How to erase the national debt[W:1040]

[JohnfrmClevelan]

Greece didn't have a sovereign currency but the EU did.

So why didn't the ECB just print away all of Greece's debt ?

Operationally, they could have. Politically, and probably legally, their hands are tied by the Maastricht Treaty. That is the main failure of the EU as constructed.

 

[JohnfrmClevelan]

And...

When confronted with the cost, they either blame it on someone else, spin away their responsibility for that cost or ignore the cost and hope their usefull idiots won't notice it.

Maybe you can tell us - what is the cost?

 

[RenoCon]

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.

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?

I am not paying off debt from WWII because there was exploding world wide economic growth with US GDP growth of 4-5% following WWII. We are not seeing this kind of growth now and likely never will again. It is irresponsible to think we can continue to run up bills and hope that our "income" will keep pace or our kids can pay it off in the future.

The banks were at the mercy of their creditors during the great depression when many, relatively, small depositors decided they wanted to get their money out and there were not sufficient reserves to cover these requests. Tell the Argentinians who were limited to withdrawing $200/day from their bank accounts during their (ongoing) financial crisis, while inflation was rising to 200%, they were not "creditors" for their bank. They may have eventually gotten their money out (as the government printed more of it) but now they are paying $5 for a burrito instead of $2.

Russia unloaded debt in anticipation of US and European sanctions related to their invasion of the Crimea. China is unloading debt in order to prop up their economy. The more money we spend, the more we rely on infusions of cash from unreliable sources like China, who currently owns $1.3 trillion in US treasuries. Do I notice? No, we won't notice until it is too late and then we will have our own financial crisis. Eventually we won't be able to "find the money anywhere else." How long can we continue to be the "safe harbor" for the worlds economy if we continue to run up debts that we can never repay? Do we really want the Yuan or Ruble to become the world's currency standard? Do we really want to pay more and more taxes just to pay interest on our debt and support a bloated welfare state while GDP growth remains at less than 2%? Meanwhile, we will be paying inflated rates for goods and services while relative income stagnates.

 

[JohnfrmClevelan]

Sorry...but you are wrong.

All those examples of "free money" are not free. Somebody worked for those things...somebody pays for those things.

There Ain't No Such Thing As A Free Lunch (not even for the federal government)

I remember getting into a discussion with you about the free lunch thing a while back. And I also remember that you never could explain where the cost was.

If I was completely unable to support a motto like that, I wouldn't further embarrass myself by making it my signature line.

 

[RenoCon]

Operationally, they could have. Politically, and probably legally, their hands are tied by the Maastricht Treaty. That is the main failure of the EU as constructed.

In other words, Greece was at the mercy of their creditors. This doesn't sound like a position the US should strive for.

 

[Moderate Right]

Then tell us what the cost is.

You need to get with your buddy Absentglare who said this in post #44: "Nobody claimed that there is no cost from creating money". Apparently he knows that there is a cost, as does everyone else. You two really need to get your stories straight.

 

[JP Hochbaum]

But it sneaks up on you. It doesn't usually send you advance notice. GW Bush woke up one morning to discover that the sky was falling down and it was too late to stop it. Ditto the Great Depression. All we could do was mitigate the damage. This is what you MMT'rs don't understand. MMT would work just fine until something happens and by that time it's too late to realize that you effed up horribly.

Except a big chunk of MMT'ers said the crash would happen. And they described exactly how it would and why it would. Steven Keen (MMT-lite), Randall Wray, Galbraith, Bill Black, Warren Mosler, etc....

 

[JP Hochbaum]

I hadn't seen that exact argument for China. They were growing fast and misallocations were relatively easily compensated by the exports. In Japan the situation was similarly very different from ours. But you know that. Throwing up a smoke screen is silly.

Not a smoke screen, people say that their spending and monetary policy would result in super high inflation and economics crashes, and like us, they have very similar set ups and high production capabilities.

 

[JohnfrmClevelan]

I am not paying off debt from WWII because there was exploding world wide economic growth with US GDP growth of 4-5% following WWII. We are not seeing this kind of growth now and likely never will again. It is irresponsible to think we can continue to run up bills and hope that our "income" will keep pace or our kids can pay it off in the future.

We NEVER paid off the debt from WWII. The problem with you people who think that this is really a debt in the same way your credit cards are a debt is that you aren't bothering to learn how the country finances itself. You don't bother to learn what is happening, why we issued bonds in the first place, what changed when we went fiat, or anything else that might throw a monkey wrench into your present (mis)understanding of the national debt.

I have explained all of these things in past threads. A number of people have gone through the trouble to learn and understand what JP and I have been talking about; more (mostly the conservatives, surprise!) have never bothered to do any research to see who is correct, and they continue to make the same dumb arguments over and over. It's all out there to learn, if you are more interested in getting it right, as opposed to just arguing with no end in sight. The Fed websites have a lot of good information.

The banks were at the mercy of their creditors during the great depression when many, relatively, small depositors decided they wanted to get their money out and there were not sufficient reserves to cover these requests. Tell the Argentinians who were limited to withdrawing $200/day from their bank accounts during their (ongoing) financial crisis, while inflation was rising to 200%, they were not "creditors" for their bank. They may have eventually gotten their money out (as the government printed more of it) but now they are paying $5 for a burrito instead of $2.

Yeah, private banks have real constraints, and they are susceptible to bank runs. That's why the Fed now backstops them. Did you notice how the Fed fixed the private banks' problems in 2007-2008? They have that power. And it caused no inflation. (Argentina had different problems.)

Russia unloaded debt in anticipation of US and European sanctions related to their invasion of the Crimea. China is unloading debt in order to prop up their economy. The more money we spend, the more we rely on infusions of cash from unreliable sources like China, who currently owns $1.3 trillion in US treasuries. Do I notice? No, we won't notice until it is too late and then we will have our own financial crisis. Eventually we won't be able to "find the money anywhere else." How long can we continue to be the "safe harbor" for the worlds economy if we continue to run up debts that we can never repay? Do we really want the Yuan or Ruble to become the world's currency standard? Do we really want to pay more and more taxes just to pay interest on our debt and support a bloated welfare state while GDP growth remains at less than 2%? Meanwhile, we will be paying inflated rates for goods and services while relative income stagnates.

You didn't notice because the giant shock that was predicted by people who should have known better never happened. Because the U.S. government is not dependent on other people or other nations buying their bonds. The Fed can (indirectly) buy bonds themselves - there is no need for China to exchange their dollars for bonds. We create the money ourselves; there is no need to go looking for outside sources. All of your concerns here are completely unfounded.

 

[JohnfrmClevelan]

In other words, Greece was at the mercy of their creditors. This doesn't sound like a position the US should strive for.

Correct. The U.S. should (and will) remain monetarily sovereign. Greece never should have joined the euro. But as I'm sure you are already aware, we have been making that very point for years now.

 

[JohnfrmClevelan]

You need to get with your buddy Absentglare who said this in post #44: "Nobody claimed that there is no cost from creating money". Apparently he knows that there is a cost, as does everyone else. You two really need to get your stories straight.

I'm still waiting for YOU to explain where the cost is.

 

[joG]

Not a smoke screen, people say that their spending and monetary policy would result in super high inflation and economics crashes, and like us, they have very similar set ups and high production capabilities.

You over spend and over borrow, you might face a situation like the UK did, when Soros won his bet, or like the USA did, when Bretton Woods broke down. And yes. I realize that the situation was somewhat different. But the imbalances were similar enough. Today's resemble a bubble of grand proportion and we are relatively dependent on imports that must be paid for.

 

[Socrates1]

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.

It appears the democrats have the printing presses running 24/7 and their spending exceed the pace of the presses !

 

[OrphanSlug]

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'm not really saying anything contradictory to this. And it is not about the government borrowing money, it is about investment in debt.

 

[JohnfrmClevelan]

It appears the democrats have the printing presses running 24/7 and their spending exceed the pace of the presses !

Is this what passes for debate now?

 

[JohnfrmClevelan]

I'm not really saying anything contradictory to this. And it is not about the government borrowing money, it is about investment in debt.

Could you expand on this, please?

 

[Socrates1]

Is this what passes for debate now?

Sometimes the true stings . :shock:

 

[JohnfrmClevelan]

Sometimes the true stings . :shock:

And sometimes, people try to mask their ignorance of the subject in pithy little drive-by posts.

If you have something substantial to add, do it. But posts such as your last one add nothing to the debate.

 

[Moderate Right]

Correct. The U.S. should (and will) remain monetarily sovereign. Greece never should have joined the euro. But as I'm sure you are already aware, we have been making that very point for years now.

Are you saying that every single country that joined the EU was stupid because if they had kept their own currencies then they could be monetarily sovereign and been able to have all the national deficits and debt they wanted? The UK was stupid? Germany was stupid? France was stupid? Greece was stupid? All of the EU countries are not as smart as you?

 

[OrphanSlug]

Could you expand on this, please?

The issuance of bonds in a condition other than intergovernmental debt, is inherently an investment in debt.

 

[Moderate Right]

I'm still waiting for YOU to explain where the cost is.

Typical response from you. Even though your good MMT buddy agrees that there is a cost for creating dollars, debunking what you said himself, you want me to explain it. You can't stand the fact that someone on your own side says you are wrong about this because you think you are never wrong about anything. Why don't the two of you get together first and decide which way you want to go with this and then maybe we can debate it but I'm not going to debate something that your own side doesn't even agree with you on. If you won't even listen to your own side you are not going to listen to me or anyone else.

 

[Fenton]

Operationally, they could have. Politically, and probably legally, their hands are tied by the Maastricht Treaty. That is the main failure of the EU as constructed.

Greece not only IGNORED the Maastricht treaties limitations on deficit spending they entered into the EU under false pretenses by lying about the amount of debt they held currently

They spent and borrowed and grew their public sector to a unsustainable level

So more debt and or printing wouldn't have solved their issue primarily because their debt was REAL, substantial

Had they had their own sovereign currency they would have just turned into another Venezuela but far worse because they lack Venezuela's natural resources.

 

[Absentglare]

Republicans didn't cause the bubble.

I recognize that you believe that, but you've failed to show how you can align that belief with reality.

 

[Mycroft]

Maybe you can tell us - what is the cost?

There are many costs, but the primary cost is inflation.

 

[Absentglare]

Your MMT buddy John said this in post #24 "We do have the ability to create dollars at no cost". I'm glad you disagree with him.

Well i can see why you're confused. Cost means more than one thing.

JFC was explaining that creating dollars does not cost dollars. That's true. Created dollars are dollars that the government can spend that do not cost the private sector any resources.

I was using a different definition of cost- i was referring to the consequences of creating money. If you could be honest, and actually understood our arguments, you would already know by now that JFC also believes that there are limits to how much money we should create because he acknowledges that the consequences of creating too much would be undesirable.