JP Hochbaum
DP Veteran
- Joined
- Feb 7, 2012
- Messages
- 4,456
- Reaction score
- 2,549
- Gender
- Male
- Political Leaning
- Independent
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.
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.