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.
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!!
There is little factual about the OP's comments...
You worked so hard at making it simple, that I found it difficult!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.
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!!
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:
The US doesn't buy anything at all with a credit card.
But as a monetarily sovereign government, it can do this forever...
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.
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/
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.
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!!
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.
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.
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.
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.
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.
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.
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.
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