The future of America

[Zeebadee]

Okay, let's look at how much WWII cost in 1945 dollars, anywhere from $280-350 billion. You would think that fighting a world war would have cost substantially more...but that is because the value of that money has eroded over time due to inflation. At the time it was a lot...now it isn't. That, coupled with a falling debt to GDP ratio due to the growing economy, made the national debt manageable. And for many years, as late as the 2000s, debt to GDP was actually on the decline (on and off). So all that money that Bush and Obama spent on stimulus? In 50 years, it probably won't seem like a lot.

In nominal terms, the national debt has been rising. But that is because everything rises in nominal value due to inflation. Realistically, the only thing that matters is debt to GDP.

But you haven't answered my question. Isn't paying off old debt by new borrowing the same thing as a Ponzi scheme?

the government takes my SS contributions when gas is $1.00 a gallon, and pays it back when gas is $4.00 a gallon.

[General Zaroff]

But you haven't answered my question. Isn't paying off old debt by new borrowing the same thing as a Ponzi scheme?

Not exactly...but the question doesn't really even apply to the US government. That's why I have to explain the system, which you clearly don't understand or else you wouldn't be making these silly statements about ponzi schemes. The fact is that the US government can never run out of money to "pay off the debt" because we are the sole issuer of the US dollar. The debt is issued in dollar-dominated assets (treasury securities) and paid for by dollars. Thus the risk of "running out of money" and defaulting on the debt, which you seem to imply could happen, is zero.

the government takes my SS contributions when gas is $1.00 a gallon, and pays it back when gas is $4.00 a gallon.

SS benefits are inflation-adjusted.

[Zeebadee]

Not exactly...but the question doesn't really even apply to the US government. That's why I have to explain the system, which you clearly don't understand or else you wouldn't be making these silly statements about ponzi schemes. The fact is that the US government can never run out of money to "pay off the debt" because we are the sole issuer of the US dollar. The debt is issued in dollar-dominated assets (treasury securities) and paid for by dollars. Thus the risk of "running out of money" and defaulting on the debt, which you seem to imply could happen, is zero.

Lol, you mean the government can run a Ponzi scheme because it can simply print new money in unlimited quantities, thus not relying on new investors to support the theft. A normal Ponzi scheme relies on new investors, the government doesn't have that restriction.

SS benefits are inflation-adjusted.

Sure, using the governments own interpretation of the level of inflation.

[General Zaroff]

Lol, you mean the government can run a Ponzi scheme because it can simply print new money in unlimited quantities, thus not relying on new investors to support the theft. A normal Ponzi scheme relies on new investors, the government doesn't have that restriction.

You must be friends with this guy, because you seem fond of straw man arguments.

Did I say anything about "money printing?" No? Good, so we're off that very silly idea.

It is a simple fact that the US will always be able to pay it's debts. That is why the Fed is often called "the lender of last resort." Everyone (well, everyone who understands the system) from Alan Greenspan to Paul Krugman to Warren Buffett has talked about this. The term "money printing" is incredibly misleading. I think that some academics use the term to try to simplify what the bank does, but it does not quite work that way. Simply put, the Fed could in theory buy all the US bonds and thus "fund" the government, but that is unlikely to happen because of the way the private banking system works. Plus demand for government bonds is high from private buyers all around the world. Everyone from the People's Bank of China to old Mrs. McGillicuddy down the street wants in.

Sure, using the governments own interpretation of the level of inflation.

Is there another?

[minorwork]

Why are taxes needed when the fact is that the US government can never run out of money to "pay off the debt" because we are the sole issuer of the US dollar?

[Dodds]

To keep the bond market happy and to avoid a global economic catastrophe.

If the USA did just inflate the dollar to pay off all debts then the dollar would shrink in value. We have this idea of scarcity and that is how the world works. It doesn't have to, but it is how it is.

[Zeebadee]

Did I say anything about "money printing?" No? Good, so we're off that very silly idea.

The effect is the same as printing money. The Fed creates new money and buys T-notes with it. Where does this new money come from?

You still have not answered my question - The government borrows new money to pay off old debt. Isn't that called a Ponzi scheme?

It is a simple fact that the US will always be able to pay it's debts. That is why the Fed is often called "the lender of last resort." Everyone (well, everyone who understands the system) from Alan Greenspan to Paul Krugman to Warren Buffett has talked about this.

Sure, the government just keeps borrowing the mythical fed bucks and dilutes our money supply with them. The value of our savings goes down. We all understand "the system", it's called stealing.

The term "money printing" is incredibly misleading.

So, what do you call it?

I think that some academics use the term to try to simplify what the bank does, but it does not quite work that way. Simply put, the Fed could in theory buy all the US bonds and thus "fund" the government, but that is unlikely to happen because of the way the private banking system works.

Where does the Fed get the money to buy all the bonds?

[General Zaroff]

Edit: Seems that this guy posted his reply just as I was starting this one. I'll get to this in a minute.

First of all, money printing =/= buying treasuries. The operations are very different.


The only real danger facing US government finances is inflation. If the government just kept printing and printing and printing far beyond what the economy could absorb, then inflationary pressures would drive down the value of the dollar and wreak general havoc. Taxation is just one of several tools that can be utilized to give money value and finance government. However, just because the government has the ability to fund itself doesn't mean that we don't have to tax. Our currency and debt both have value because they are backed by the taxes of a few hundred million working people. And furthermore, taxation controls that inflation that I just mentioned.

Here is a thought: if you paid your taxes in cash, what do you think the Treasury would do with it? Store it in a vault somewhere? Send the money to your neighbor for her Social Security check? More than likely they would destroy the money or recycle it back into the economy via the banks. That is how our system works.

[truthreality]

The only way to get oneself out of a liquidity trap is to grow one's way out. The only source of growth in a liquidity trap is government spending. That's the doctrine of Keynes, who invented macroeconomics, and whose theories remain valid despite the mumblings of the Austrian-school pseudo-economists.

Bush went on a spending binge and the economy only got worse. Lack of demand and revenue are major issues that plague the current economy and no amount of spending will fix this problem.

I find it interesting that you should have the temerity to tell me to pick up a macroeconomics textbook and then claim that government spending on education will cause tuition to increase...

Yes. Spending on education without fixing the economy will only cause tuition rates to rise.

And of course, it's also amusing that you should say this when I am simply repeating the words of a Nobel Laureate in economics and of the man who invented the field in the first place.

Show me.

[truthreality]

Geez, can't you read? clinton had a deficit "surplus" because he borrowed money from SS and didn't count the fact that it would have to be paid back. If you make $25,000 a year, and borrow $10,000, does that make your income $35,000?

Regardless of whether or not Clinton borrowed money from Social Security he had a surplus.

"Clinton’s large budget surpluses also owe much to the Social Security tax on payrolls. Social Security taxes now bring in more than the cost of current benefits, and the "Social Security surplus" makes the total deficit or surplus figures look better than they would if Social Security wasn’t counted. But even if we remove Social Security from the equation, there was a surplus of $1.9 billion in fiscal 1999 and $86.4 billion in fiscal 2000. So any way you count it, the federal budget was balanced and the deficit was erased, if only for a while."

FactCheck.org : The Budget and Deficit Under Clinton

[Dodds]

Bush went on a spending binge and the economy only got worse. Lack of demand and revenue are major issues that plague the current economy and no amount of spending will fix this problem.

Bush spent during a boom, this is the opposite of what Keynes advocated. The only President that did it kind of right was Clinton who had a surplus during a boom.

I also disagree that government spending cannot create demand. Stimulus spending is needed to get out of a liquidity trap. Other methods such as interest rate cuts and QE do not work in a liquidity trap.

Yes. Spending on education without fixing the economy will only cause tuition rates to rise.

The current model of higher education in the USA (and in England) will cause the tuition rates to raise.

Show me.

You should read the general theory.

[truthreality]

Bush spent during a boom, this is the opposite of what Keynes advocated. The only President that did it kind of right was Clinton who had a surplus during a boom.

I also disagree that government spending cannot create demand. Stimulus spending is needed to get out of a liquidity trap. Other methods such as interest rate cuts and QE do not work in a liquidity trap.



The current model of higher education in the USA (and in England) will cause the tuition rates to raise.



You should read the general theory.

I already admitted earlier in this thread that spending is beneficial during recession. Spending should be spread out, however, like Obama's 800 billion economic stimulus plan.