• This is a political forum that is non-biased/non-partisan and treats every person's position on topics equally. This debate forum is not aligned to any political party. In today's politics, many ideas are split between and even within all the political parties. Often we find ourselves agreeing on one platform but some topics break our mold. We are here to discuss them in a civil political debate. If this is your first visit to our political forums, be sure to check out the RULES. Registering for debate politics is necessary before posting. Register today to participate - it's free!

Explaining Why Federal Deficits Are Needed[W:5330]

I'm not an economist, but I'm starting to understand aspects of global trade alot better and how such impacts our national debt and deficit.

I think the simplest way to explain it is like this:

Our deficit would really be a problem IF America really didn't produce anything domestically that wasn't in high demand abroad AND we didn't have a surplus of same. Let's take apples, for example. Everyone loves apples. Let's say we grow more apples that can be consumed domestically. What do we do with the surplus? We sell them, of course, to foreign buyers. Here's where things get alittle tricky because the deficit comes into play here.

Some time ago, someone asked me "What is America's #1 commodity? What exactly do we trade the most? The answer: The U.S. Dollar! It's why there's so much emphasis on keeping it strong AND ensuring that the dollar remains the world's #1 reserve currency.

So, we trade (sell) U.S. securities (U.S. Treasury Notes/Bonds) to foreign investors (countries), pay the interest on those securities and foreign governments purchase U.S. goods and materials, some of which are used in foreign manufacturing. This list of not only the top 10 U.S. Exports along with a breakdown of what items are purchased from the U.S. by various countries around the world should make this global trade alittle bite more clear. Notice how machinery equipment, cars, medical equipment, aircrafts and spacecrafts, and electronics are on every list for foreign trade.

Now, that's not to say that the deficit couldn't come back and bite us in the butt. The deficit does matter, but only in the context as to whether or not we can't sell U.S. made products abroad OR we borrow more than we can repay over time. But, using the deficit as a political football is rather foolish. While fair to debate the merits of a trade imbalance, it's foolish to use the deficit as a wedge issue without first understanding whether or not we really do have a glut of U.S. surplus goods we can't get rid of either by domestic consumption or by exporting abroad.

What you says has a lot of truth but again deficit is being used where debt should be used.
Deficit is revenue/receipts minus spending/outlays. There can and are some receipts from treasury notes and bonds but its a very small slice of the economy. around 4% of total receipts. And as far as spending the whole Dept of Treasury comprises maybe 12% of our spending.
 
The Clinton surpluses were followed by a recession. The private sector wasn't overspending; people were playing the stock market, especially dot.com stocks. Those surpluses happened because people were paying taxes on their stock gains; then, the dot-com stocks tanked, because there was no business behind them that could justify their price.

Clinton only ran surpluses on paper. IntraGovernmental debt rose (money we owe ourselves) vs issuing debt (T-bills and Bonds).
 
Clinton only ran surpluses on paper. IntraGovernmental debt rose (money we owe ourselves) vs issuing debt (T-bills and Bonds).

What does intragovernmental debt have to do with deficits and surpluses?
 
What does intragovernmental debt have to do with deficits and surpluses?

If you have to ask, you know less then what you pretend to say you know.

Intragovernmental debt is borrowing from different Intragovernmental holdings (think trust funds). There is $5t of this debt is part of the national debt. Agencies can borrow against these trust funds as a way to keep budget increases off the "official" budget. So when the "official" budget during the Clinton years were showing surpluses.. they were raiding trust funds to keep previous funding levels. Did it in the Bush and Obama admin as well.
 
LOL. It's ironic.. Reagan does exactly what they want.. and Reagan is seen as a nightmare to them.

Exactly what we want ? What a pathetically ridiculous characterization.

"When Ronald Reagan entered office, the top marginal tax rate was 70 percent. When he left office it was just 28 percent."

Forbes Welcome
 
Exactly what we want ? What a pathetically ridiculous characterization.

"When Ronald Reagan entered office, the top marginal tax rate was 70 percent. When he left office it was just 28 percent."

Forbes Welcome

LOL, you still actually believe that bull****? He ended up shutting down tax loopholes in 1982 and 1984. Doing away with half of his "tax cuts" and ended up raising taxes and closing loopholes.
 
LOL, you still actually believe that bull****? He ended up shutting down tax loopholes in 1982 and 1984. Doing away with half of his "tax cuts" and ended up raising taxes and closing loopholes.

Did he do exactly what "we" (don't bother yourself to acknowledge that there's more than one view that you're opposing) wanted ....?

(Hint: the answer is **** no)
 
If you have to ask, you know less then what you pretend to say you know.

Intragovernmental debt is borrowing from different Intragovernmental holdings (think trust funds). There is $5t of this debt is part of the national debt. Agencies can borrow against these trust funds as a way to keep budget increases off the "official" budget. So when the "official" budget during the Clinton years were showing surpluses.. they were raiding trust funds to keep previous funding levels. Did it in the Bush and Obama admin as well.

Intragovernmental transfers don't affect the surplus/deficit one bit. The only thing that matters is the money flowing between the government and the private sector.
 
Intragovernmental transfers don't affect the surplus/deficit one bit. The only thing that matters is the money flowing between the government and the private sector.

LOL. Yes, they do. You don't think the Highway trust fund or Social Security trust fund doesn't have to be paid back? Not like the Highway Trust fund isn't broke right?
 
LOL. Yes, they do. You don't think the Highway trust fund or Social Security trust fund doesn't have to be paid back? Not like the Highway Trust fund isn't broke right?

The government owes itself some money, that's all. It's just accounting. I could loan myself a million dollars on paper, then pay it back tomorrow and be square.
 
Take away concerns about unlimited spending and Weimar type inflation and David is not saying anything of importance, IMO. Most of us understand that small deficits can be helpful sometimes. Most of us understand that too quickly reducing spending can hurt. I don't think that small deficits are what MMT people are considering.

You're right. MMT'rs are for unlimited deficits and the national debt doesn't matter because it is not real debt and that we can print a limitless supply of money. Oh that's right, they like to admit that there are indeed limits but they won't tell us what those limits are and they repeatedly say that we're not even close to reaching those limits, even though we owe 20 trillion dollars and add another trillion to it every couple of years. There is no need to drive the deficit up exponentially at this current point in time and yet they still want to do it anyway and they're willing to bring the national debt up to hundreds of trillions of dollars because it isn't real debt anyway. They talk out of both sides of their mouth.
 
The size of the deficit is determined by the size of demand leakages. Federal deficits are there to fill the demand gap.

Oh tell us wise one, where should our deficits be in the current environment?
 
If you have to ask, you know less then what you pretend to say you know.

Intragovernmental debt is borrowing from different Intragovernmental holdings (think trust funds). There is $5t of this debt is part of the national debt. Agencies can borrow against these trust funds as a way to keep budget increases off the "official" budget. So when the "official" budget during the Clinton years were showing surpluses.. they were raiding trust funds to keep previous funding levels. Did it in the Bush and Obama admin as well.

John is full of hot air. He even admits that he has only been doing economics as a "hobby" for a huge five years, and has no formal education whatsoever in economics and yet he wants to teach everyone here as if he is the leading economist of the world. Rookies may fall for this load of crap at the beginning but once you get to know him you realize that he has more hot air than a hot air balloon. He buys his own MMT theory hook, line, and sinker and will go down with it, just like the captain of the Titanic.
 
Exactly what we want ? What a pathetically ridiculous characterization.

"When Ronald Reagan entered office, the top marginal tax rate was 70 percent. When he left office it was just 28 percent."

Forbes Welcome

What difference does any of that make when the government can spend into oblivion, add debt into oblivion because national debt is not real debt because you can print an endless supply of money? The government can make all the poor rich all by itself, it doesn't need wealth redistribution. We can all be stinking rich!
 
The Clinton surpluses were followed by a recession. The private sector wasn't overspending; people were playing the stock market, especially dot.com stocks. Those surpluses happened because people were paying taxes on their stock gains; then, the dot-com stocks tanked, because there was no business behind them that could justify their price.
Not quite how I remember it. Two historic events that had nothing to do with Clinton were happening. The Baby Boomers were in peak earning years, putting tons of money into the "SS and Medicare trust funds" and we had "peace" for the only time since 1939. There was really no surplus as debt increased every year. We just borrowed the off-budget extra money going into intra-governmental holdings such as SS and Medicare.
And people were getting into that housing bubble and the price of houses rose significantly more than the traditional 3% per year. People refinanced and spent.
 
The Clinton surpluses were a good thing precisely because of the fact that the Private sector was overspending.... And what happens when you lose control of the debt (like Japan has, and many many countries are close to doing) and you end up at 1000% debt to GDP? You think an economy can keep going like that?

Actually those were the Gingrich surpluses. It was the Newt Gingrich led Congress that took the steps to get that surplus (that Clinton REPEATEDLY fought against and only signed when put under substantial pressure to do so).
 
What difference does any of that make when the government can spend into oblivion, add debt into oblivion because national debt is not real debt because you can print an endless supply of money? The government can make all the poor rich all by itself, it doesn't need wealth redistribution. We can all be stinking rich!

Don't confuse the use of the word "endlessly" with "instantly". We CAN print dollars from now until forever, but the amount matters.

Our economy is complex. I don't pretend to know everything about it. But ... given that the US is the sole issuer of US dollars, it makes perfect sense that the country is incapable of defaulting on its debt or going bankrupt. We have the ability to create endless dollars. But separate that ability from the idea that anyone - not even MMT'ers - are advocating for the idea that the country should just create currency in massive quantities (say, $10 Trillion) all at once and hand it out.

To do so would create a glut of instant demand that couldn't possibly be met with the country's current labor force. Which would create the massive inflation that you and others are saying will happen. And in the case of a hypothetical $10 Trillion QE9 where the money is sent out in the manner of say, a $50,000 check to each household, you would be right. Demand would very quickly outstrip supply, which would cause prices to rise quickly.

However, we could spend into the economy by creating and repairing infrastructure. Instead of just sending checks out to every family to stimulate demand, demand itself could be created by the gov't endeavoring to build stuff of value for the country to use for generations.

And that's not to say we couldn't just have the federal gov't simply mail checks to everyone, but the amount of the check would be important. We would want to determine how much of our workforce's production is currently idle, and make an attempt to mobilize that amount of labor and production. If a determination was made that we currently have $100 Billion in idle production capacity, then maybe we send each household $500 to use up some of that idleness.

Also, just because the federal gov't doesn't require tax revenues specifically so that they will have currency to spend, doesn't mean that they don't need to collect taxes. Taxes are more of a way to direct the economy than to pay for gov't spending. If gov't wants to encourage some activity or discourage others, it can tax them accordingly. If a certain sector of the economy is flailing, the tax burden on it can be reduced to encourage growth. And if it's booming, taxes can be increased, to lessen the incidence of a giant bubble forming.
 
The size of the deficit is determined by the size of demand leakages. Federal deficits are there to fill the demand gap.

That makes no sense whatsoever... It's a psuedo-Keynesian theory that holds no water in the real world. The gov't should never stick it's nose into the private sector's ability to be profitable. Our private sector needs to stand on it's own and control it's own destiny. Handing over that responsibility to the gov't means that we depend on the gov't to be competitive instead of depending on our own innovation and smart business choices. Take away the safety net and businesses make better decisions, take fewer risks that have catastrophic results if they fail and work towards a better business model. Having that safety net means that businesses can make stupid decisions and the gov't will keep them from having to face the results of those failures. The classic example iso ur banking industry having so many of it's loans underwritten by the gov't in the form of Fannie Mae and Freddie Mac. Since the banks know that the loans are 100% covered, they are willing to loan money to anyone, knowing full well that they will make money on the fees alone, even if they never earn a dime of interest.
The amount of the deficit should be determined by the needs of the gov't to provide Constitutionally defined services who's funding exceeds the current income. They should be be short term deficits with clearly defined paths to their elimination. Common sense state that no deficits ever doesn't work, but neither does a constant deficit. It's the fact that was have had a constant deficit for decades that has made it look like it's a necessity. The deficit has become a positive feedback monster that we have become dependent on and we need to break that dependency.
 
Wish that we could be more like Denmark and others regarding the budget. They seem to have the right idea.
denmark-government-budget.jpg
 
Wish that we could be more like Denmark and others regarding the budget. They seem to have the right idea.
View attachment 67199811

They do ... ???

Denmark "... is financed by the world's highest taxes. A value added tax of 25% is levied on the sale of most goods and services (including groceries). The income tax in Denmark ranges from 37.4%[25] to 63% progressively, levied on 4 out of 10 full-time employees.[26] Such high rates meant that 1,010,000 Danes [Denmark has a population of around 5 million] before the end of 2008 (44% of all full-time employees) were paying a marginal income tax of 63% and a combined marginal tax of 70.9% ..."

https://en.wikipedia.org/wiki/Economy_of_Denmark
 
What difference does any of that make when the government can spend into oblivion, add debt into oblivion because national debt is not real debt because you can print an endless supply of money? The government can make all the poor rich all by itself, it doesn't need wealth redistribution. We can all be stinking rich!

I don't think you understand economics.
 
Back
Top Bottom