudly at the success of the idiocy GoatGuy propounds evidently to be wonderful is all that remains to be seen.Where the government regulation of the economy presumed by Bretton Woods is founded on the idea that government can reduce “harmful” over enthusiasm in the market resulting in a boom-bust business cycle, what it in fact represents is a a far more harmful over enthusiasm for government intervention.We in fact cannot do better than just liberty — punishing and “regulating” only adjudicated individual inadvertent torts, and such crimes as are deliberate torts, theft by stealth, fraud or violence, and non-economically motivated assault, murder. The “night watchmen” state is all that is most fit.
With respect to the specious claims of GoatGuy below, sovereign debt is entirely alike every other debt in the primary respect — the persons and institutions accepting the debt as lenders expect to receive back that value with interest.1) You’ll have to give a better example of such a “loss” for your claim to even be vaguely credible. The sheer stupidity of what you claimed made me laugh. No money is ever “destroyed” by bank reserve requirements such that it needs to be replaced by inflation. Depositors own that money, and as their deposit agreements permit at whatever length they can chose to withdraw all of it and place it an endeavor they find more suitable…higher yielding. Banks in a normal–that’s non-socialist–economy also regularly fail and are liquidated, their assets being reassigned by their then owners to what they feel is a more rational distribution.2) Money being the most marketable commodity, and fiat currency only representing the asserted value of the sovereign economy producing it–and the economic activity of the people being the source of that value–demographic growth accommodates itself to a first order, and simply printing more money gives the accountants the places to the left of the decimal needed to track that increase in value ocurring on a per head basis. (I cannot use “per capita” it is a spoken for term of art in the field not neccessarily usable in that fashion.)3) Sovereign debt does not compensate for inflation, it produces it. In fact, it is worse than simply printing more money excessively–excessive issuance of sovereign debt is explicitly the destruction of expected future value to a degree unknowable at the time of issuance, building castles on sand, where monetary inflation at least can be seen in real time and compensated for as immediately as it happens. (Hopefully not requiring being compensated for by wheelbarrow.)4) Deflation and not inflation is the natural and proper, less speculative means to fund growth and innovation. As competition and innovation in the production and delivery of established goods and services drives down cost and prices for established sectors, that purchasing power once devoted to those deflating established sectors becomes available to R&D and other sorts of investment.
No, fool, it began when the strategy was openly adopted–by Democrats–of buying votes by redistributing tax money as an “entitlement”.
Because the economy consistently improves when taxes are cut.
not really. Congress doesn’t have a crowding out of other outlays due to interest costs. The interest must be paid. Outlays are on top of this, like medicare etc. Obviously the lower the interest payments the less debt uncle sam has to issue, but that is a balance sheet question, not cash flow/income statement.
yep, agree, sorry I didn’t read your earlier comment. Debt=credit. Anyhow, the other BIG difference is that the US operates with a reserve currency. No one else has that. France can’t spend because both they use the Euro and don’t have fiscal unity in Europe. And of course places like Argentina can issue debt only as long as someone buys it and don’t have to re-price bread in the supermarket every 2 hours….Our debt levels now/GDP is roughly in line with 1970-90’s though much bigger numbers, and the interest payments as a % or federal outlays was higher 1986-1998.Anyhow, it is easy to pay the interest given that everyone still buys treasuries.
The tax relief is going to be rather minor for the middle class. We will see how it plays out. These predictions above do not fill me with a lot of confidence. That said, I am not even that concerned about debt. Debt held by a country is different from debt held by a person. In case of a country, the one having the debt has the advantage. You make a deal about the debt and the creditor has to accept it, whether they want to or not. I mean no one is going to go and collect that debt from the US (how would they?).
How was this problem started? First there was Reagan who took the deficit from around 400 billion to nearly 3.5 trillion (700-800% increase, about 90% per year), then came Bush 1 who added another 1 tril to about 4.4 trillion, and finally the icing on the cake of 5+ trillion by Bush 2 to roughly 10 trillion by December 2008. Clinton added a 150-200 billion. The interest had hit close to 450 billion (more than 50% of US military spending and about as much as we spend on public schools) a year by the time Obama got in. During Obamas presidency 3.5+ trillion was spent servicing the debt crated by those prior republican presidents. Debt increased about 6-7 trillion under Obama, I wonder why. Republicans have a tenancy of burning cash the second they get in charge, then when replaced by Dems, they scream to cut spending and threaten to burn it all down if they don’t get what they want after losing power.
My understanding is that the government must create money in proportion to what it spends. -> and mine is that the govt must create money in proportion to what it Can spend!!
Yes, it is somehow impossible In the past growth was 4% and over but there was no CHina The average of the last ten years or so has been less than 2% add 1% for inflation and you have less than 3%Debt growth has been around 7% this s why US debt on GDP is growing and rowing .Yes, the US will be fine ike Italy has been in the ast 30 yars. Average 1% of growth per year, declining country This is what is going to happen to the US 30 years ago growing 5% per year Now 2% In the future even less In summary 1) no you do not. Growth of 3% is not sustainable for the US , it is a one time spur due to the tax cuts that created a buy back . You will have a back lash after that 2) you will be fine. and declining. China is taking your place 3) dunno if they are good. salaries in the US have been stagnant and declining in the past 30 years and we will see that there will be stagnation ahead as well 4) you can not. there is a limit to that In summary there is no free lunch
There are proposal for everything but so far in most if not all countries you have the solution of an independent central bankI still have to understand what are the profits of the entities (private) who control the Central Bank, though ..
This is because the US dollar was trusted all over the world, until now But will it be in the future? Remember that the debt on GDP for the US was 60% until few years agoNow it is over 100% and growing
That’s fair. I see you’ve made the point – several times – that the feds alone create new money, and that this function is necessary. We’re in complete agreement on that. My understanding is that the government must create money in proportion to what it spends. This implies that government spending in excess of economic growth leads to inflation. Is that correct, or am I seeing this from a cartoonishly simplistic perspective?
We need to reduce the deficit and the debt. And the way to do so is to increase revenue by raising the tax rates. We can’t do it at once since that will shock the economy but we should do it over time. First cancel the current tax cuts. Then raise the top rates incrementally over five years. Raise the Minimum Wage immediately to to $15/hr and then by $1/hr over the next 5 years. Implement a carbon tax immediately. Target 5 yrs to get rid of the deficit and 10 yrs after that to reduce the debt to 50% of GDP. After that we can cut taxes to maintain the baseline.
3-4%/year is aggressive for sure, but is it truly impossible? In the past, US political behavior hasn’t exactly been business-friendly: opposing parties attacked each other’s industries, we saw the rise of stringent labor & environmental regulations (not bad, per se, but still a growth killer), we offshored our industrial base, we built an incredible bureaucracy that slows down innovation, we let our education system rot… Looking at it objectively, it appears we were *trying* to destroy it – and yet it persisted. Today, politicians have spent all the money, which leaves their precious voter bases in a precarious position: if the economy doesn’t grow, inflation will. No one will be happy about that. It will be interesting to see the growth rate now that business & political interests are aligned.Let’s assume we don’t though. If growth is sustained at 2-3%, we’ll get an extra 1% inflation. Less than ideal, but hardly the end times. We’ll be fine. As for taxes, we don’t have to “cut taxes forever”. We cut them once to an acceptable level and then leave them there. As long as the debt is sustainable – and projections suggest it is – we’re fine. But let’s suppose you wanted to cut taxes again anyway, just for fun. You could do that, provided you cut government spending at the same time. Before you object to that: I’ve seen government; I assure you there’s excess to be cut. You could probably shave 10-20% off the top without the public noticing – unless, of course, politicians made a dramatic display, such as closing public parks (*cough* Obama *cough*).As tax cuts shrunk government, they would spur economic growth. That statement isn’t conjecture; the relationship between taxes and business activity is built into business financing decisions. It’s literally Business Finance 101. Businesses need a minimum Internal Rate of Return (IRR). Higher taxes -> lower IRRs across the board -> previously marginal projects don’t happen -> less economic growth. Cut taxes, and businesses suddenly have more projects to complete. If they want the profit from those additional projects, they have to hire people, buy things, and build things. The economy grows! Again, this is Business Finance 101. The net effect of further tax cuts, then, is to shift money from government to private sector. There would be just as much health care, retirement, and other services. The difference is that, after tax cuts, those services would go to the working instead of wards of the state. In summary: 1) We may be capable of more growth than you imagine.2) We’ll be fine even if we aren’t. 3) The tax cuts were good for the economy.4) We could cut taxes further if we desired it.
There are proposals to control that too, by creating a Monetary Board, for example. Maybe this would not do any better job than the current Fed, which is not very good, though getting better. There are other ways, such as pegging money creation to the Output Gap, which was $1.3t during the crisis, but only about $100b now, meaning we don’t have a lot of spare capacity now before inflation becomes a problem.
The true is we print money and we have low inflation. Hyper inflation can happen but it won’t happen as long as you collect taxes to fund the government. Hyperinflation only happens when the government doesn’t have the guts to tax the rich and therefore has to print money to fund the government.
Oh and I am no commie lover Luca
AFAIK the real reason why Government should NOT print money is that they would print massive quantities of money before the elections, the economy would sky rocket and the President confirmed Two years later the inflation would be at 50% or so Ditto Luca Mazza
If you forget about the debt the US economy is doing well. Then you look at the debt on GDP and it was 60% 20 years and now it is 105% and growing . tick tock !
Yes, but in the loooong run everything is happening. Look at Italy Living at 120% debt since the 2000s and we are still here Sure, you have the GDP growth at zero, but no default yet and maybe never will Same as the US High debt, growth today about 1/2 of twenty years ago (not talking about this quarter or last but the average ) , interest rates will grow , just give time Wont happen today, not tomorrow, but the debt IS rising the GDP growth IS declining . Luca Mazza
Fantasy that happened in Argentina not long ago. Luca Mazza
You are right, and Goat Guy, as many times here, is deeply wrong ! You introduce new money and then if you introduce too much money you will get very high inflation This is economics 101 Goat Guy does not get it He should visit Zimbabwe , where Mugabe introduced too much money and .. But you do . Luca Mazza
SOVEREIGN DEBT replaces and introduces new money into the economy. Unlike ALL other debt. => yu will have to pay interests on that debt and they will be calculated in the expenses together with medical services, education and so on
This guy has not much clue of what he is talking about . Seriously 1) Print money? Yes you can, if it were that easy!! You print new money, let` s do it with one million, let` s do it with one billion and so on We print money and we will all be rich Not so fast! You print too much money, inflation is going to come by and eat everything you have You will have 1 billion dollar per person but that will be worth little Ask Zimbabwe.. 2) Issuing bonds? Yes you can, if it were that easy!! You issue new bonds, you get money from investors and then you finance your country Problem is two fold a) you need to find people who buy your bonds b) they need to be paid interests on those bonds If you issue too many bonds, you will not find people willing to buy them, or you will have to promise them sky rocket high interests No free lunch dudes! So far, the US was the country controlling the de-facto currency of the world, but things are a-changing and the petro dollar is being attacked by the petro yuan! US debt is rising through the roof 60% 15 years ago, 105% now and climbing , while China is at 40% So, yes, you cant print money and issue bonds at will, not even if you are the US Luca Mazza
And how do you know that?
Bunch of bull big like a house !!For the same reason, every single country can print their money so no country should ever default, right? Ask Argentina, dude, and learn before writing non sense !! You can not print money indefinitely otherwise inflation is going to khill youAsk Zimbabwe dude You have no clue of what you talk about !!
U.S. Notes were printed until 1972 – no coincidence we went off the international gold standard then too. They were in circulation until 1996, when Treasury – falsely – said there there was no function they could perform that Federal Reserve Notes could not do. Actually, there is a big difference. If you read the quarterly U.S. debt report, it shows that U.S. Notes still are not counted at debt, while Federal Reserve Notes, and more importantly, the other financial holdings of the government, are counted as debt. (Only about 3% of the money supply is physical notes and coins now, or even much less if you count the quadrillion dollar derivatives market).True, the $256m still counted in circulation – including the 2 $5 U.S. Notes I bought on Ebay for $10 each – are too little to matter economically, but they are proof of concept, that the government could, if it chose to, bypass the borrowing mechanism of issuing Treasuries in exchange for electronic dollars altogether. Debt for the government, as you pointed out, is different for a sovereign entity. There is no limit to what the printing press can provide, and inflation is really a different issue having to do with national capacity to produce.I have to point out that France, which you cited above, is no longer monetarily sovereign, having given up the power to produce currency, like most of Europe, to the ECB.
⇒ My understanding is that the government must create money in proportion to what it spends. This implies that government spending in excess of economic growth leads to inflation. Is that correct, or am I seeing this from a cartoonishly simplistic perspective?
Again, “you’ve got it” on both accounts.
The government need not spend more than it takes in taxes, fundamentally. Yet, without the mandate of having to “pay the bills”, without deficit spending the treasury doesn’t have much in the way of marching orders to author and auction treasury bonds.
It can, of course: it is an AUCTION — and actually a very open one. The price paid for a $100,000 Treasury Bill or $1,000,000 US Bond is completely up to the market to determine. If — say — we’re in a period of suspicion-of-bad-economic-prudence, then like any tin pot Third World country, our Treasury notes and bonds would settle in those auctions for prices low enough that their printed-on-the-front interest would yield a much greater real return.
Likewise, the exactly-the-same treasury bills and bonds, in an era of high-demand-for-safe-investment will be auctioned for substantially higher than their face value, yielding lower interest, “just enough” to satisfy the demand for safe tax-free investment instruments.
That’s the essential tension. Perception of “US Government Finacially Conservatıve Prudence” internationally, and the need (or desire) of the US Treasury to auction off a stack of T-bills and bonds every Tuesday morning. That latter condition — the need or desire to auction off a stack — is in turn directly a response to both The Fed’s autocratic view of needing to Guide and Moderate the Economy, and its dual need to Pay the Outstanding Expenses-due.
So yes… the government indirectly needs to BUY institutional (mostly) and banking (most of the rest) money by auctioning the bills and bonds, every week. To pay for government expenses. When a government spends in excess of economic growth though, this does NOT imply that such spending is imprudent. It may well be fully authorized by the House, with open eye and cautious enthusiasm. Such, for example, would be the case for opening up a large, new “Moonshot” program (perhaps to Mars.)
Don’t worry about whether you’re playing with cartoon figures.
The core of your understanding appears sound.
Just saying,
GoatGuy
That’s the Democrats’ strategy, but my hunch is that it only works if they deliver the goods. Delivering requires resources. He who has the gold gets the votes.
If the entire population is equally affected by inflation, then I would expect inflation to shift some % of voters into poverty and, therefore, into the Dem party. However, if you bifurcate society s.t. those who work do fine while wards of the state lose purchasing power, inflation makes wards of the state miserable while productive citizens fail to notice it. That harms Dems. Through a combination of shrinking government resources and booming private industry, I think Reps can create that bifurcation and, ultimately, increase their ranks. By controlling the gold, they can get the votes.
In the past, Democrats expanded benefits by raiding various coffers. Today, there are no more coffers to raid. Dems must now spread a finite pool of public resources over some minimum % of the population. If they offer more benefits, they cause inflation, which reduces the value of existing benefits. They’d be robbing Peter to pay Paul.
Even worse for Dems: tax reform redefined inflation s.t. the official value understates the true value. Benefits linked to inflation will lose value (faster than they did before…), and Dems will have a shrinking pool of resources with which to buy votes. At some point, this becomes untenable.
Government workers already complain about low wages. Meanwhile, the booming economy is increasing both private wages and the # of people working private jobs. Those in private industry are keeping up with – if not exceeding – inflation. Society is bifurcating! As long as private industry offers a sufficient # of jobs at sufficient wages, Reps benefit from inflation. Thanks to tax reform and deregulation, Reps have the gold – and they’ll get the votes.
So yes, the Dem strategy is to create poverty and promise economic salvation – but that’s only worked because they had something to deliver. The Rep strategy is to build private industry while shrinking government resources, thus earning voters and preventing Dems from delivering. This appears to be working.
There are signs of disenchantment with government programs: young people don’t believe they’ll collect social security, competent people leaving government employment for lucrative private jobs, tenured professors taking corporate jobs, naive graduates taking teaching jobs in inner cities only to bail out a year later, etc. The government programs, government benefits, and government jobs are falling short of expectations. They’re certainly falling behind private alternatives. I’ll be interested to see how Dems pull out of this.
⊕1 — you’ve “got it”.But also remember: that whether the tax reform causes a tightening of the government spending side of the economy or not (and it does, we agree upon that), the federal and state (and municipality) spending is ALWAYS tuned or moderate deficit spending. In the Feds case, it is to underpin the authority to print and AUCTION bonds on the open market. Which creates new money (see my top-level comment). In the states, municipalities and large institutional bond-making markets, it is to fund the machinery of state, commerce and industry. Anyway. ⊕1GoatGuy
You know… “A truly sovereign … doesn’t borrow … own money”No, not since the international agreement to sign the Bretton Woods II covenants has it been both possible and required that sovereigns DO “borrow” their deficit spending in their own money instruments. I’ve commented heavily on this throughout my replies to others. Read the top-level comment. Says it all.Remember there is no logical alternative to “the only way new money…” The word ONLY eliminates other sentimentally cherished alternatives. Just saying,GoatGuy
Tax relief … for middle and upper-middle Americans was supposed to be an economic growth spur. Which it is, and has been. Perhaps it galls you to admit that Trump’s economy really is doing well, but hey… I don’t make up the news or the figures. Its doing well. Just saying,GoatGuy
If your macroeconomic predictions were true… • Interest RATE would be rapidly rising• Inflation would be rapidly increasing• Economic growth would be stunted• Cost of Living would be rising• Unemployment would be high and growingAnd most clearly, you would be able to see QUANTITATIVELY this simply by looking at the LIBOR rates and 10 year US Bond yield rate. Funny thing.While it IS higher than a year ago, it is not “rapidly rising”. Especially: it is not out o step with the other First World nations’ bond rates. So… yet another of Henrique Da Commie Lover’s theories… shot down. In flames.Oh, my.LOL
No, “they” will do no such thing. Your end-times fantasy. One of (and perhaps the only) things that endows the money-of-a-nation value is the hard, cold and completely inflexible commitment to REPAY the bonds it issues in the future, at maturity, with both new money-for-the-interest, and old-money-for-the-bond. You’re China, say. You send your banker-reps to the Tuesday Auction of US Bonds. Buy a couple of billion a week. The billion you pay is REAL money… surplus say from your booming Chinese economy. Bonds have very, very low interest because of the unbroken pay-back-trust. They’re safe. Now you “sit on” those bonds for the next 10 years. Every quarter, you clip off the bond interest coupons (which have maturity dates pre-printed); you send the same bond agents to the Federal Reserve banks in America to redeem the coupons. FOR CASH. Oh, it could be just numbers transfers between the Fed bank and your Government clearing account at the Bank of China, but the money transfers are made. And the money ultimately is NEW.Then, 10 years later, the bond comes due. You take THAT to the Federal Reserve, and are given its entire face value in cash. Not new cash, but circulating stuff. Same as what your government paid for it. DEFAULTING on even a single government bond would send earthquake-and-tsunami level trust-shock into the international banking community. Suddenly, “even tho’ its only China”, every other nation would not trust US money to be the Reserve Currency of the World. Interest would double, triple. It’d be like cutting off your arm ‘cuz of a broken fingernail. No.Your sentiments are misguided.Fantasy.GoatGuy
My deep apologies, but your opinion is misguided to the core. Please see my main-level comment. Sovereign debt is profoundly different than “living within our means” sentiments. It is structurally the ONLY mechanism in this economy of creating new money as needed. You, Texas, San Francisco and Apple Corporation cannot do this. Only sovereign central banks can. Only sovereign central banks should. It is one of the primary mandates for being a nation, actually.Just saying,GoatGuy
Moreover, if you read my top-level comment, any spinning of national sovereign debt’s “interest payments” in proportion to medical services, or education funding, or the military or anything else … is completely misguided syllogism. SOVEREIGN DEBT replaces and introduces new money into the economy. Unlike ALL other debt. Not even the debt of states — California Municipal bonds, for instance, does that. Texas can no more print new money and introduce it to its economy and to its investors, than you or I can. But the nation of France can. And Argentina. And China. And the United States. Sovereign debt. its different.WAY different. Just saying,GoatGuy
Sigh…I find myself reminding that SOVEREIGN debt is entirely different from the kind you personally incur. So different that prudent quips like “ought to live within its means” is entirely misdirected sentiment. How is it different?________________________________________Sovereign debt is the ONLY mechanism allowed for introducing “new money” into an economy. Bretton Woods II, internationally agreed upon treaty, national sovereign debt interest payments are paid out with new, uncirculated banknotes. New money. To be absolutely clear: modern trading economies need new money continuously for 4 essential reasons:• (1) replace fiduciary ‘instrument loss’• (2) accomodate demographic growth• (3) match inflation• (4) fund innovation, new markets, increasing personal prosperityObviously, “before the Smartphone”, one didn’t need money to buy smart phones, their apps, and the not insignificant telecom services to keep ’em running. Now they are completely ubiquitous, all people have them, and that whole sector is responsible for a remarkable amount of the nations economies. Same goes for other technology. Before you have it, the economy isn’t in need of ‘spending money’ to buy, use and maintain it. That would be № 4.№ 1 is hard macroeconomics theory.In a nutshell, economists long ago identified that banking ties up money permanently: If you save $1,000, the bank within its prudence and regulatory limits, might lend out $900 of it. Which funds something in the economy… which leads to that $900 (or less) being deposited. Which is then again lent out to $800, to $700, to $600 … and so on. The MULTIPLIER effect, tho’, also eats up a percentage every time in “must keep reserves” banking. This ultimately eats up all the new money. № 2 is easy enough: populations grow, often with immigration. More peeps, more money needed “in general” to fund wages and proportionate economic scaling. № 3 should be obvious: inflation which most economists argue is an inevitable consequence of banking and enterprise, requires more “cash” IN THE FUTURE to fund EXACTLY the same economic churning as today. ________________________________________Soveregn debt is issued in BONDS. The bonds have coupons attached, which are clipped out and presented to the sovereign bank for redeeming in cash. Not any old cash, but still-wet-from-the-presses new cash. Since your $1,000,000 is tied up in the bond, you definitely treat that new money … like just-as-spendable-cash as all the used money in your pocket. That’s the genius of the Bretton Woods agreed upon “fiat currency” system. Hostage holding. Of your money.Giving VALUE to the new money.So… as I said…Sovereign debt is wholly different.Just saying,GoatGuy
The idea that the U.S. government will run out of money, or not be able to pay for anything is nonsense. The federal government, as a financially sovereign state, does not need to tax or borrow to pay for anything. As Alan Greenspan once said, “The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.” Indeed, the U.S. government can pay for ANYTHING by simply issuing the money. So long as the productive capacity can keep pace with the demand created, there is no inflation. And, if there is inflation, then you either reduce federal spending, or else increase taxes.
You should have explained idea of debt more clearly and why not paying it by state is catastrophical.
The headline is very misleading. Medicaid is only a small part of government health spend, Medicare is >2x bigger. If you add up TOTAL federal healthcare by 2028 goes to 2,282T (a bit higher if you include the VA system) from current 1,164T. By 2028, interest on the debt will be 13% but healthcare and social security will be 64% of the budget, up from 61% currently.Ie the main driver – by far – of the need to borrow money is to pay for federal healthcare. If healthcare spend can come down to “regularly stupid high” levels like Europe/Australia, i.e., a 50% decrease, then interest on debt will LOWER than it is currently (in absolute terms). Just sayin’.
There are two ways this ends. The first, we pay our debt and live within our means. Second, they print their way out of debt through inflation. Which way do you think the politicians will pick? Time to batten down the hatches.
They’ll default on the Chinese portion of the debt over national security concerns and get the Euros, Koreans, Japanese, Indians and Russians (horse trading for sanctions) to legitimise it so it’s totally not a bankruptcy.
” The resulting inflation would then harm poor people. ” <-- Err, you know Democrats only regard that as opportunity, right? They don't actually care if they make people more poor, they benefit from it.
As he well should.
Not only is the peak of the Laffer curve not in and of itself a proper goal, we are well to the right of it in any case.
What would be the difference between a balance sheet question and a cash flow question?
You tell me.. dude..
What neither the Democrats or GOP Establishment alone or together could do — silence the Tea Party impulse — the Trump!alos have accomplished.
To oppose the prolifigate budgets Trump! has signed with the GOPE’s approval is to be marginalized entirely; now more than ever, the GOP is not in any way a conservative party. It is unable to see what is mould on a branch what is tyranny which should not be policy.
in continuation…
To go by the results of their prognostications, only the Austrian School economists have any idea what they are doing or talking about.
GoatGuy, you don’t.
There is no genius to the Bretton Woods agreement or any other treaty which has so much as modified let alone repealed any laws of economics, all laws of economics are fully in force, continually and irrevocably. While acknowledgement of what they are may be in abeyance, the Gods of the Copy Book Headings persist. What the individuals in an economy do and hold to be of value gives the fiat currency of that economy value, and nothing else does.
What sovereign debt is, among other things, is the $220tnplus in total unfunded liabilities that government and quasi government institutions in the United States have promised to pay Americans, and the value to make those debts good is not and will not be there. Who is made to scream and how loudly at the success of the idiocy GoatGuy propounds evidently to be wonderful is all that remains to be seen.
Where the government regulation of the economy presumed by Bretton Woods is founded on the idea that government can reduce “harmful” over enthusiasm in the market resulting in a boom-bust business cycle, what it in fact represents is a a far more harmful over enthusiasm for government intervention.
We in fact cannot do better than just liberty — punishing and “regulating” only adjudicated individual inadvertent torts, and such crimes as are deliberate torts, theft by stealth, fraud or violence, and non-economically motivated assault, murder. The “night watchmen” state is all that is most fit.
With respect to the specious claims of GoatGuy below, sovereign debt is entirely alike every other debt in the primary respect — the persons and institutions accepting the debt as lenders expect to receive back that value with interest.
1) You’ll have to give a better example of such a “loss” for your claim to even be vaguely credible. The sheer stupidity of what you claimed made me laugh. No money is ever “destroyed” by bank reserve requirements such that it needs to be replaced by inflation. Depositors own that money, and as their deposit agreements permit at whatever length they can chose to withdraw all of it and place it an endeavor they find more suitable…higher yielding. Banks in a normal–that’s non-socialist–economy also regularly fail and are liquidated, their assets being reassigned by their then owners to what they feel is a more rational distribution.
2) Money being the most marketable commodity, and fiat currency only representing the asserted value of the sovereign economy producing it–and the economic activity of the people being the source of that value–demographic growth accommodates itself to a first order, and simply printing more money gives the accountants the places to the left of the decimal needed to track that increase in value ocurring on a per head basis. (I cannot use “per capita” it is a spoken for term of art in the field not neccessarily usable in that fashion.)
3) Sovereign debt does not compensate for inflation, it produces it. In fact, it is worse than simply printing more money excessively–excessive issuance of sovereign debt is explicitly the destruction of expected future value to a degree unknowable at the time of issuance, building castles on sand, where monetary inflation at least can be seen in real time and compensated for as immediately as it happens. (Hopefully not requiring being compensated for by wheelbarrow.)
4) Deflation and not inflation is the natural and proper, less speculative means to fund growth and innovation. As competition and innovation in the production and delivery of established goods and services drives down cost and prices for established sectors, that purchasing power once devoted to those deflating established sectors becomes available to R&D and other sorts of investment.
not really. Congress doesn’t have a crowding out of other outlays due to interest costs. The interest must be paid. Outlays are on top of this, like medicare etc. Obviously the lower the interest payments the less debt uncle sam has to issue, but that is a balance sheet question, not cash flow/income statement.
yep, agree, sorry I didn’t read your earlier comment. Debt=credit. Anyhow, the other BIG difference is that the US operates with a reserve currency. No one else has that. France can’t spend because both they use the Euro and don’t have fiscal unity in Europe. And of course places like Argentina can issue debt only as long as someone buys it and don’t have to re-price bread in the supermarket every 2 hours….
Our debt levels now/GDP is roughly in line with 1970-90’s though much bigger numbers, and the interest payments as a % or federal outlays was higher 1986-1998.
Anyhow, it is easy to pay the interest given that everyone still buys treasuries.
The tax relief is going to be rather minor for the middle class. We will see how it plays out. These predictions above do not fill me with a lot of confidence.
That said, I am not even that concerned about debt. Debt held by a country is different from debt held by a person. In case of a country, the one having the debt has the advantage. You make a deal about the debt and the creditor has to accept it, whether they want to or not. I mean no one is going to go and collect that debt from the US (how would they?).
My understanding is that the government must create money in proportion to what it spends.
-> and mine is that the govt must create money in proportion to what it Can spend!!
Yes, it is somehow impossible
In the past growth was 4% and over but there was no CHina
The average of the last ten years or so has been less than 2% add 1% for inflation and you have less than 3%
Debt growth has been around 7% this s why US debt on GDP is growing and rowing .
Yes, the US will be fine ike Italy has been in the ast 30 yars.
Average 1% of growth per year, declining country
This is what is going to happen to the US
30 years ago growing 5% per year
Now 2%
In the future even less
In summary
1) no you do not. Growth of 3% is not sustainable for the US , it is a one time spur due to the tax cuts that created a buy back . You will have a back lash after that
2) you will be fine. and declining. China is taking your place
3) dunno if they are good. salaries in the US have been stagnant and declining in the past 30 years and we will see that there will be stagnation ahead as well
4) you can not. there is a limit to that
In summary there is no free lunch
There are proposal for everything but so far in most if not all countries you have the solution of an independent central bank
I still have to understand what are the profits of the entities (private) who control the Central Bank, though ..
This is because the US dollar was trusted all over the world, until now
But will it be in the future? Remember that the debt on GDP for the US was 60% until few years ago
Now it is over 100%
and growing
That’s fair. I see you’ve made the point – several times – that the feds alone create new money, and that this function is necessary. We’re in complete agreement on that.
My understanding is that the government must create money in proportion to what it spends. This implies that government spending in excess of economic growth leads to inflation. Is that correct, or am I seeing this from a cartoonishly simplistic perspective?
We need to reduce the deficit and the debt. And the way to do so is to increase revenue by raising the tax rates. We can’t do it at once since that will shock the economy but we should do it over time. First cancel the current tax cuts. Then raise the top rates incrementally over five years. Raise the Minimum Wage immediately to to $15/hr and then by $1/hr over the next 5 years. Implement a carbon tax immediately. Target 5 yrs to get rid of the deficit and 10 yrs after that to reduce the debt to 50% of GDP. After that we can cut taxes to maintain the baseline.
3-4%/year is aggressive for sure, but is it truly impossible? In the past, US political behavior hasn’t exactly been business-friendly: opposing parties attacked each other’s industries, we saw the rise of stringent labor & environmental regulations (not bad, per se, but still a growth killer), we offshored our industrial base, we built an incredible bureaucracy that slows down innovation, we let our education system rot… Looking at it objectively, it appears we were *trying* to destroy it – and yet it persisted. Today, politicians have spent all the money, which leaves their precious voter bases in a precarious position: if the economy doesn’t grow, inflation will. No one will be happy about that. It will be interesting to see the growth rate now that business & political interests are aligned.
Let’s assume we don’t though. If growth is sustained at 2-3%, we’ll get an extra 1% inflation. Less than ideal, but hardly the end times. We’ll be fine.
As for taxes, we don’t have to “cut taxes forever”. We cut them once to an acceptable level and then leave them there. As long as the debt is sustainable – and projections suggest it is – we’re fine.
But let’s suppose you wanted to cut taxes again anyway, just for fun. You could do that, provided you cut government spending at the same time. Before you object to that: I’ve seen government; I assure you there’s excess to be cut. You could probably shave 10-20% off the top without the public noticing – unless, of course, politicians made a dramatic display, such as closing public parks (*cough* Obama *cough*).
As tax cuts shrunk government, they would spur economic growth. That statement isn’t conjecture; the relationship between taxes and business activity is built into business financing decisions. It’s literally Business Finance 101. Businesses need a minimum Internal Rate of Return (IRR). Higher taxes -> lower IRRs across the board -> previously marginal projects don’t happen -> less economic growth. Cut taxes, and businesses suddenly have more projects to complete. If they want the profit from those additional projects, they have to hire people, buy things, and build things. The economy grows! Again, this is Business Finance 101.
The net effect of further tax cuts, then, is to shift money from government to private sector. There would be just as much health care, retirement, and other services. The difference is that, after tax cuts, those services would go to the working instead of wards of the state.
In summary:
1) We may be capable of more growth than you imagine.
2) We’ll be fine even if we aren’t.
3) The tax cuts were good for the economy.
4) We could cut taxes further if we desired it.
There are proposals to control that too, by creating a Monetary Board, for example. Maybe this would not do any better job than the current Fed, which is not very good, though getting better. There are other ways, such as pegging money creation to the Output Gap, which was $1.3t during the crisis, but only about $100b now, meaning we don’t have a lot of spare capacity now before inflation becomes a problem.
The true is we print money and we have low inflation. Hyper inflation can happen but it won’t happen as long as you collect taxes to fund the government. Hyperinflation only happens when the government doesn’t have the guts to tax the rich and therefore has to print money to fund the government.
Oh and I am no commie lover
Luca
AFAIK the real reason why Government should NOT print money is that they would print massive quantities of money before the elections, the economy would sky rocket and the President confirmed
Two years later the inflation would be at 50% or so
Ditto Luca Mazza
If you forget about the debt the US economy is doing well.
Then you look at the debt on GDP and it was 60% 20 years and now it is 105% and growing . tick tock !
Yes, but in the loooong run everything is happening.
Look at Italy
Living at 120% debt since the 2000s and we are still here
Sure, you have the GDP growth at zero, but no default yet and maybe never will
Same as the US
High debt, growth today about 1/2 of twenty years ago (not talking about this quarter or last but the average ) , interest rates will grow , just give time
Wont happen today, not tomorrow, but the debt IS rising the GDP growth IS declining . Luca Mazza
Fantasy that happened in Argentina not long ago.
Luca Mazza
You are right, and Goat Guy, as many times here, is deeply wrong !
You introduce new money and then if you introduce too much money you will get very high inflation
This is economics 101
Goat Guy does not get it
He should visit Zimbabwe , where Mugabe introduced too much money and ..
But you do .
Luca Mazza
SOVEREIGN DEBT replaces and introduces new money into the economy.
Unlike ALL other debt.
=> yu will have to pay interests on that debt
and they will be calculated in the expenses together with medical services, education and so on
This guy has not much clue of what he is talking about .
Seriously
1) Print money?
Yes you can, if it were that easy!!
You print new money, let` s do it with one million, let` s do it with one billion and so on
We print money and we will all be rich
Not so fast!
You print too much money, inflation is going to come by and eat everything you have
You will have 1 billion dollar per person but that will be worth little
Ask Zimbabwe..
2) Issuing bonds?
Yes you can, if it were that easy!!
You issue new bonds, you get money from investors and then you finance your country
Problem is two fold
a) you need to find people who buy your bonds
b) they need to be paid interests on those bonds
If you issue too many bonds, you will not find people willing to buy them, or you will have to promise them sky rocket high interests
No free lunch dudes!
So far, the US was the country controlling the de-facto currency of the world, but things are a-changing
and the petro dollar is being attacked by the petro yuan!
US debt is rising through the roof
60% 15 years ago, 105% now and climbing , while China is at 40%
So, yes, you cant print money and issue bonds at will, not even if you are the US Luca Mazza
3-4% growth per year is not sustainable It is pushed by debt and tax cuts but you can not cut taxes forever, dude
YEEEEEEEEEEAH! Iep! It is called “death spiral” The more debt you have the more interests you need to pay The more interests to pay the less the money you have to help the economy and the more the taxes you need to putThe more you have to put taxes and the less the money you have to help the economy the less the economy grows Which means in order to keep growing you have to make even more debt And back to square one While China is waxing the US . And God bless amerikka (GWB)
Bunch of bull big like a house !!
For the same reason, every single country can print their money so no country should ever default, right?
Ask Argentina, dude, and learn before writing non sense !!
You can not print money indefinitely otherwise inflation is going to khill you
Ask Zimbabwe dude
You have no clue of what you talk about !!
U.S. Notes were printed until 1972 – no coincidence we went off the international gold standard then too. They were in circulation until 1996, when Treasury – falsely – said there there was no function they could perform that Federal Reserve Notes could not do. Actually, there is a big difference. If you read the quarterly U.S. debt report, it shows that U.S. Notes still are not counted at debt, while Federal Reserve Notes, and more importantly, the other financial holdings of the government, are counted as debt. (Only about 3% of the money supply is physical notes and coins now, or even much less if you count the quadrillion dollar derivatives market).
True, the $256m still counted in circulation – including the 2 $5 U.S. Notes I bought on Ebay for $10 each – are too little to matter economically, but they are proof of concept, that the government could, if it chose to, bypass the borrowing mechanism of issuing Treasuries in exchange for electronic dollars altogether. Debt for the government, as you pointed out, is different for a sovereign entity. There is no limit to what the printing press can provide, and inflation is really a different issue having to do with national capacity to produce.
I have to point out that France, which you cited above, is no longer monetarily sovereign, having given up the power to produce currency, like most of Europe, to the ECB.
⊕1 — you’ve “got it”.
But also remember: that whether the tax reform causes a tightening of the government spending side of the economy or not (and it does, we agree upon that), the federal and state (and municipality) spending is ALWAYS tuned or moderate deficit spending.
In the Feds case, it is to underpin the authority to print and AUCTION bonds on the open market. Which creates new money (see my top-level comment). In the states, municipalities and large institutional bond-making markets, it is to fund the machinery of state, commerce and industry.
Anyway. ⊕1
GoatGuy
You know…
“A truly sovereign … doesn’t borrow … own money”
No, not since the international agreement to sign the Bretton Woods II covenants has it been both possible and required that sovereigns DO “borrow” their deficit spending in their own money instruments.
I’ve commented heavily on this throughout my replies to others.
Read the top-level comment.
Says it all.
Remember there is no logical alternative to “the only way new money…” The word ONLY eliminates other sentimentally cherished alternatives.
Just saying,
GoatGuy
Tax relief … for middle and upper-middle Americans was supposed to be an economic growth spur. Which it is, and has been.
Perhaps it galls you to admit that Trump’s economy really is doing well, but hey… I don’t make up the news or the figures. Its doing well.
Just saying,
GoatGuy
If your macroeconomic predictions were true…
• Interest RATE would be rapidly rising
• Inflation would be rapidly increasing
• Economic growth would be stunted
• Cost of Living would be rising
• Unemployment would be high and growing
And most clearly, you would be able to see QUANTITATIVELY this simply by looking at the LIBOR rates and 10 year US Bond yield rate.
Funny thing.
While it IS higher than a year ago, it is not “rapidly rising”.
Especially: it is not out o step with the other First World nations’ bond rates.
So… yet another of Henrique Da Commie Lover’s theories… shot down.
In flames.
Oh, my.
LOL
No, “they” will do no such thing.
Your end-times fantasy.
One of (and perhaps the only) things that endows the money-of-a-nation value is the hard, cold and completely inflexible commitment to REPAY the bonds it issues in the future, at maturity, with both new money-for-the-interest, and old-money-for-the-bond.
You’re China, say.
You send your banker-reps to the Tuesday Auction of US Bonds. Buy a couple of billion a week. The billion you pay is REAL money… surplus say from your booming Chinese economy. Bonds have very, very low interest because of the unbroken pay-back-trust. They’re safe.
Now you “sit on” those bonds for the next 10 years. Every quarter, you clip off the bond interest coupons (which have maturity dates pre-printed); you send the same bond agents to the Federal Reserve banks in America to redeem the coupons. FOR CASH. Oh, it could be just numbers transfers between the Fed bank and your Government clearing account at the Bank of China, but the money transfers are made. And the money ultimately is NEW.
Then, 10 years later, the bond comes due. You take THAT to the Federal Reserve, and are given its entire face value in cash. Not new cash, but circulating stuff. Same as what your government paid for it.
DEFAULTING on even a single government bond would send earthquake-and-tsunami level trust-shock into the international banking community. Suddenly, “even tho’ its only China”, every other nation would not trust US money to be the Reserve Currency of the World. Interest would double, triple. It’d be like cutting off your arm ‘cuz of a broken fingernail.
No.
Your sentiments are misguided.
Fantasy.
GoatGuy
My deep apologies, but your opinion is misguided to the core.
Please see my main-level comment.
Sovereign debt is profoundly different than “living within our means” sentiments. It is structurally the ONLY mechanism in this economy of creating new money as needed. You, Texas, San Francisco and Apple Corporation cannot do this. Only sovereign central banks can.
Only sovereign central banks should.
It is one of the primary mandates for being a nation, actually.
Just saying,
GoatGuy
Moreover, if you read my top-level comment, any spinning of national sovereign debt’s “interest payments” in proportion to medical services, or education funding, or the military or anything else … is completely misguided syllogism.
SOVEREIGN DEBT replaces and introduces new money into the economy.
Unlike ALL other debt.
Not even the debt of states — California Municipal bonds, for instance, does that. Texas can no more print new money and introduce it to its economy and to its investors, than you or I can. But the nation of France can. And Argentina. And China. And the United States. Sovereign debt.
its different.
WAY different.
Just saying,
GoatGuy
Sigh…
I find myself reminding that SOVEREIGN debt is entirely different from the kind you personally incur. So different that prudent quips like “ought to live within its means” is entirely misdirected sentiment.
How is it different?
________________________________________
Sovereign debt is the ONLY mechanism allowed for introducing “new money” into an economy. Bretton Woods II, internationally agreed upon treaty, national sovereign debt interest payments are paid out with new, uncirculated banknotes.
New money.
To be absolutely clear: modern trading economies need new money continuously for 4 essential reasons:
• (1) replace fiduciary ‘instrument loss’
• (2) accomodate demographic growth
• (3) match inflation
• (4) fund innovation, new markets, increasing personal prosperity
Obviously, “before the Smartphone”, one didn’t need money to buy smart phones, their apps, and the not insignificant telecom services to keep ’em running. Now they are completely ubiquitous, all people have them, and that whole sector is responsible for a remarkable amount of the nations economies. Same goes for other technology. Before you have it, the economy isn’t in need of ‘spending money’ to buy, use and maintain it. That would be № 4.
№ 1 is hard macroeconomics theory.
In a nutshell, economists long ago identified that banking ties up money permanently: If you save $1,000, the bank within its prudence and regulatory limits, might lend out $900 of it. Which funds something in the economy… which leads to that $900 (or less) being deposited. Which is then again lent out to $800, to $700, to $600 … and so on. The MULTIPLIER effect, tho’, also eats up a percentage every time in “must keep reserves” banking. This ultimately eats up all the new money.
№ 2 is easy enough: populations grow, often with immigration. More peeps, more money needed “in general” to fund wages and proportionate economic scaling.
№ 3 should be obvious: inflation which most economists argue is an inevitable consequence of banking and enterprise, requires more “cash” IN THE FUTURE to fund EXACTLY the same economic churning as today.
________________________________________
Soveregn debt is issued in BONDS.
The bonds have coupons attached, which are clipped out and presented to the sovereign bank for redeeming in cash. Not any old cash, but still-wet-from-the-presses new cash. Since your $1,000,000 is tied up in the bond, you definitely treat that new money … like just-as-spendable-cash as all the used money in your pocket.
That’s the genius of the Bretton Woods agreed upon “fiat currency” system.
Hostage holding.
Of your money.
Giving VALUE to the new money.
So… as I said…
Sovereign debt is wholly different.
Just saying,
GoatGuy
The idea that the U.S. government will run out of money, or not be able to pay for anything is nonsense. The federal government, as a financially sovereign state, does not need to tax or borrow to pay for anything. As Alan Greenspan once said, “The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.” Indeed, the U.S. government can pay for ANYTHING by simply issuing the money. So long as the productive capacity can keep pace with the demand created, there is no inflation. And, if there is inflation, then you either reduce federal spending, or else increase taxes.
The headline is very misleading. Medicaid is only a small part of government health spend, Medicare is >2x bigger. If you add up TOTAL federal healthcare by 2028 goes to 2,282T (a bit higher if you include the VA system) from current 1,164T.
By 2028, interest on the debt will be 13% but healthcare and social security will be 64% of the budget, up from 61% currently.
Ie the main driver – by far – of the need to borrow money is to pay for federal healthcare. If healthcare spend can come down to “regularly stupid high” levels like Europe/Australia, i.e., a 50% decrease, then interest on debt will LOWER than it is currently (in absolute terms).
Just sayin’.
There are two ways this ends. The first, we pay our debt and live within our means. Second, they print their way out of debt through inflation. Which way do you think the politicians will pick? Time to batten down the hatches.
I thought the tax relieve for the super rich was going to pay for itself and reduce the national debt?Geee, who could have foreseen that this was not going to work?!
You know,a truly sovereign nation does not have to borrow in its own currency. The U.S. has produced its own money before, most notably during the Civil War, and beyond, in the form of United States Notes – $450m, or about 5% of GDP at the time. This need not be inflationary if put to things that produce real wealth, like infrastructure where needed, even Social Security up to a point.
$800bn – $1tn/year appears to be a 4-5%/year growth in national debt. The inflation target is 2%/year, and the economy grows at 3-4%/year. I.e. the combination of inflation & GDP growth will closely match the growth in national debt. Sounds like the tax reform was designed to spend every last dollar and then hold steady. If you consider that Obama’s administration weaponized federal resources for political ends, the tax reform appears to be a brilliant move. There’s nothing left to spend. If Democrats attack conservative industries or the economy as a whole, growth will slow. The resulting inflation would then harm poor people. Another way to look at it: once administrations starting accruing national debt to achieve political ends, the current state of maximum sustainable debt was guaranteed. There’s no room for error; we’re all in this together now.
Good thing the Tea Party is making such a stink about deficits…
And Trump reduces taxes.
3-4% growth per year is not sustainable
It is pushed by debt and tax cuts but you can not cut taxes forever, dude
YEEEEEEEEEEAH! Iep!
It is called “death spiral”
The more debt you have the more interests you need to pay
The more interests to pay the less the money you have to help the economy and the more the taxes you need to put
The more you have to put taxes and the less the money you have to help the economy the less the economy grows
Which means in order to keep growing you have to make even more debt
And back to square one
While China is waxing the US .
And God bless amerikka (GWB)
I thought the tax relieve for the super rich was going to pay for itself and reduce the national debt?
Geee, who could have foreseen that this was not going to work?!
You know,a truly sovereign nation does not have to borrow in its own currency. The U.S. has produced its own money before, most notably during the Civil War, and beyond, in the form of United States Notes – $450m, or about 5% of GDP at the time. This need not be inflationary if put to things that produce real wealth, like infrastructure where needed, even Social Security up to a point.
$800bn – $1tn/year appears to be a 4-5%/year growth in national debt. The inflation target is 2%/year, and the economy grows at 3-4%/year. I.e. the combination of inflation & GDP growth will closely match the growth in national debt.
Sounds like the tax reform was designed to spend every last dollar and then hold steady. If you consider that Obama’s administration weaponized federal resources for political ends, the tax reform appears to be a brilliant move. There’s nothing left to spend. If Democrats attack conservative industries or the economy as a whole, growth will slow. The resulting inflation would then harm poor people.
Another way to look at it: once administrations starting accruing national debt to achieve political ends, the current state of maximum sustainable debt was guaranteed.
There’s no room for error; we’re all in this together now.
Good thing the Tea Party is making such a stink about deficits…
And Trump reduces taxes.