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So why do federal deficits and debt exist in the first place?

JohnfrmClevelan said:
I think that pretty much every thread in this "Government Spending and Debt" section misses the mark in a fundamental way. Governments with their own currency do not go into true, household-type debt when they issue bonds. It is simply another way that governments exercise their power to create and spend their own currency.

When our government deficit spends, it does so by issuing bonds. The private sector buys those bonds, and the government promptly spends the proceeds right back into the economy; the net result is an increase in bonds held by the PS as rock-solid assets, an increase in aggregate demand, and no change in the number of dollars. (The Fed adjusts the number of reserves/dollars up or down in a separate operation, as they see fit.) The government essentially buys what it wants by issuing bonds, and those bonds never need to be extinguished (just maintained, by issuing more bonds). i.e., the government is self-funding, and does not borrow in order to spend. Understanding this changes the whole cost/benefit analysis of government spending.

For reference, GDP = G + C + I + (X-M). G is govt. spending, including deficit spending, C is consumption, I in investment, and (X-M) is net exports.

So why do we run deficits, anyway? Discuss.
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Deficits exist because tax income is less than expenditure.

Debt exists because, as you say, US treasuries are isseud to cover the difference.

G is government purchases by the way, not simply government spending. It's a subtle yet important distinction.
 
tharock220 said:
Deficits exist because tax income is less than expenditure.

Debt exists because, as you say, US treasuries are isseud to cover the difference.

G is government purchases by the way, not simply government spending. It's a subtle yet important distinction.
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These are the obvious easy answers, of course. I was trying to get into a discussion about the dollars - why the economy needs an exogenous source of demand even when the national income should be enough to consume all production.
 
JohnfrmClevelan said:
These are the obvious easy answers, of course. I was trying to get into a discussion about the dollars - why the economy needs an exogenous source of demand even when the national income should be enough to consume all production.
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We get to export Dollars as a result of our trade imbalances. This leaves cash in countries which is often used to purchase US Treasuries.
 
tharock220 said:
We get to export Dollars as a result of our trade imbalances. This leaves cash in countries which is often used to purchase US Treasuries.
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The trade deficit is certainly part of it, because it is basically dollar savings - just by foreign parties. That, plus domestic savings from income, is why we must run deficits.
 
JohnfrmClevelan said:
I think that pretty much every thread in this "Government Spending and Debt" section misses the mark in a fundamental way. Governments with their own currency do not go into true, household-type debt when they issue bonds. It is simply another way that governments exercise their power to create and spend their own currency.

When our government deficit spends, it does so by issuing bonds. The private sector buys those bonds, and the government promptly spends the proceeds right back into the economy; the net result is an increase in bonds held by the PS as rock-solid assets, an increase in aggregate demand, and no change in the number of dollars. (The Fed adjusts the number of reserves/dollars up or down in a separate operation, as they see fit.) The government essentially buys what it wants by issuing bonds, and those bonds never need to be extinguished (just maintained, by issuing more bonds). i.e., the government is self-funding, and does not borrow in order to spend. Understanding this changes the whole cost/benefit analysis of government spending.

For reference, GDP = G + C + I + (X-M). G is govt. spending, including deficit spending, C is consumption, I in investment, and (X-M) is net exports.

So why do we run deficits, anyway? Discuss.
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Because we don't take in enough revenue to redeem mature bond plus issue. new bonds for new debts. Every year's budget has to fund all the current obligations, finance new spending and pay interest on outstanding issues. This past year interest on the debt was higher than FY 2025 military spending.
 
socialist politicians like Donald Trump
 
Let's set aside money for a while.

This country, like most countries, is able to provision for itself. We have more than enough resources. People are fed, people are housed, we have a functioning government, army, etc. Americans are working in all of these jobs, producing the stuff we need (and much more), and what we don't make here we import. And we export a bunch of stuff as well. Things work. In fact, we have the productive capacity to do far more - we have enough doctors and hospitals for universal healthcare, for example. We produce plenty to take care of people who are too old to work, or are otherwise unable. We have enough schools and colleges to educate everyone. Again, all the real resources are there - plenty of labor, plenty of materials, etc.

Now bring money back into the picture.

There are a number of ways a country can distribute their production. You can run a command economy where the government owns the means of production. Workers can own the means of production. You can have a capitalist economy where capitalists own the means of production. Or you can have some combination. All are valid, some work better than others, but money is what we use in any of these systems to provision labor so they can afford to buy what they need to live. So it's vitally important to understand where money comes from and how it gets distributed to people.

Imagine a balanced federal budget. We know that we produce enough already to run the country - we do it every year. Taxes can pay for all government spending, IF we tax enough. The economy can grow by increasing private sector debt (one man's debt is another man's income). It's all perfectly possible, except for one thing - we can't afford to amass significant amounts of financial savings. If we are 100% dependent on bank-created money, then $1000 of savings by one man is being serviced by the active debt of another - and that $1000 in dollar savings isn't doing anything for the economy. Financial savings is dead weight. You can plow all income into consuming your production, but you can't buy all of that production if people save some of their income. Not over the long run, certainly.

Savings is why we have to run federal deficits. When people save some of their income, deficit spending (and increased private sector debt) makes up for that lost demand. It allows us to save for retirement, and it allows us to import more than we export.

Now the question becomes, is this ever-growing pile of treasuries a healthy thing for the economy? Would the economy be healthier for all if income distribution was more equitable?
 
bomberfox said:
but can we truly expect infinite growth on a finite planet?
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I'm sorry to have to point this out. But people really need to stop using this quote. "Infinite growth" is not a thing. The human race 30 years ago was predicted to hit a global population rate of 11 billion (today the replacement rate is falling and we're likely to hit max population sooner than expected). At best what you have is perpetual growth and as far as a "finite planet", the planet is not finite in any real real terms. If you took every human being on earth and put them in the same place, we'd all fit in an area about 500 square miles. From a human perspective, the earth is, for all intents and purposes infinite, especially when you consider that the suns energy is constantly promoting renewal.

I think what the quote you've posted alludes to is that as humanity increases it's global footprint, it becomes more and more important to be responsible stewards of the land we occupy, or we risk making the planet uninhabitable, but we shouldn't handwave away the idea that we can continue to grow and that growth means that at some point we'll reach some theoretical end.
 
Econ4every1 said:
I'm sorry to have to point this out. But people really need to stop using this quote. "Infinite growth" is not a thing. The human race 30 years ago was predicted to hit a global population rate of 11 billion (today the replacement rate is falling and we're likely to hit max population sooner than expected). At best what you have is perpetual growth and as far as a "finite planet", the planet is not finite in any real real terms. If you took every human being on earth and put them in the same place, we'd all fit in an area about 500 square miles. From a human perspective, the earth is, for all intents and purposes infinite, especially when you consider that the suns energy is constantly promoting renewal.

I think what the quote you've posted alludes to is that as humanity increases it's global footprint, it becomes more and more important to be responsible stewards of the land we occupy, or we risk making the planet uninhabitable, but we shouldn't handwave away the idea that we can continue to grow and that growth means that at some point we'll reach some theoretical end.
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Capitalism requires growth in profits to succeed someday thats not going to be feasible not in the malthusian way but under capitalism we’re not able to allow ourselves a break from the growth in profits else we have downturns.
 
Econ4every1 said:
I'm sorry to have to point this out. But people really need to stop using this quote. "Infinite growth" is not a thing. The human race 30 years ago was predicted to hit a global population rate of 11 billion (today the replacement rate is falling and we're likely to hit max population sooner than expected). At best what you have is perpetual growth and as far as a "finite planet", the planet is not finite in any real real terms. If you took every human being on earth and put them in the same place, we'd all fit in an area about 500 square miles. From a human perspective, the earth is, for all intents and purposes infinite, especially when you consider that the suns energy is constantly promoting renewal.

I think what the quote you've posted alludes to is that as humanity increases it's global footprint, it becomes more and more important to be responsible stewards of the land we occupy, or we risk making the planet uninhabitable, but we shouldn't handwave away the idea that we can continue to grow and that growth means that at some point we'll reach some theoretical end.
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Actually the planet is finite in the resources it has. Thats just a plain truth. We dont have even by your reasoning an infinite planet of resources. Thats patently absurd. Ive never heard any actual economist claim this.
 
bomberfox said:
Capitalism requires growth in profits to succeed someday thats not going to be feasible not in the malthusian way but under capitalism we’re not able to allow ourselves a break from the growth in profits else we have downturns.
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That's more of a concentration-of-money problem, though, which is fixable.
 
Tensor101 said:
Just printing the money that the government wants to spend results in a excess of dollars driving the currency downward thereby [the b]uying power of average citizens goes down with it.
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I used to ride the DC metro into (drum roll plz), DC.

And how do you get on a train? You buy a ticket. The machine prints one out. So you fare card gets credited. The metro system as a whole has created credit, because until you spend the entirety of what's on that card, the system is in debt to you. You are owed a ride on the subway equal to value of your card minus the cost of the ride (the number of stops you can go). I rode the Metro of the better part of 10 years, and you know what? That machine every morning would print out thousands and thousands of tickets.

The value of the card is proportional to the availably of the product that can be consumed with it. In other words, the number of tickets by itself is irrelevant. What matters is how many subway cars there are to meet the demand for rides. The way that the tickets become worth less is if there aren't enough cars to give everyone that wants a ride, a ride. So on one end you can have an increase in tickets and the other an increase in the number of subway cars. As long as they grow in portion, you can keep printing more and more tickets, at least until the system hits a bottleneck. Then the money earned can be used to relive the bottleneck.

The value of a dollar cannot be determined by how many their are, it can only be determined by how many their are being used to drive demand for things that people need and want. If you go to the grocery store and the shelves begin to run empty wherever you go, or gas stations are routinely out of gas THAT is when the value of the dollar is in big trouble. However, the creation of dollars can be used to address whatever bottlenecks there are in the system, if costs go up (inflation) that provides the incentive to supply more of that thing.
 
bomberfox said:
Capitalism requires growth in profits to succeed someday thats not going to be feasible not in the malthusian way but under capitalism we’re not able to allow ourselves a break from the growth in profits else we have downturns.
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I would agree there are aspects of US capitalism that are fundamentally unsustainable.
 
Econ4every1 said:
In theory, yes, but what is it that you think we're going to run out of that can't be replaced?
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So assume infinite until we run out? We cant infinitely burn fossil fuels and still have a planet we can live on because that would just recreate the carboniferous period. We cant infinitely dump unlimited garbage and we cant recycle our plastics anymore. We can feed everyone yes though
 
bomberfox said:
So assume infinite until we run out? We cant infinitely burn fossil fuels and still have a planet we can live on because that would just recreate the carboniferous period. We cant infinitely dump unlimited garbage and we cant recycle our plastics anymore. We can feed everyone yes though
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Renewable energies are more than enough, they are just untapped. Water doesn't go anywhere. Garbage and recycling issues are a matter of us being both lazy and cheap. But change the priorities (from profits to quality of life), and those are also solvable problems. It looks impossible because we are looking at it through a capitalist lens.
 
JohnfrmClevelan said:
Renewable energies are more than enough, they are just untapped. Water doesn't go anywhere. Garbage and recycling issues are a matter of us being both lazy and cheap. But change the priorities (from profits to quality of life), and those are also solvable problems. It looks impossible because we are looking at it through a capitalist lens.
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Exactly but also the only reason we need infinite line go up is because of capitalism. Its also why not going into debt is so scary.
 
BirdinHand said:
Lots of reasons 🤷‍♀️

Emergency spending, economic investment, changes in tax policy, “social spending” exceeding anticipated numbers (healthcare, education, pensions, general welfare), needing to stimulate an economy, economic conditions changing, etc.

There’s no singular answer or reason 🤷‍♀️
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Don't forget paying off the debt they accrue by borrowing, e.g. issuing notes, bills, bonds.
 
bomberfox said:
So assume infinite until we run out?
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Infinite what?

bomberfox said:
We cant infinitely burn fossil fuels and still have a planet we can live on
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Agreed, but there are already viable alternatives and running out of dino soup would certainly accelerate making alternatives feasible. We could, relatively easily convert to any one of the renewables or nuclear and spend greater effort on energy storage. The reason we don't is that fossil fuels are cheap and they have a distinct advantage that no other portable energy source has. Gasoline uses oxygen from the surrounding air to catalyze. The beauty is, you don't have to carry it on board. If you had to bring and store the oxygen required to catalyze 1 gallon of gas (about 6.26lbs) you'd need 2.34 gallons of Liquid 02 weighing in at a whopping 21lbs. For better or worse, that's what makes gasoline so attractive, you only need to carry about 40% of the fuel on board. Batteries have only the energy they bring on board.

bomberfox said:
We cant infinitely dump unlimited garbage
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Again, it's not "unlimited", it is perpetual. There is a limit and that limit can increase or decrease. At some point (hopefully soon) we'll do better with policy and create less waste at the point-of-sale, we'll engage in creative problem solving. Right now, the cost of dumping everything is so cost effective there's no appetite for improvement. But there's no reason to believe that there are no improvements to be made. I speculate that there might come a time in the far off future when landfall become a resource as common materials today could be rare and we end up digging up our trash and recycling the things we didn't in the past.

Answers are out there, but we need to want to find them and the problem is, it only take a relatively few bad actors to force everyone to abandon better alternatives.
 
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