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The Deficit should we care

therock

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The Deficit should we care
« on: September 22, 2018, 01:33:49 AM »
It clearly the republicans don't care and just pretended to

But SHOULD we care.  Is it as big a deal as people say

Is the trillion dollar coin idea not as dumb as it sounds
https://en.wikipedia.org/wiki/Trillion_dollar_coin

Is the idea of running our goverment...like a family budget also kind of doesn't make sense

How important is the deficit to you

One issue I have with this argument.. Is when someone on the left have a big idea...they always complain how much it would cost. Which fair. to ask But they never do the same with Right wing stuff. Like Tax cuts, War, give aways to oil companies

Which shows the liberal media...not liberal when it comes to buisness. Like take space force an idea not neccsarly against)  that combine but space..and millitary to things that aren't cheap. But I never heard people in the media "How you going to pay for this...tell me in detailed way how much your going to pay for this". That going to cost some cash. Now maybe the investment will be worth it. But same can be said about the investment in Free college. But people actully ask how you can pay for that. Never on Tax cuts and war. They somehow always find the money for that

This not just hypocrity on the right but how the media treats it


Pillow Biter

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Re: The Deficit should we care
« Reply #1 on: September 22, 2018, 07:32:30 AM »
Clearly the total debt and deficit matter: everyone should always care. However, it's really hard to know how much is too much. Ultimately, at some point you can't really predict, the bond market will lose confidence, crater, and you are fucked. But there is really no way to know EXACTLY what the line is--the underlying economics are so complex that nobody can really know for sure, so it's ultimately a psychological game. And the US is in a special position. Still, a certain debt level is too much.

ProjectCornDog

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Re: The Deficit should we care
« Reply #2 on: September 22, 2018, 12:46:58 PM »
The problem with both parties is that, one typically raises the debt and lowers the deficit and the other typically raises the deficit but lowers the debt.

George W Bush comes in and sets a new precedent. He raises the deficit AND the debt.

We shouldn't ignore either. We need to lower both, it's immoral and impractical to keep going the way we are.

Rufio

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Re: The Deficit should we care
« Reply #3 on: September 22, 2018, 01:14:57 PM »
My understanding is that the debt level matters less than the composition of the debt, the size of debt servicing as a percentage of the economy, and the risk of runaway inflation. This was a point made by economists around 2009-14, when we really could’ve used targeted job stimulus instead of austerity and there were quarters of actual deflation.

The composition of the debt includes:

(1) Average maturity date;
(2) Average interest rate;
(3) How much is denominated in US dollars instead of some other currency;
(4) How much is owed to US citizens versus to other countries.

Just a few years ago, the UK finally finished paying off its debt from World War I. It took roughly 100 years to pay that debt back. This is an option that countries have that individuals lack. Nations that have their own currency can’t suddenly run out of money, though they can experience inflation.

Historically, examples of hyperinflation involve countries like that had huge debts denominated in gold or other currencies (Weimar Germany, curren Zenezuela) or the natural size of the economy suddenly collapsed due to a supply shock (Zimbabwe, where Mugabe caused a collapse of farm yields and international sanctions constrained outside financing). In these cases, where foreign debt isn’t denominated in the country’s own currency, printing more of it causes inflation without reducing the real value of the debt. The US isn’t in that situation because it’s debt is denominated in dollars. If the US dollar experiences 2-4% inflation, its debt declines in real value as well. So examples like these or like Greece (debt denominated in the Euro) aren’t useful in terms of understanding the inflation risk of the US debt situation.

The closest examples we have are maybe Japan and England. Japan is very interesting because it’s debt far exceeds 100% of GDP and like the US, this is mostly debt owed to its own citizens. But those comparisons have their limits too.

If nothing else, the Federal Reserve will probably create a mini-rescission if the government pushes growth a bit beyond its natural capacity through unproductive investments,causing 3-4% inflation. So there’s a risk. It’s also possible to have 1970s stagflation, though that required a massive supply shock (oil shortage) and strong unions that were able to negotiate wage increases that kept up with inflation, leading to a wage/price spiral.

I’m sure there’s some risk of less foreigners buying US bonds at some point, and maybe less citizens buying them. But that could make US private sector debt/investments more attractive—though that carries its own risks. It might also cause countries that rely to some extent, directly or indirectly, on US demand (China, Japan, Germany) to adopt policies that increase their own citizens’ purchasing power. That could actually be good.

I’ve read a lot of economists give different opinions about the feedback loops that could happen. It’s very difficult to predict.
« Last Edit: September 22, 2018, 01:22:12 PM by Rufio »

XerxesTWD

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Re: The Deficit should we care
« Reply #4 on: September 22, 2018, 02:56:25 PM »
Like Rufio pointed out, you can't think of the debt and deficit of a country the same way you do an individual. They operate very differently.

ProjectCornDog

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Re: The Deficit should we care
« Reply #5 on: September 22, 2018, 03:53:38 PM »
I'd like some clarification on that argument.

The Treaty of Versailles took down Germany. People RIGHTFULLY shit on Hitler, but we can't ignore what made him popular. His resentment of the Treaty of Versailles, blaming the foreign powers for imposing the Treaty on them, is what got him support. When your dollar is worth nothing (which is what happened to Germany), it impacted the poor the most. The cost of milk may not matter to someone whose rich, but someone who is living paycheck to paycheck (or worse, unemployed) feels that pain. Printing money to pay back debt does just that.

You can cite past countries with debt but its hard to point a country that even comes close to the amount of debt the US has. 21 trillion is a hard number for any country despite how entwined America is in the global economy. I believe its largely a saving grace that America's issues would have catastrophic impact on the rest of the world but that doesn't mean we should rest on our laurels. There's some economists that will argue increasing the debt when the economy is down is a way to stimulate the economy. Let's say that's true, does that mean we do it indefinitely? Since W, there have been waves of the economy being good and did we cut the debt at all since? We didn't when the economy was temporarily good under, we didn't when the economy was temporarily good under Obama, and we aren't doing it now when certain numbers in the economy are high. It's impractical and immoral to indebt future generations for short-term stimulus. We are getting drunk on spending.

XerxesTWD

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Re: The Deficit should we care
« Reply #6 on: September 22, 2018, 04:28:52 PM »
I'd like some clarification on that argument.

The Treaty of Versailles took down Germany. People RIGHTFULLY shit on Hitler, but we can't ignore what made him popular. His resentment of the Treaty of Versailles, blaming the foreign powers for imposing the Treaty on them, is what got him support. When your dollar is worth nothing (which is what happened to Germany), it impacted the poor the most. The cost of milk may not matter to someone whose rich, but someone who is living paycheck to paycheck (or worse, unemployed) feels that pain. Printing money to pay back debt does just that.

You can cite past countries with debt but its hard to point a country that even comes close to the amount of debt the US has. 21 trillion is a hard number for any country despite how entwined America is in the global economy. I believe its largely a saving grace that America's issues would have catastrophic impact on the rest of the world but that doesn't mean we should rest on our laurels. There's some economists that will argue increasing the debt when the economy is down is a way to stimulate the economy. Let's say that's true, does that mean we do it indefinitely? Since W, there have been waves of the economy being good and did we cut the debt at all since? We didn't when the economy was temporarily good under, we didn't when the economy was temporarily good under Obama, and we aren't doing it now when certain numbers in the economy are high. It's impractical and immoral to indebt future generations for short-term stimulus. We are getting drunk on spending.
He didn't elaborate enough for you?

They're flat out not interchangeable methods of managing debt. I'm fine with a degree of deficit spending that actually benefits the populace. Ramping up the world's largest military (by a massive margin) is not my idea of benefiting the populace. It can and should be managed better, but you just can't look at it like a household debt because they're absolutely not the same thing.

XerxesTWD

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Re: The Deficit should we care
« Reply #7 on: September 22, 2018, 04:33:11 PM »
https://econproph.com/2011/07/14/private-debt-vs-government-debt/amp/

This guy does a solid job of breaking down the difference.

Quote
It means government debt is not like private debt. Government debt need never be paid off.  It can be rolled-over.  As bonds become due, they are replaced with new bonds. Households can’t always do that. Governments cannot be “foreclosed” or “repossessed”.  Households and their goods can be.  Households and private firms can go bankrupt and default.  Sovereign governments only default when they choose to do so.  Historically the only known instance of a sovereign, floating currency issuing government defaulting was Japan in WWII, but that was deliberate.  U.S. and British banks held much of the debt and they were at war.  Some Republicans (example: Ron Paul) have recently been suggesting the U.S. default, but it’s still possible that grown-ups will prevail.  Politicians and ideologically-driven economists and news media have whipped up a frenzy about government debt as being evil.  But it isn’t.  In fact, government debt is necessary to the functioning of a modern financial system. It provides a safe, interest-bearing financial asset.

So if government debt isn’t evil or bad for us, how should we think about it?  Government bonds are best thought of as currency that pays interest and can’t be used at the 7-11 store. So rather than thinking of government debt as just another form of debt like private mortgages, corporate debt, student loans, and credit cards, it’s better understood as just another form of money. It’s a holding pen for idle money.

Much is made in the media about the fact that many “foreigners” hold US government bonds.  Again, the media is trying to create a scary feeling by drawing a false analogy to private debt.  If you’re a homeowner, the bank who holds your mortgage has some power over you, particularly if you don’t make regular payments.  The media want us to feel like some how the “foreigners” have power over our government because they hold the debt.  But that’s false. The foreigners can’t repossess or foreclose on the U.S. government, regardless of whether the government makes payments or not.  Again, government debt is not like private debt.  Private debt is the result of lenders making loans at interest with the goal of making a profit. But government bonds that are owned by “foreigners” are primarily owned by foreign central banks and banks.  They are used as safe reserves, not for the primary purpose of making a profit.  US government bonds are the modern banking world’s substitute for gold.  Foreigners want US bonds because they want a safe, secure asset that earns more interest than stacks of idle paper currency.  It’s not because primarily for profit-making.  If they wanted profits, they would use the money to make loans. Instead they want security.  That’s why they accept interest rates in the 1-3% range.

When somebody tells you that government debt is bad and harmful and we must do everything we can to reduce debt, even if it means high unemployment, remember they have another agenda that they aren’t talking about. It’s scare tactics.

* remember that drastically reduced spending might appear to help make the payments on debts, it also means that somebody else loses their job because their employer isn’t making a sale.  That newly unemployed person now has debt problems too.

superlurker

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Re: The Deficit should we care
« Reply #8 on: September 22, 2018, 10:02:24 PM »
I'd like some clarification on that argument.

The Treaty of Versailles took down Germany. People RIGHTFULLY shit on Hitler, but we can't ignore what made him popular. His resentment of the Treaty of Versailles, blaming the foreign powers for imposing the Treaty on them, is what got him support. When your dollar is worth nothing (which is what happened to Germany), it impacted the poor the most. The cost of milk may not matter to someone whose rich, but someone who is living paycheck to paycheck (or worse, unemployed) feels that pain. Printing money to pay back debt does just that.

You can cite past countries with debt but its hard to point a country that even comes close to the amount of debt the US has. 21 trillion is a hard number for any country despite how entwined America is in the global economy. I believe its largely a saving grace that America's issues would have catastrophic impact on the rest of the world but that doesn't mean we should rest on our laurels. There's some economists that will argue increasing the debt when the economy is down is a way to stimulate the economy. Let's say that's true, does that mean we do it indefinitely? Since W, there have been waves of the economy being good and did we cut the debt at all since? We didn't when the economy was temporarily good under, we didn't when the economy was temporarily good under Obama, and we aren't doing it now when certain numbers in the economy are high. It's impractical and immoral to indebt future generations for short-term stimulus. We are getting drunk on spending.

The Treaty of Versailles specified that the debt had to be paid in a value tied to gold. That's different than having a debt that's specified in a floating currency. It meant the Germans had to buy stable foreign currency or gold to pay their debt. The U.S. debt can be paid in dollars. If the German post WW1 debt had functioned the same way, they would have just printed a stack of Marks and been on their merry way.

Pillow Biter

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Re: The Deficit should we care
« Reply #9 on: September 22, 2018, 10:21:42 PM »
Anyone who think that NO amount of debt can be too great would be crazy, even if denominated in US dollars and owed to ourselves. We just have no idea what the number is. Nobody does. The US can't go bankrupt, but a certain amount of even dollar-denominated debt could yield hyperinflation at some point. That's how countries effectively go bankrupt, even when their debt is denominated in their own currency. If you owe the money entirely to your own citizens, at some point there would be massive forced wealth redistribution as you inflate away the value of the debt held by certain citizens, or just default. This would have a huge psychological impact, destroying the most valuable of all commodities: trust. Once trust is gone, it's difficult to motivate people to work and work well, harming productivity.
I'm not saying, one way or another, how concerned we should be at this moment and at these debt levels. All the points raised about the composition of the debt do matter. But in the end, a key element of economics is psychological--it isn't science. So I'm simply making the boundary-establishing case that there certainly is a level of debt that can be too great, regardless of its composition. So the idea of being totally unconcerned makes no sense. It's also important to add up the debt at all levels of government: local, state, and federal.

Rufio

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Re: The Deficit should we care
« Reply #10 on: September 25, 2018, 06:51:39 PM »
Anyone who think that NO amount of debt can be too great would be crazy, even if denominated in US dollars and owed to ourselves. We just have no idea what the number is. Nobody does. The US can't go bankrupt, but a certain amount of even dollar-denominated debt could yield hyperinflation at some point. That's how countries effectively go bankrupt, even when their debt is denominated in their own currency. If you owe the money entirely to your own citizens, at some point there would be massive forced wealth redistribution as you inflate away the value of the debt held by certain citizens, or just default. This would have a huge psychological impact, destroying the most valuable of all commodities: trust. Once trust is gone, it's difficult to motivate people to work and work well, harming productivity.
I'm not saying, one way or another, how concerned we should be at this moment and at these debt levels. All the points raised about the composition of the debt do matter. But in the end, a key element of economics is psychological--it isn't science. So I'm simply making the boundary-establishing case that there certainly is a level of debt that can be too great, regardless of its composition. So the idea of being totally unconcerned makes no sense. It's also important to add up the debt at all levels of government: local, state, and federal.


Sure, but composition matters a lot. For instance, imagine if the government issued $100 Trillion in Treasury bonds. Sounds scary, but not if it’s all denominated in dollars, the average maturity date is 500 years in the future, and the interest rate is fixed at less than 1% (below the average inflation rate).

In practice, the US and several other governments have been issuing debt with fixed interest rates below the rate of inflation. And until 2014 or so, growth was weak enough that people were actually buying them. So people were choosing to buy the bonds even though an “inflation default” was baked into the cake.

I agree that there are inflation risks if some investors decide to stop buying bonds our of fear. There’s also potential positive effects on the world economy if certain investors start channeling their money elsewhere. It might help with making the world less dependent on US consumer demand, boosting consumer demand elsewhere, and possibly providing an indirect benefit to US exporters. Again, it’s difficult to predict.

Of course, if the nominal size of the debt is the problem in terms of investor confidence, the government could literally buy back a huge amount of its debt at a discount:

http://cepr.net/press-center/press-releases/reducing-government-debt-burdens-through-bond-buy-backs
« Last Edit: September 26, 2018, 10:12:08 AM by Rufio »