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How to erase the national debt[W:1040]

JP Hochbaum

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Economics for the average person:

How do we get such a large national debt? It is not as simple as the government spending more than we take in.

In order to understand this in more "laymen" terms we have to call things by different names to make it similar to what everyday people understand. Think of the national debt as a savings account with the government and think of reserves as a checking account with the government. Reserves is just excess currency that sits around and does nothing at a central bank (think of China and US banks). I have to point these facts out first before going into the national deficit, and you will see why.
A deficit occurs when the government spends more than they take in. But as a monetarily sovereign government, it can do this forever, and this deficit never has to turn into "debt". We could, in reality, change the name of the deficit as "net financial assets to the private sector". Sounds much better right? And it is actually more accurate!

What turns it into debt is a political choice, the choice to create a larger balance at the securities accounts (a government savings account) that gives entities with reserve balances (checking accounts) the incentive to transfer money from their checking account to a savings account that earns more in interest.
This my friends is your national debt, it is a man made political choice. It can be erased with one transfer from the savings account to the checking account.
 

Mycroft

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Economics for the average person:

How do we get such a large national debt? It is not as simple as the government spending more than we take in.

In order to understand this in more "laymen" terms we have to call things by different names to make it similar to what everyday people understand. Think of the national debt as a savings account with the government and think of reserves as a checking account with the government. Reserves is just excess currency that sits around and does nothing at a central bank (think of China and US banks). I have to point these facts out first before going into the national deficit, and you will see why.
A deficit occurs when the government spends more than they take in. But as a monetarily sovereign government, it can do this forever, and this deficit never has to turn into "debt". We could, in reality, change the name of the deficit as "net financial assets to the private sector". Sounds much better right? And it is actually more accurate!

What turns it into debt is a political choice, the choice to create a larger balance at the securities accounts (a government savings account) that gives entities with reserve balances (checking accounts) the incentive to transfer money from their checking account to a savings account that earns more in interest.
This my friends is your national debt, it is a man made political choice. It can be erased with one transfer from the savings account to the checking account.

Wait...

So, if I buy something with a credit card...as in spending money I don't have...in reality, I'm just putting money into a savings account? Does that mean I can withdraw that money later on and spend it again...and never have to worry about ever paying it back?

Now THAT is what I call real voodoo economics!! LOL!!
 

JP Hochbaum

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Wait...

So, if I buy something with a credit card...as in spending money I don't have...in reality, I'm just putting money into a savings account? Does that mean I can withdraw that money later on and spend it again...and never have to worry about ever paying it back?

Now THAT is what I call real voodoo economics!! LOL!!

The US doesn't buy anything at all with a credit card. The analogy you makes doesn't work. I explained it exactly how it works.
 

OrphanSlug

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There is little factual about the OP's comments...
 

JP Hochbaum

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Chomsky

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Economics for the average person:

How do we get such a large national debt? It is not as simple as the government spending more than we take in.

In order to understand this in more "laymen" terms we have to call things by different names to make it similar to what everyday people understand. Think of the national debt as a savings account with the government and think of reserves as a checking account with the government. Reserves is just excess currency that sits around and does nothing at a central bank (think of China and US banks). I have to point these facts out first before going into the national deficit, and you will see why.
A deficit occurs when the government spends more than they take in. But as a monetarily sovereign government, it can do this forever, and this deficit never has to turn into "debt". We could, in reality, change the name of the deficit as "net financial assets to the private sector". Sounds much better right? And it is actually more accurate!

What turns it into debt is a political choice, the choice to create a larger balance at the securities accounts (a government savings account) that gives entities with reserve balances (checking accounts) the incentive to transfer money from their checking account to a savings account that earns more in interest.
This my friends is your national debt, it is a man made political choice. It can be erased with one transfer from the savings account to the checking account.
You worked so hard at making it simple, that I found it difficult!

I hate analogies!

(not yours in particular, but analogies in general)
 

Fenton

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Economics for the average person:

How do we get such a large national debt? It is not as simple as the government spending more than we take in.

In order to understand this in more "laymen" terms we have to call things by different names to make it similar to what everyday people understand. Think of the national debt as a savings account with the government and think of reserves as a checking account with the government. Reserves is just excess currency that sits around and does nothing at a central bank (think of China and US banks). I have to point these facts out first before going into the national deficit, and you will see why.
A deficit occurs when the government spends more than they take in. But as a monetarily sovereign government, it can do this forever, and this deficit never has to turn into "debt". We could, in reality, change the name of the deficit as "net financial assets to the private sector". Sounds much better right? And it is actually more accurate!

What turns it into debt is a political choice, the choice to create a larger balance at the securities accounts (a government savings account) that gives entities with reserve balances (checking accounts) the incentive to transfer money from their checking account to a savings account that earns more in interest.
This my friends is your national debt, it is a man made political choice. It can be erased with one transfer from the savings account to the checking account.

Transferring debt from one account to another erases nothing

Personally I think the US treasury should hide its debt by setting up fake partnership's with existing corporations that won't lead to one dime of profit, then borrow billions using the future profits of those capital ventures as collateral and then count that new loan as a " profit "

Or just call it a " surplus "

Oh wait, that's been done already
 

Captain Adverse

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Hmmm... :think:

How about we just have the government tally up the total debt and use that money Ponzi scheme we have to print out an equivalent amount of worthless dollars? Then buy back the debt with the worthless money, and then collect it all back and burn it down to present resources? :fueltofir

Voila! No more massive debt and we can go on pretending we are getting real value in exchange for our labor and production. :roll:

You're welcome. :2bow:
 

MrT

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Wait...

So, if I buy something with a credit card...as in spending money I don't have...in reality, I'm just putting money into a savings account? Does that mean I can withdraw that money later on and spend it again...and never have to worry about ever paying it back?

Now THAT is what I call real voodoo economics!! LOL!!

The problem with your logic is that it relies on an analogy between your personal economic decisions and the economy of an entire country. The two are not remotely the same. Start by accepting that fact and then try to re-analyze his argument.
 

Fenton

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Hmmm... :think:

How about we just have the government tally up the total debt and use that money Ponzi scheme we have to print out an equivalent amount of worthless dollars? Then buy back the debt with the worthless money, and then collect it all back and burn it down to present resources? :fueltofir

Voila! No more massive debt and we can go on pretending we are getting real value in exchange for our labor and production. :roll:

You're welcome. :2bow:

Dammit ! And I thought my idea to " ENRON " all of our debt into a surplus by hiding it in fake partnership's was clever
 

Mycroft

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The US doesn't buy anything at all with a credit card.

The government certainly spends money it doesn't have...just as I would do if I were using a credit card.


Go on, dude...keep spinning that voodoo. Eventually, some useful idiot will believe you.
 

Exquisitor

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But as a monetarily sovereign government, it can do this forever...

No it can't.

I've seen this premise before here and it's probably not true.

What is true is that we could borrow more than one hundred Trillion dollars and not worry about it, (actually we have borrowed this much in unfunded liabilities (medical.))

See at 1% interest, (I think government interest is very much lower than this) on 100 T is 1T per year so we only have to be taking in 4t.

But who wants to be spending all this money on interest?

I think the choice we have to make is to not run as a debtor but to pay from a well.

How much do we have in savings?

We are living paycheck to paycheck.

Interest rate on the National debt is 2.43%, Federal revenue is 3.25 T. We're maxed out at payments of 800 billion, this is a total of 33 Trillion we may borrow before we're maxed out paying 1/4 of our tax dollars on interest.
 

Mycroft

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The problem with your logic is that it relies on an analogy between your personal economic decisions and the economy of an entire country. The two are not remotely the same. Start by accepting that fact and then try to re-analyze his argument.

shrug...

Perhaps our government would be in a better financial situation if they followed the same real rules all of us citizens and States have to follow...instead of making things up for themselves to justify massive debt and deficit spending.
 

OrphanSlug

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Which part? Most of this is straight from the federal reserve and testimony from Bernake, Greenspan and several others who sat in high ranking fed reserve positions.

It is also laid out this way in T-accounts:

https://hereticaldruthers.wordpress.com/2015/03/27/t-accounts-of-monetary-operations/

The Fed is not the government. On that page the treasury is listed as having assists by scenario of bond, but what is missing from the page is the government holding assets (like property.)

Therefor total debt is not an asset for the government, but debt held by the public is an asset to the public in the form of bonds. Intergovernmental debt is both an asset and a liability, to a government ran trust fund it is the former and to the government itself (treasury, on that page) the latter. Also, it's rules are different.

Debt held by the public is not a "savings account" with the government either, the conditions of the bond means the public does not have open access to the principle or interest. The maturity schedule of the bond tells you that, even thought it is market tradable. The asset to the public (only debt held by the public, not total debt... you are wrong) has rules you do not get to ignore. Similar story with debt held by the fed, which is closer to debt held by the public than intergovernmental debt.

Reserves, our banking system, and "money creation" is another matter.
 

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shrug...

Perhaps our government would be in a better financial situation if they followed the same real rules all of us citizens and States have to follow...instead of making things up for themselves to justify massive debt and deficit spending.

No. No it would not.
 

JP Hochbaum

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The government doesn't borrow any money. I am not really gonna debate people who think this way, you're better served reading text books on government finance and accounting than staying here and calling this voodoo. This is generally how every central bank on the planet works.

The government owns 40% of its own debt.
 
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katzgar

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Wait...

So, if I buy something with a credit card...as in spending money I don't have...in reality, I'm just putting money into a savings account? Does that mean I can withdraw that money later on and spend it again...and never have to worry about ever paying it back?

Now THAT is what I call real voodoo economics!! LOL!!


your scenario is false and ignorant
 

katzgar

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shrug...

Perhaps our government would be in a better financial situation if they followed the same real rules all of us citizens and States have to follow...instead of making things up for themselves to justify massive debt and deficit spending.


you show a total and complete lack of understanding how it works.
 

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Economics for the average person:

How do we get such a large national debt? It is not as simple as the government spending more than we take in.

In order to understand this in more "laymen" terms we have to call things by different names to make it similar to what everyday people understand. Think of the national debt as a savings account with the government and think of reserves as a checking account with the government. Reserves is just excess currency that sits around and does nothing at a central bank (think of China and US banks). I have to point these facts out first before going into the national deficit, and you will see why.
A deficit occurs when the government spends more than they take in. But as a monetarily sovereign government, it can do this forever, and this deficit never has to turn into "debt". We could, in reality, change the name of the deficit as "net financial assets to the private sector". Sounds much better right? And it is actually more accurate!

What turns it into debt is a political choice, the choice to create a larger balance at the securities accounts (a government savings account) that gives entities with reserve balances (checking accounts) the incentive to transfer money from their checking account to a savings account that earns more in interest.
This my friends is your national debt, it is a man made political choice. It can be erased with one transfer from the savings account to the checking account.

You're wrong almost at the very beginning. A monetarily sovereign government CANNOT do this FOREVER. There you go again saying this and then when MMT'rs are confronted all of sudden they say, "We didn't say it could be done forever." I guess you did say it after all.
 

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Economics for the average person:

How do we get such a large national debt? It is not as simple as the government spending more than we take in.

In order to understand this in more "laymen" terms we have to call things by different names to make it similar to what everyday people understand. Think of the national debt as a savings account with the government and think of reserves as a checking account with the government. Reserves is just excess currency that sits around and does nothing at a central bank (think of China and US banks). I have to point these facts out first before going into the national deficit, and you will see why.
A deficit occurs when the government spends more than they take in. But as a monetarily sovereign government, it can do this forever, and this deficit never has to turn into "debt". We could, in reality, change the name of the deficit as "net financial assets to the private sector". Sounds much better right? And it is actually more accurate!

What turns it into debt is a political choice, the choice to create a larger balance at the securities accounts (a government savings account) that gives entities with reserve balances (checking accounts) the incentive to transfer money from their checking account to a savings account that earns more in interest.
This my friends is your national debt, it is a man made political choice. It can be erased with one transfer from the savings account to the checking account.

I assume your point is that the national debt is nothing to be concerned about? Greece and Argentina did not seem to do so well creating debt. I guess I can write all the checks from my checking account that I want ("I can't be out of money, I still have checks left."), but, it seems that once my savings account is empty and I have bills to pay, someone is going to have to take care of this or I will have to declare bankruptcy and default on my creditors. The car breaks down..no problem...go out and get a 24% payday loan to fix it. It doesn't seem to me that this can go on very long. Perhaps the personal analogy is imprecise? A sovereign nation that can print money behaves differently but eventually the chickens come home to roost (see Greece and Argentina). I am just the "average person" and welcome your clearing this up for me.
 

RenoCon

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The government doesn't borrow any money. I am not really gonna debate people who think this way, you're better served reading text books on government finance and accounting than staying here and calling this voodoo. This is generally how every central bank on the planet works.

The government owns 40% of its own debt.

It seems that whether you call this "borrowing" or simply a transfer of funds there are serious consequences to be had by doing more of it.

Who Owns the US National Debt? How Much Is Owed?

"By owning Treasuries, they transfer their excess cash to the general fund, where it is spent. Of course, one day they will redeem their Treasury notes for cash. The Federal government will either need to raise taxes or issue more debt, to give the agencies the money they will need.

Which agencies own the most Treasuries? Social Security, by a long shot. Here's the detailed breakdown (as of December 31, 2015):
•Social Security (Social Security Trust Fund and Federal Disability Insurance Trust Fund) - $2.786 trillion
•Office of Personnel Management Retirement - $873 billion
•Military Retirement Fund - $601 billion
•Medicare (Federal Hospital Insurance Trust Fund, Federal Supplementary Medical Insurance Trust Fund) - $267 billion
•All Other Retirement Funds - $187 billion...

As you can see, if you add up debt held by Social Security, and all the retirement and pension funds, nearly half of the U.S. Treasury debt is held in trust for your retirement. If the United States defaults on its debt, foreign investors would be angry, but current and future retirees would be hurt the most."
 

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I assume your point is that the national debt is nothing to be concerned about? Greece and Argentina did not seem to do so well creating debt. I guess I can write all the checks from my checking account that I want ("I can't be out of money, I still have checks left."), but, it seems that once my savings account is empty and I have bills to pay, someone is going to have to take care of this or I will have to declare bankruptcy and default on my creditors. The car breaks down..no problem...go out and get a 24% payday loan to fix it. It doesn't seem to me that this can go on very long. Perhaps the personal analogy is imprecise? A sovereign nation that can print money behaves differently but eventually the chickens come home to roost (see Greece and Argentina). I am just the "average person" and welcome your clearing this up for me.

Greece is not monetarily sovereign, so they cannot create their own money. They are analogous to a U.S. state. And Argentina had a lot of foreign debt, and you can't just create foreign currency. So those two are poor points of comparison. As was your own checking account.

A better analogy might be if you had an apple orchard and it produced an infinite amount of apples; the apples don't cost you anything, but it would be unwise to eat too many. It would also be unwise (for the economy in general) to attempt to sell an infinite number of apples. But could people (and the economy) benefit from some increase in the number of apples you sell? They very likely could.

A nation's economic strength is in their ability to produce - factories, knowledge, labor, materials, energy, etc. If you have these resources (especially labor) sitting idle for lack of demand, then your economy isn't functioning as well as it could be. If you could spur more production with some of your infinite supply of apples, you could create jobs in the process, at no real cost. Sure, there would be more apples in the economy, but there would also be more people working, and more production. So you have to balance the (obviously) good (more jobs, more production) against the (possibly?) bad - whatever negative effects more apples might have on the economy.
 

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Greece is not monetarily sovereign, so they cannot create their own money. They are analogous to a U.S. state. And Argentina had a lot of foreign debt, and you can't just create foreign currency. So those two are poor points of comparison. As was your own checking account.

A better analogy might be if you had an apple orchard and it produced an infinite amount of apples; the apples don't cost you anything, but it would be unwise to eat too many. It would also be unwise (for the economy in general) to attempt to sell an infinite number of apples. But could people (and the economy) benefit from some increase in the number of apples you sell? They very likely could.

A nation's economic strength is in their ability to produce - factories, knowledge, labor, materials, energy, etc. If you have these resources (especially labor) sitting idle for lack of demand, then your economy isn't functioning as well as it could be. If you could spur more production with some of your infinite supply of apples, you could create jobs in the process, at no real cost. Sure, there would be more apples in the economy, but there would also be more people working, and more production. So you have to balance the (obviously) good (more jobs, more production) against the (possibly?) bad - whatever negative effects more apples might have on the economy.

But we don't have an apple orchard producing an infinite number of apples...I suppose this is an analogy to the ability to print money by creating debt to retirees and foreign entities.

"China owns $1.246 trillion U.S. debt. As of January 2016, it was the largest foreign holder. Japan is next, holding $1.123 trillion. Both Japan and China want to keep the value of the dollar high when compared to their currencies. That helps their exports to the United States seem more affordable, which helps their economies grow. That's why, despite China's occasional threats to sell its holdings, both countries are happy to be America's biggest foreign bankers. China replaced the United Kingdom as the second largest foreign holder on May 31, 2007. That's when it increased its holdings to $699 billion, outpacing the UK's $640 billion."

Short of a GDP growth of around 4%, there is no way to keep up this shell game.

Today...

"The Saudi Arabian government has threatened to sell of hundreds of billions of dollars' worth of American assets should the U.S. Congress pass a bill that could hold the kingdom responsible for any role in the Sept. 11, 2001 attacks, the New York Times reported on Friday." Saudi Arabia could sell off billions in American assets if bill passes: NYT | Reuters

Eventually, just like Argentina and Greece, we are at the mercy of our creditors.
 

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But we don't have an apple orchard producing an infinite number of apples...I suppose this is an analogy to the ability to print money by creating debt to retirees and foreign entities.

We do have the ability to create dollars at no cost, and in any number we please. It does not affect retirees or anybody else. Are you paying off the debt from WWII? Me neither.

"China owns $1.246 trillion U.S. debt. As of January 2016, it was the largest foreign holder. Japan is next, holding $1.123 trillion. Both Japan and China want to keep the value of the dollar high when compared to their currencies. That helps their exports to the United States seem more affordable, which helps their economies grow. That's why, despite China's occasional threats to sell its holdings, both countries are happy to be America's biggest foreign bankers. China replaced the United Kingdom as the second largest foreign holder on May 31, 2007. That's when it increased its holdings to $699 billion, outpacing the UK's $640 billion."

Short of a GDP growth of around 4%, there is no way to keep up this shell game.

Today...

"The Saudi Arabian government has threatened to sell of hundreds of billions of dollars' worth of American assets should the U.S. Congress pass a bill that could hold the kingdom responsible for any role in the Sept. 11, 2001 attacks, the New York Times reported on Friday." Saudi Arabia could sell off billions in American assets if bill passes: NYT | Reuters

Eventually, just like Argentina and Greece, we are at the mercy of our creditors.

When you move some money from checking to savings, does that make you a creditor of your bank? Are they now at your mercy?

When China earns American dollars and saves them, nobody has a problem with that. But when they exchange those dollars for bonds, suddenly everybody is wetting their pants, because they (incorrectly) think that China is floating us a loan, and we can't find the money anywhere else. It's a ridiculous notion when you simply consider that we (like any nation sovereign in its own currency) can simply create more of that currency. Bonds are an anachronism, no longer necessary. Moving to fiat from gold changed the whole game.

A short while back, Russia dumped a bunch of U.S. debt over a short period of time. Did you even notice?
 

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The US doesn't buy anything at all with a credit card. The analogy you makes doesn't work. I explained it exactly how it works.

You only left out, what happens, when a economic or societal shock hits and credit suddenly drys up.
 
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