The government debt is not a debt.[W:484]

[imagep]

Re: The government debt is not a debt.

I get that, but I don't think that is the point the OP was making. The $17 trillion in debt we now have has largely been "cutting checks for healthy individuals to remain non-productive" and that, according to him, poses no risk and is nothing to worry about. So my question was, why worry about debt at all? If it is nothing to worry about, lets double it overnight and cut everyone a big check

Most reasonable people do not support the policy of "cutting checks for healthy individuals to remain non-productive".

And certainly welfare adds to our national debt, but that debt could equally be attributed to fighting unwinable wars (or to policing the world), to corporate welfare, to lots of stupid pork spending programs or stupid tax cuts for the rich and tax loopholes for special folks in special industries. We can blame the debt on whatever issue is irking us at the minute. the debt really isn't the issue, it's our stupid policies that are the issue.

I'm with you on ending welfare. Let's do it. Now if we elect a conservative to the whitehouse and conservatives gain control of both houses of congress, I am very confident that they will end welfare - after all, thats what they always do isn't it? didn't Reagan end welfare? didn't the Bush's end welfare? No? Well maybe thats part of the reason I stopped voting for republocrats.

 

[JohnfrmClevelan]

Re: The government debt is not a debt.

Since it's pretty obvious that not everybody bothered to read the original article (and since this thread is moving faster than I can keep up with), here is a quick summary of why the national debt is not really debt at all:

In a fiat currency economy, dollars and bonds are basically equivalents. Both are created by the government out of thin air (no backing, no gold, etc.), and they are easily exchangeable. Bonds are very liquid, too, nearly as liquid as dollars. If you have a million dollars' worth of U.S. bonds, you can, with minimal trouble, go out and spend a million dollars. So it doesn't matter if you are holding dollars or bonds, either way you have spending power.

If you can meet your obligations by creating something that costs you nothing to create, then you are not really in debt. There was an old SNL skit where Pablo Picasso (Jon Lovitz) was drawing pictures on napkins and paying for his meals with them. It cost Picasso nothing to fire off some pictures, and they were worth money, so nobody cared, and Picasso kept on drawing pictures. Had Picasso instead charged those meals to a credit card, then later paid those bills with pictures, both he and the vendors would be in the exact same position as if he had paid them directly with pictures. Not a perfect analogy, but hopefully it illustrates how it costs the U.S. nothing to create dollars, and it likewise costs them nothing to create the dollars to pay the interest on bonds.

For those of you who still cannot separate bonds and debt, think about bond issuance in the gold standard days, when bonds really were debt. The government was limited in the number of dollars they could create by the amount of gold they held. Let's say they had enough gold to cover $1 billion. If they wanted to spend more gold-convertible dollars than they taxed away, they had to borrow them. So say they issue a million $ worth of bonds and exchange them for $1 million gold-backed dollars. Their immediate ability to cover their dollars remains the same - $1 billion, but their future liability (when the bonds mature) will be $1.001 billion in gold. So when those bonds mature, they must either a) procure more gold, which costs something, or b) roll over the debt, which promises even more gold-backed dollars in the future. Their ability to procure more gold is not a sure thing, therefore there is some risk involved in those bonds, which in turn will affect their interest rates. That is real debt. On the other hand, it costs nothing (no gold) to create more fiat dollars - therefore, there is no risk of not being able to meet their bond obligations. And the (low) yields reflect that lack of risk. That is not a debt situation.

Now that we have (hopefully) established that the U.S. does not owe anybody anything for the right to create U.S. dollars, the whole cost/benefit analysis regarding government deficit spending changes. Since it is not true debt, and it does not need to be "paid off," the risk of deficit spending is not insolvency, but demand-pull inflation.

Can we agree up to this point?

 

[polgara]

Re: The government debt is not a debt.

Be safe pg...

*Update* The Weather Channel keeps extending the tornado warning for my area: 2045, then 2130, then 2230 - sirens are blaring constantly at the Fire Station and the cell phone keeps sending the siren sounds without stopping! The lightning show looks like July 4 fireworks, the wind is very strong- they're reporting 60 MPH as I post, the thunder lifts you off the chair, and the rain is pouring - they are now giving warnings on flooding, because the ground is already saturated from recent downpours. MEH!

No lights - laptop is on battery. My "coping" mechanism will have to go to the repair shop tomorrow - it quit. Later......

 

[Csareo]

Re: The government debt is not a debt.

"Here is the best analogy I have heard to illustrate this... You have $12,000 in a non-interest-bearing checking account at your bank. You only need $2000 available for checking, so you put $10,000 of your money in a Certificate of Deposit account at the same bank. The bank marks down your checking account by $10K, and marks up your CD/savings account by $10K. When it matures, the bank marks your CD account down by $10,000 and marks your checking account up by, say, $10,050. You were always in the same financial position - you had $12,000 (now, a bit more). And the bank was always in the same position as well. Nobody ever says that the bank is "in debt" for $10,000 just because you moved money from your checking account into a savings account. Saying that the U.S. government is "in debt" because people have exchanged dollars for government bonds is just as misleading. Government bonds are basically dollar equivalents - you can easily trade them for dollars, or vice versa. And the government creates them both from thin air.

The U.S. "National Debt" explained, MMT-style

There is no reason to fear the national debt as people fear it today. It is the greatest single fear that holds our economy back from becoming full employment and achieving higher growth numbers.

Lol, I just made a thread about this. Oh well, to late to rant about conservative fear over government stimuli

 

[Master PO]

Re: The government debt is not a debt.

If nobody on this thread said it, it is irrelevant, isn't it?

I can dig up some pretty crazy things that other people have said in the past, then come here and attribute them to you. Would that move the debate forward?

dude, please do not speak for the entire forum, when you just join it!

 

[JohnfrmClevelan]

Re: The government debt is not a debt.

dude, please do not speak for the entire forum, when you just join it!

My short time on this site has nothing to do with whether or not my point is correct. Besides, I wasn't speaking for the entire forum.

 

[Master PO]

Re: The government debt is not a debt.

My short time on this site has nothing to do with whether or not my point is correct. Besides, I wasn't speaking for the entire forum.

yes it does...how do you know what people on the forum has said in the past...which is what i refereed to..

all i have stated is......"debt matters".....

is this difficult for people to pickup on?

 

[Ahlevah]

Re: The government debt is not a debt.

What do you mean here, what parties???

I was just quoting you:

What happens if nobody buys a bond? Then those parties continue to hold their dollars, and the government steps in to buy them.

I presume you meant the people and institutions who buy bonds.

They aren't selling their dollars, they are parking them for a little while and earning interest while doing so. Likely because they can't invest it elsewhere or want a safe investment or can't find enough american goods to buy.

You mean they're not selling their dollars yet. They are selling yen and now, apparently, euros as the ECB has signaled it will ease its monetary policy. Get ready for a stampede into European stocks. The race of nations to attempt to reflate and try to export their deflation is on.

 

[cpwill]

Re: The government debt is not a debt.

"Here is the best analogy I have heard to illustrate this... You have $12,000 in a non-interest-bearing checking account at your bank. You only need $2000 available for checking, so you put $10,000 of your money in a Certificate of Deposit account at the same bank. The bank marks down your checking account by $10K, and marks up your CD/savings account by $10K. When it matures, the bank marks your CD account down by $10,000 and marks your checking account up by, say, $10,050. You were always in the same financial position - you had $12,000 (now, a bit more). And the bank was always in the same position as well. Nobody ever says that the bank is "in debt" for $10,000 just because you moved money from your checking account into a savings account. Saying that the U.S. government is "in debt" because people have exchanged dollars for government bonds is just as misleading. Government bonds are basically dollar equivalents - you can easily trade them for dollars, or vice versa. And the government creates them both from thin air."

The U.S. "National Debt" explained, MMT-style

There is no reason to fear the national debt as people fear it today. It is the greatest single fear that holds our economy back from becoming full employment and achieving higher growth numbers.

A few problems with this model immediately spring to mind:

1. The $50 has to come from somewhere
2. The bank has to lend out the money in the CD successfully in order to make the return capable of doing that.
3. Government spending =/= bank loans at a higher interest rate than CD accounts.
4. The $10K wasn't on deposit with the bank to begin with. It was on deposit with another financial institution, which the government then borrowed from in order to lend out again, hoping to make money in the middle. So it is investing with leverage.
5. As far as spending to [increase revenue is concerned, the government is atrociously bad at judging which "loans" it will make. So a significant number of it's expenditures / "loans" will fail to produce the necessary return to make good on that $50 promise.

 

[JP Hochbaum]

Re: The government debt is not a debt.

I don't know whether to laugh or cry after reading this. If this is the state of public discourse in the United States about the debt and deficits being run up by the federal government and unfunded entitlement programs, then there's no hope your great country will ever turn things around.

Every program is funded, the government is monetarily sovereign it can fund any liability at any time.

 

[JohnfrmClevelan]

Re: The government debt is not a debt.

A few problems with this model immediately spring to mind:
1. The $50 has to come from somewhere
2. The bank has to lend out the money in the CD successfully in order to make the return capable of doing that.
3. Government spending =/= bank loans at a higher interest rate than CD accounts.
4. The $10K wasn't on deposit with the bank to begin with. It was on deposit with another financial institution, which the government then borrowed from in order to lend out again, hoping to make money in the middle. So it is investing with leverage.
5. As far as spending to [increase revenue is concerned, the government is atrociously bad at judging which "loans" it will make. So a significant number of it's expenditures / "loans" will fail to produce the necessary return to make good on that $50 promise.

The analogy was not meant to be perfect, or to compare private banking to fiat currency economics. The analogy was meant to demonstrate how misleading it is to refer to U.S. bonds outstanding as "debt" in the usual sense of the word.
So,...
1. The $50 interest, in the case of the government, is simply printed up, at no cost.
2. The government does not need to borrow or invest, or otherwise "raise money." It can simply print it.
3. The government controls the interest rate it pays on its own bonds.
4. The $10,000 in dollars is a liability (in the accounting sense) of the U.S. government. So is the $10,000 worth of bonds. So when the government exchanges dollars for bonds or vice versa, its total liability (the number of dollars/bonds in non-U.S.-governmental hands) remains the same (except for a bit of interest).
5. The government does not need to make a return on the dollars they spend into the economy. They can simply print up the interest. In fact, they can always meet any and all dollar-denominated obligations. (IF the government were ever to seek a return on their dollars, any return would mean that dollars would be removed from the economy, which would not help matters.)

 

[JP Hochbaum]

Re: The government debt is not a debt.

Earlier the people were questioning the OP and I about our credentials. So here is a position of authority saying the same thing about TTL accounts.

""Treasury Management of TTL Accounts
One of the main objectives of establishing the original Liberty Loan [TT&L precursor] accounts was to minimize fluctuations in the aggregate levels of bank deposits and reserves that can result from sales of government bonds. This objective later was extended to include minimizing fluctuations in deposits and reserves that can result from tax payments. If the Treasury’ had no accounts with commercial banks, proceeds of bond sales and tax payments would be deposited in the Treasury’s account at Federal Reserve Banks. Deposits thus would be transferred out of the banking system, and bank reserves would decline. These funds would be returned to the banking system only when the Treasury issued checks drawn upon its account to make purchases or transfer payments.

The Federal Reserve can use open market operalions to offset such fluctuations in bank reserves. The Open Market Desk can purchase government securities (which increases bank reserves and deposits) when the Treasury’s balance at the Fed increases, and can sell government securities when the Treasury’s balance at the Fed declines. Such “defensive” open market operations effectively neutralize the effect that shifts in Treasury balances between commercial banks and the Fed have on bank reserves.

Prior to 1974, the Treasury tended to minimize fluctuations in its balances at the Fed by maintaining funds at commercial banks until they were disbursed. Consequently, the Fed had only to make relatively small defensive open market operations to smooth out changes in bank reserves associated with the Treasury's cash management."
-Richard Lang, 'TTL Note Accounts and the Money Supply Process' (p.4-5)

http://research.stlouisfed.org/publications/review/79/10/Accounts_Oct1979.pdf

 

[PoS]

Re: The government debt is not a debt.

"Here is the best analogy I have heard to illustrate this... You have $12,000 in a non-interest-bearing checking account at your bank. You only need $2000 available for checking, so you put $10,000 of your money in a Certificate of Deposit account at the same bank. The bank marks down your checking account by $10K, and marks up your CD/savings account by $10K. When it matures, the bank marks your CD account down by $10,000 and marks your checking account up by, say, $10,050. You were always in the same financial position - you had $12,000 (now, a bit more). And the bank was always in the same position as well. Nobody ever says that the bank is "in debt" for $10,000 just because you moved money from your checking account into a savings account. Saying that the U.S. government is "in debt" because people have exchanged dollars for government bonds is just as misleading. Government bonds are basically dollar equivalents - you can easily trade them for dollars, or vice versa. And the government creates them both from thin air."

The U.S. "National Debt" explained, MMT-style

There is no reason to fear the national debt as people fear it today. It is the greatest single fear that holds our economy back from becoming full employment and achieving higher growth numbers.

While your premise is logical to not call it debt you would still have to call it something or otherwise it would screw up all the accounting records we use. Remember that the economy and the markets are as much ruled by popular demand and are subject to confidence issues so its not all dry mathematics and logic. Once a majority of the population loses confidence in the markets and subsequently the government all your plans will amount to zilch.

I dont believe in full employment myself, its unachievable and should not be the goal.

 

[cpwill]

Re: The government debt is not a debt.

The analogy was not meant to be perfect, or to compare private banking to fiat currency economics. The analogy was meant to demonstrate how misleading it is to refer to U.S. bonds outstanding as "debt" in the usual sense of the word.

Yes, and the analogy was deeply flawed not merely for the reasons outlined, but definitely at least because of them.

So,...
1. The $50 interest, in the case of the government, is simply printed up, at no cost.

False. There is no such thing as a free lunch. A) that comes with the cost of monetary management B) if loaned to the government it comes with the cost of interest and C) additional cost is paid by every current holder of dollars as their holdings are reduced relative to the baseline of what dollars would be worth if there were 50 less of them.

2. The government does not need to borrow or invest, or otherwise "raise money." It can simply print it.

Hooray! We are all going to be as rich as Zimbabweans! Or maybe just Argentineans.

3. The government controls the interest rate it pays on its own bonds.

That is also false. The federal reserve can influence the sale of bonds, but it does not control the interest rate for treasury bonds.

4. The $10,000 in dollars is a liability (in the accounting sense) of the U.S. government. So is the $10,000 worth of bonds. So when the government exchanges dollars for bonds or vice versa, its total liability (the number of dollars/bonds in non-U.S.-governmental hands) remains the same (except for a bit of interest).

That is incorrect for the simple enough reason that you cannot spend a bond without trading it back into cash, and government does not hold on to the cash. The Bank invests the $10K. The government just loses it.

5. The government does not need to make a return on the dollars they spend into the economy. They can simply print up the interest.

Incorrect. Once the government has spent the money it has to find a way to come up with both the interest and the principle.

In fact, they can always meet any and all dollar-denominated obligations.

Sure. That's the argument that J.P. and Zimbabwe both use, too. That doesn't mean, however, that they are doing so in a manner that does not reduce national wealth. We could (possibly, if not plausibly) pay off the national debt entirely over the next three years if we were willing to simply print off the money, loan it to the federal government, have them use it as part of a buy back program, and then have the fed forgive the resultant debt to the U.S. Congress. It would just destroy the dollar is all, and we would rapidly get caught in a downward spiral as the cost of our debt necessarily skyrocketed.

(IF the government were ever to seek a return on their dollars, any return would mean that dollars would be removed from the economy, which would not help matters.)

On the contrary, government does seek a return on its' dollars; it is simply that government is atrocious at getting it.

 

[mmi]

Re: The government debt is not a debt.

Hey

I'm back. ☺ I've waded through the entire thread, sort of disappointed to see that is has doubled in length since I was here yesterday evening. I was also disappointed with the outcome of the Bruins-Canadians game, but with the support of our resident Hab-hating Torontonian, I figure we'll get 'em Wednesday night.

I collected excerpts from other posts that I'd like to respond to. I'm gonna put 'em all in this post. I did this in another thread and it was criticised. I'm open to any feedback on my use of this method. I guess the point is that I'd ask any respondents hitting "Reply With Quote" to delete the parts that don't relate to yer response. Hope that makes sense.

All debt is a claim on future production. That is just a fact.

I'd say it's a claim, but not necessarily on "future production." Couldn't it be paid with existing assets?

the government buying up bonds is called QE and is heavily frowned on.

Frowned on by some, welcomed by others.

"So where has the positive impact on growth in advanced economies come from if not business investment and household expenditure?

Uplift in housing construction is one possibility. New US housing starts have been rising from the trough, and it is plausible that the housing sector recovery would have been slower without ultra-low interest rates.

But the clearest impact of low interest rates might be through government spending. By the end of 2012, governments in the United States, the United Kingdom, and the euro zone had collectively benefited by nearly $1.4 trillion compared with 2007 through lower interest payments on their debt.

The lion’s share of that—$900 billion or almost the equivalent of one year’s annual federal deficit at the peak of the crisis—went to the US government (Exhibit 3). The government of the UK benefited to the tune of $120 billion and euro zone governments collectively by $360 billion. In addition, these governments have benefited from the profits earned on expanded central bank balance sheets, worth some $145 billion for the US, $50 billion for the UK, and $5 billion for the euro zone. This windfall for governments has enabled more spending (or less borrowing). Austerity would have had to be tougher without QE and ultra-low interest rates." — Unconventional monetary policy: Quantitative easing, not as we know it, The Economist, Nov 14, 2013​

gonna ask you again what would happen if we lost reserve currency status.

Absolutely nothing. First off it wouldn't happen overnight, it would be so gradual that most people wouldn't even know it happened until it did. Like I said it is a meaningless distinction and only shows we export more currency than any nation on earth because we consume so many things.

a reversal of the trade deficit is all that we are talking about - it's not all bad.

I basically agree with JP Hochbaum and imagep. Here's a short article that lends support to them. I won't quote from it because it's only about a thousand words and pretty much all of it relates to this issue.

If the Dollar Stopped Being the Preeminent Reserve Currency It Would Mean More Jobs and Growth, Center for Economic and Policy Research, Oct 15, 2013

I should acknowledge that CEPR does have a liberal, progressive perspective. So for some of our conservative friends, yeah, they're commies.

The aggregate standard of living that we have is based upon the aggregate amount of our production.

I'd say it's based in part on that. What about existing wealth?

As far as spending to [increase revenue is concerned, the government is atrociously bad at judging which "loans" it will make. So a significant number of it's expenditures / "loans" will fail to produce the necessary return to make good on that $50 promise.

The government does not need to make a return on the dollars they spend into the economy.

I think cpwill is arguing that many government expenditures are an inefficient allocation of resources.

 

[mmi]

Re: The government debt is not a debt.

While your premise is logical to not call it debt you would still have to call it something or otherwise it would screw up all the accounting records we use. Remember that the economy and the markets are as much ruled by popular demand and are subject to confidence issues so its not all dry mathematics and logic. Once a majority of the population loses confidence in the markets and subsequently the government all your plans will amount to zilch.

I don't believe in full employment myself, its unachievable and should not be the goal.

I have quoted this entire post because I agree with every word of it. In my view, it is the outstanding contribution to this thread. As you guys say around here, I "liked" it.

It echoes an earlier contribution:

The dollar is valued pretty much the same way that everything else is. It's based upon what one party is willing to give for it, and what another party is willing to accept for a dollar. It's really that simple.

I've now gone back and "liked" that one too.

I have plans to bore you guys with a dissertation on inflation, but no time for that now.

 

[JP Hochbaum]

Re: The government debt is not a debt.

While your premise is logical to not call it debt you would still have to call it something or otherwise it would screw up all the accounting records we use. Remember that the economy and the markets are as much ruled by popular demand and are subject to confidence issues so its not all dry mathematics and logic. Once a majority of the population loses confidence in the markets and subsequently the government all your plans will amount to zilch.

I dont believe in full employment myself, its unachievable and should not be the goal.

Here is the thing, if full employment is not a goal then you need a basic income guarantee or droves of starving people.

 

[imagep]

Re: The government debt is not a debt.

Here is the thing, if full employment is not a goal then you need a basic income guarantee or droves of starving people.

I agree, but I think it depends exactly on how we define "full employment". and the concept of the guaranteed income is not likely to be socially acceptable due to the moral hazzard attached to it.

I think that the only definition of full employment that would matter would be one that includes our economy having enough jobs so that ever American family to have at least one income earner earning. Of course we don't currently track that metric, or if we do, we don't publicize or study it too much.

As long as there are ample jobs that can support families, then the unemployment rate as defined by current or past government metrics really doesn't matter much. Neither does the civilian labor force participation rate. Of course more job would always be better, but the minimum we should strive for should be based upon the number of households.

I have an issue with the metric of the civilian labor force participation rate anyway. We don't have a shortage of labor, I have no clue why we expect everyone over the age of 16 to be employed, with no top age end. It would make much more sense to look at the age bracket in which we actually expect people to be employed, something like between the ages of 21 and 65, or maybe even 25 and 60 to account for the likelyhood of early retirement and college/grad school/military service.

It might be time to start looking at different metrics.

 

[mmi]

Re: The government debt is not a debt.

I think that the only definition of full employment that would matter would be one that includes our economy having enough jobs so that ever American family to have at least one income earner earning. Of course we don't currently track that metric, or if we do, we don't publicize or study it too much.

In 2013, 80% of households had at least one family member employed; 72% had at least one family member employed full-time. (Employment Characteristics of Families)

The 20% of families with no member employed includes the large number in which all members are either retired, students focused on their studies, looking after young children or a sick or disabled relative, disabled and unable to work, too ill to work during that year but not disabled, choose not to work because the family has enough income/wealth already, and some others. There are many families with only retired members. There are very few families in which every labor force member is classified as "unemployed" the whole year.

One last point is that this statistic measures families, not households. Some households include families with no workers in a given year, but unrelated household members who do work.

I have an issue with the metric of the civilian labor force participation rate anyway. We don't have a shortage of labor, I have no clue why we expect everyone over the age of 16 to be employed, with no top age end. It would make much more sense to look at the age bracket in which we actually expect people to be employed, something like between the ages of 21 and 65, or maybe even 25 and 60 to account for the likelyhood of early retirement and college/grad school/military service.

It might be time to start looking at different metrics.

There are different metrics. I think you might be able to get an LFP rate for age 20-64, but I'm guessing you'd need to assemble it from raw data or else find someone who already did. You can get employment data for different age cohorts (16 to 19, 20 and over, 20 to 24, 25 to 54, 55 to 64, 65 and over), so I figure LFP may be calculable.

In fact, I might be able to produce a pretty good estimate for 20 and over. LFP for 16 to 19 last month was 33.2%, compared to 62.8 for all groups.

OK, I worked some numbers: LFP in April for 20 and over was 64.9. I can try to cut 'em off at age 65, I'm not sure how recent the data would be.

 

[JohnfrmClevelan]

Re: The government debt is not a debt.

While your premise is logical to not call it debt you would still have to call it something or otherwise it would screw up all the accounting records we use. Remember that the economy and the markets are as much ruled by popular demand and are subject to confidence issues so its not all dry mathematics and logic. Once a majority of the population loses confidence in the markets and subsequently the government all your plans will amount to zilch.

I don't really care what it's called. The important thing is that people (and politicians) understand that the country is not in debt, and does not go into debt when it creates more dollars. The accounting doesn't change because of what people perceive (which is the beauty of accounting).

And what would cause anybody to lose confidence in the dollar? I would think that learning that, hey, we aren't $17 trillion in the hole would be good news. Besides, I think that confidence is overrated. If you need to pay your rent and buy groceries, you are going to pay the going price. And if one grocer has raised his prices just because he thinks that the dollar is losing value, there is another one down the street that has kept his prices low. If there is food on the shelves to buy, why would anybody think that the dollar is losing value?

There are probably a bunch of goldbugs and inflationistas on this site that will argue that the dollar is going down the toilet, but I'll bet that they still conduct their transactions in dollars, like always.

I dont believe in full employment myself, its unachievable and should not be the goal.

Why not? What is your reasoning?

 

[JohnfrmClevelan]

Re: The government debt is not a debt.

False. There is no such thing as a free lunch. A) that comes with the cost of monetary management B) if loaned to the government it comes with the cost of interest and C) additional cost is paid by every current holder of dollars as their holdings are reduced relative to the baseline of what dollars would be worth if there were 50 less of them.

There is, of course, seignorage, so the government can eat that much for free. The interest, too, is free to print up. That much should not be up for debate, it is simply the mechanics of how fiat money is created. If you want to argue that it might be inflationary, that's fine, because demand-pull inflation is certainly the risk. But prices don't go up just because you have changed the numerator. The denominator, production, changes as well.

Hooray! We are all going to be as rich as Zimbabweans! Or maybe just Argentineans.

But we have not dismantled our productive capacity! And we have no foreign debts! So our economy should have no problem meeting the increased demand, and will be better off for the extra business! Hooray indeed!

That is also false. The federal reserve can influence the sale of bonds, but it does not control the interest rate for treasury bonds.

By participating in the bond auctions, the Fed can drive up the price of bonds as far as it wants to, which controls the rate. How else could they simply declare that they are going to lower/hold steady/raise interest rates?

That is incorrect for the simple enough reason that you cannot spend a bond without trading it back into cash, and government does not hold on to the cash. The Bank invests the $10K. The government just loses it.

The government is simply trading one of its liabilities for another. Nothing is lost. The government can exchange one piece of paper for another at no cost.

Incorrect. Once the government has spent the money it has to find a way to come up with both the interest and the principle.

What they don't collect in taxes, they simply create. Deficit spending is where dollars are born.

Sure. That's the argument that J.P. and Zimbabwe both use, too. That doesn't mean, however, that they are doing so in a manner that does not reduce national wealth.

National wealth is not defined by the amount of currency a nation has created, it is defined by what they produce, what they are able to produce, and to a lesser extent, what they have produced in the past that's still around. Deficit spending elicits production that would not otherwise have happened (even if that deficit spending is used to simply put money into the hands of the poor). It makes demand go up, so production goes up to meet that new demand. More stuff = more national wealth. You would have to invent an unrealistic scenario to make the case that government spending actually reduces our wealth somehow.

We could (possibly, if not plausibly) pay off the national debt entirely over the next three years if we were willing to simply print off the money, loan it to the federal government, have them use it as part of a buy back program, and then have the fed forgive the resultant debt to the U.S. Congress.

"Paying off" the national debt would simply be a matter of exchanging dollars for bonds. Change a couple of outdated laws, and we could simply issue dollars directly, if the national debt is that big a concern (it does not concern me).

....It would just destroy the dollar is all, and we would rapidly get caught in a downward spiral as the cost of our debt necessarily skyrocketed.

Why would we need debt? I thought you wanted to get rid of the national debt altogether.

Right now, various entities hold $17 trillion in bonds. They don't have to, though. They choose to. They aren't earning much of a return, either - it probably isn't even keeping up with inflation. So why don't they cash in those bonds and invest in something with a higher yield? Or why don't they just buy stuff? Do you really think that the tiny bit of interest those bonds pay is keeping anybody from cashing in and spending their dollars? Those bonds are going to be sitting there, unspent, for the foreseeable future. That money is as good as retired.

On the contrary, government does seek a return on its' dollars; it is simply that government is atrocious at getting it.

No, they don't. Give me some examples of our government trying to make a profit for the sake of funding expenditures.

 

[JohnfrmClevelan]

Re: The government debt is not a debt.

I think cpwill is arguing that many government expenditures are an inefficient allocation of resources.

Our argument is that it is more wasteful not to allocate available resources at all, especially when that resource is labor.

The argument against this is, of course, the possibility of inflation. But first, you have to show that the government spending in question is causing demand-pull inflation, and second, if there is inflation, you still have to weigh that against the obvious benefits of providing jobs for otherwise unemployed workers.

 

[mmi]

Re: The government debt is not a debt.

Our argument is that it is more wasteful not to allocate available resources at all, especially when that resource is labor.

I was just trying to explain his position, which I disagree with, because I thought you weren't quite understanding it. He thinks the private sector can allocate these resources more effectively. Fwiw, I do think the government needs to be careful to make expenditures wisely.

 

[imagep]

Re: The government debt is not a debt.

...
There are probably a bunch of goldbugs and inflationistas on this site that will argue that the dollar is going down the toilet, but I'll bet that they still conduct their transactions in dollars, like always....

Plenty times have I seen people say something like "the dollars isn't worth anything anymore", and I suggest that since it isn't worth anything to them, that they give me all their dollars. I've yet to have anyone take me up on my offer.

 

[imagep]

Re: The government debt is not a debt.

Our argument is that it is more wasteful not to allocate available resources at all, especially when that resource is labor.

The argument against this is, of course, the possibility of inflation. But first, you have to show that the government spending in question is causing demand-pull inflation, and second, if there is inflation, you still have to weigh that against the obvious benefits of providing jobs for otherwise unemployed workers.

Yup. Whenever I suggest that we should do whatever it takes to ensure that everyone who is wanting work and who is willing to work, has a job, then someone always chimes in saying "but what is the cost of doing that". My answer is "what is the cost of not having people working and producing wealth?"