What's so bad about federal deficits and/or the national debt?

[JohnfrmClevelan]

I asked this question many times in other threads, and I never have received a coherent answer, so let's try it again.

What are the negative aspects of running federal deficits?

What are the positive aspects of running federal surpluses?

What are the negative aspects of government debt?

What are the positive aspects of lowering government debt?

 

[Thom Paine]

I asked this question many times in other threads, and I never have received a coherent answer, so let's try it again.

What are the negative aspects of running federal deficits?

What are the positive aspects of running federal surpluses?

What are the negative aspects of government debt?

What are the positive aspects of lowering government debt?

The answers could be found by evaluating the same factors in application to one's personal finances.

What would those answers be when applied to your own financial well being?

 

[sawdust]

I asked this question many times in other threads, and I never have received a coherent answer, so let's try it again.

What are the negative aspects of running federal deficits?

What are the positive aspects of running federal surpluses?

What are the negative aspects of government debt?

What are the positive aspects of lowering government debt?

The negative aspect of constantly running deficits is the accumulation of debt. The positive aspect of running surpluses is the reduction of debt. The negative aspect of government debt is the payment of interest on the debt and the reduction of government's ability to pay for programs like education, defense and infrastructure. The positive aspect of lowering government debt is the reduction of interest payments.

All of your questions focus on one issue. The interest on money borrowed from other nations and payments to them. Much of our debt we owe to ourselves. All social security payments go into the general fund. There is no such thing as a lock box. The government borrows social security revenue and issues bonds which it buys to secure the money that it borrowed from itself. It's a ponzi scheme but when looking at the national debt, much of it is represented by bonds held to secure social security benefits which the government owes to the people who paid into the system.

 

[newpublius]

And the problem is in the degree. Nothing wrong with debt on its own, but its the amount which increases risk. You can borrow money by floating bonds to pay for a bridge and then charge a toll and have the toll receipts pay the bonds. That's completely rational. Having $17.8tn outstanding with systemic deficits to simply fund the government generally (and this doesn't count what the states owe) is allocating resources in a fundamentally bad manner in a way that foists the current costs of government onto future generations in a way that is patently inequitable, because of the degree of debt that is accumulating.

 

[Crovax]

The answers could be found by evaluating the same factors in application to one's personal finances.

What would those answers be when applied to your own financial well being?

Why public debt is not like credit card debt | The Great Debate

I dont agree with the conclusions of the article but making simplistic analogies is a poor substitute for real policy analysis.

 

[newpublius]

Why public debt is not like credit card debt | The Great Debate

I dont agree with the conclusions of the article but making simplistic analogies is a poor substitute for real policy analysis.

Of course the problem is that the ways in which the national debt isn't like credit card debt don't really make you feel better about it. First is the government can tax the people and the second is that they can just print money. These are obviously two things individual consumers can't do, but these aren't things that make you feel better about it. The ways in which they are similar remain the same, both tie up future cash flows (obviously credit card interest rates are much higher). Because the national debt essentially revolves, it has a variable rate, at the moment we are enjoying low rates. Returning to historical rates, merely average rates will cycle through and will eventually tie up increasing amounts of the federal budget. As a matter of fact that's exactly the way in which the national debt really IS just like credit card debt.

And what's worse about it is that the government is diverting trillions of dollars to government purposes instead of allowing those funds to flow elsewhere. The result is really quite predictable, they didn't say, "Gee, we borrowed $17.8tn and now we have these wonderful income producing assets that will pay for the debt, and leave leftover income streams so that we can lower the burden of taxation on the American people."

No, they didn't do that.

 

[JohnfrmClevelan]

...The ways in which they are similar remain the same, both tie up future cash flows (obviously credit card interest rates are much higher)....

With consumer debt, you are correct. But public debt does not impair a government's ability to create and spend more money.

It Is Impossible For The US To Default - Forbes

Because the national debt essentially revolves, it has a variable rate, at the moment we are enjoying low rates.

The interest rate is set by the Fed. We are enjoying low rates now because this is the policy that the Fed has chosen now.

Returning to historical rates, merely average rates will cycle through and will eventually tie up increasing amounts of the federal budget. As a matter of fact that's exactly the way in which the national debt really IS just like credit card debt.

See above. First of all, once a bond is sold, it's yield does not change. A secondary buyer might pay less than the original buyer, making his yield seem higher, but the government will be paying under the same terms that they agreed to when they sold the bond. Second, while higher interest might take up more of the budget, that is only a political concern, not an operational concern. Our government can pay any obligation that it needs to - coming up with the dollars is not an issue. Politics is the issue - and the debt/deficit is only a political football because 99.9% of Americans don't understand them.

And what's worse about it is that the government is diverting trillions of dollars to government purposes instead of allowing those funds to flow elsewhere. The result is really quite predictable, they didn't say, "Gee, we borrowed $17.8tn and now we have these wonderful income producing assets that will pay for the debt, and leave leftover income streams so that we can lower the burden of taxation on the American people."

No, they didn't do that.

The people/banks/countries that purchased bonds did so voluntarily. Those dollars were not going to be spent or invested elsewhere, they were going to be parked in the safest place possible. If bonds were offering 5-10%, you might have a point, but nobody is moving their dollars into U.S. treasuries because they offer the best return.

 

[the_recruit]

And the problem is in the degree. Nothing wrong with debt on its own, but its the amount which increases risk. You can borrow money by floating bonds to pay for a bridge and then charge a toll and have the toll receipts pay the bonds. That's completely rational. Having $17.8tn outstanding with systemic deficits to simply fund the government generally (and this doesn't count what the states owe) is allocating resources in a fundamentally bad manner in a way that foists the current costs of government onto future generations in a way that is patently inequitable, because of the degree of debt that is accumulating.

But the absolute numbers aren't relevant. What matters is the debt adjusted for GDP. Would you rather be someone earning a $250k salary a year with a $30k car loan or someone who is earning $40k a year with a $25k car loan? That's an easy choice for me. The absolute value of the debt doesn't completely capture the situation. And pointing out that 17.4 trillion (*gasp*) is a staggering number is disingenuous as our GDP happens to be a similarly staggering number.

BBC News - How bad are US debt levels?

Add to that the fact that we are still climbing back out of the nastiest financial crisis since the Great Depression of course debt levels are going to be on the high side.

Not only that but the argument can also be made that the debt and stimulus are better for the recovery, better for the economic health of future generations. That, absent our current debt levels, the recovery would be/would have been even more dismal and we would have wound up leaving our children in a much worse financial position. You're simply misrepresenting the rationale for borrowing during economic downturns, it's not to tide things over now at the expense of future generations (though you may believe that to be the case, that is not the argument as presented by Keynesians). Whether that rationale is correct is another matter.

 

[newpublius]

But the absolute numbers aren't relevant. What matters is the debt adjusted for GDP.

Of course and that is exactly what's been increasing and more importantly actually its really the debt burden, the cost to administer the debt, low because of low interest rates. @ $17.8tn each percentage point is $180bn in interest payments. Leverage makes every financial structure inherently riskier. If interest rates return to historical norms, the interest cost will slowly increase towards that new interest rate. That's a very probable result actually. You also have lower probability events that have higher impacts, like an oil supply shock that drives up interest rates. That couldn't possibly happen, right?

Point is that all of these funds that the government is borrowing are actually directing resources in a manner that the government wants and they're terrible at doing that.

The Keynesian prime the pump rationale presumes that the government will eventually run actual surpluses. In my lifetime, there's been very few of those and deficit after deficit after deficit, systemic deficits and the accumulation of ever greater portions of debt. The result is really quite predictable.

 

[Fenton]

Lol......More Monetary THEORY in a vacuum, huh ?

For every poster not living in a Fantasy world, don't mistake this thread for a opportunity to offer up a thoughtful debate on legitimate monetary policy.

Hey, when the Treasury and the Fed combine their forces so the Government can directly issue FIAT currency to provide for " full employment ", then we can start to lend some legitimacy to this ridiculous theory.

But right now, in the REAL WORLD, the Treasury's expenditures are unrelated to the issuance of currency and bank reserves. Thats because the Banks issue currency and the FED issues reserves.

Government expenditures are STILL regulated through our current Monetary policies.

In the REAL WORLD, having the Government employee millions with unlimited amounts of FIAT currency would corrupt and destroy our free market system far worse than the Keynesians " solution " that crowds out private investment and encourages speculation and savings.

There's ZERO real world evidence to back up the manufactured claims of the MMTers BECAUSE, its all based on Fiction.

 

[Fenton]

Of course and that is exactly what's been increasing and more importantly actually its really the debt burden, the cost to administer the debt, low because of low interest rates. @ $17.8tn each percentage point is $180bn in interest payments. Leverage makes every financial structure inherently riskier. If interest rates return to historical norms, the interest cost will slowly increase towards that new interest rate. That's a very probable result actually. You also have lower probability events that have higher impacts, like an oil supply shock that drives up interest rates. That couldn't possibly happen, right?

Point is that all of these funds that the government is borrowing are actually directing resources in a manner that the government wants and they're terrible at doing that.

The Keynesian prime the pump rationale presumes that the government will eventually run actual surpluses. In my lifetime, there's been very few of those and deficit after deficit after deficit, systemic deficits and the accumulation of ever greater portions of debt. The result is really quite predictable.

Hell yes they're terrible at doing that.

Instead of allowing the free market to do what it does best, pick the winners and losers, set the price according to demand and allocate investments efficiently.

Keynesians believe that Government deficit spending on Political pet projects and investments on Technological " advancements " not vetted through the private sector creates economic growth.

Obama's " Green Jobs " iniative was a great example of just how bad the Government is at making intelligent investments.

There should be no argument after billions were pumped into building a manufacturing base for a product no one wanted.

And a product that OBVIOUSLY could be manufactured cheaper in China.

Its what happens when you allow people, who inherently despise the free market on principle to particpate as venture Capitalists.

They don't understand the advantages of the Free market because they're ideologically predisposed to it.

So of-course it was a huge failure.

 

[JohnfrmClevelan]

Of course and that is exactly what's been increasing and more importantly actually its really the debt burden, the cost to administer the debt, low because of low interest rates. @ $17.8tn each percentage point is $180bn in interest payments.

None of which costs the government anything to pay. Tell me where the real cost is when the government creates dollars.

Leverage makes every financial structure inherently riskier.

How, exactly, is the government "leveraged"?

If interest rates return to historical norms, the interest cost will slowly increase towards that new interest rate. That's a very probable result actually. You also have lower probability events that have higher impacts, like an oil supply shock that drives up interest rates. That couldn't possibly happen, right?

Do you not agree that the Fed sets interest rates?

Point is that all of these funds that the government is borrowing are actually directing resources in a manner that the government wants and they're terrible at doing that.

The Keynesian prime the pump rationale presumes that the government will eventually run actual surpluses. In my lifetime, there's been very few of those and deficit after deficit after deficit, systemic deficits and the accumulation of ever greater portions of debt. The result is really quite predictable.

And what is that "predictable result"? That's the question that I have been trying to get somebody to answer.

 

[newpublius]

None of which costs the government anything to pay. Tell me where the real cost is when the government creates dollars.

Well then why even borrow dollars then? Why should the US government, constitutionally empowered to create money, borrow money? Just to say, don't worry about it....aka default, because the government can create money ex nihilo is actually exactly what I'm worried about.

"Tell me where the real cost is when the government creates dollars." <---this is really the troublesome aspect, its this attitude -- don't worry, we'll just stiff the creditors by paying back less money, they will continue to lend us money ANYWAY.

How, exactly, is the government "leveraged"?

Leverage in its actual context refers to a debt:equity ratio, which, as it increases, suggests riskier entities. In this context, a figurative extension of the term, just suggests a more heavily indebted government one which is an inherently riskier entity because its subject to the risk of interest rates impacting its payables, in this case the interest on the debt.

Do you not agree that the Fed sets interest rates?

Yes and also no. Yes in the sense that they can set the federal funds rate, no in the sense that they can't dictate to people what rate of interest they're willing to lend at.

And what is that "predictable result"? That's the question that I have been trying to get somebody to answer.

And I've been stating it right here. The first is that, as a society, we've already paid the opportunity cost of the borrowing, as a society we funded one thing: the government and then didn't fund the infinite variety of things that otherwise could've been funded. Secondly, the borrowing itself is just a form of future taxation and it will slowly crowd out the Federal budget even if interest rates simply return to historical norms. A real spike really puts us in the hole.

What do you think, cheap money is a fundamental right that is here to stay forever? What's predictable is very simple, if you run a cheap money policy for long enough, eventually it just becomes funny money. At the very minimum the United States has been living beyond its means for some time now actually and that's not forever, eventually that reckoning will come.

 

[JohnfrmClevelan]

Well then why even borrow dollars then? Why should the US government, constitutionally empowered to create money, borrow money? Just to say, don't worry about it....aka default, because the government can create money ex nihilo is actually exactly what I'm worried about.

Why go through the trouble of bond issuance? Because we are required by legislation left over from the gold standard days (when it made good sense) to keep Treasury's account at the Fed in the black. Back then, the govt. borrowed back gold-convertible dollars because they couldn't create more gold-convertible dollars than they had the gold to back. There are no such constraints with fiat currency.

I'm not sure why you are bringing up default here. Default is not paying your obligations. The fact that the govt. can create fiat currency as it wishes ensures that we can never be forced into defaulting.

No, The United States Will Not Go Into A Debt Crisis, Not Now, Not Ever - Forbes

"Tell me where the real cost is when the government creates dollars." <---this is really the troublesome aspect, its this attitude -- don't worry, we'll just stiff the creditors by paying back less money, they will continue to lend us money ANYWAY.

How is anybody "stiffing" creditors? The U.S. has never defaulted. We have always paid our obligations, in full. Who is paying back "less money"?

No, we don’t need China’s money to keep deficit spending - The Washington Post

Leverage in its actual context refers to a debt:equity ratio, which, as it increases, suggests riskier entities. In this context, a figurative extension of the term, just suggests a more heavily indebted government one which is an inherently riskier entity because its subject to the risk of interest rates impacting its payables, in this case the interest on the debt.

First of all, the U.S. controls the interest it pays on U.S. bonds. That shouldn't even be up for debate, yet you continue to cite this as a problem. Second, as any economist worth his salt will tell you, the risk of the U.S. defaulting on an obligation denominated in dollars is exactly ZERO. There is no risk to U.S. bonds. And it doesn't matter what interest rate the Fed may choose to pay, and it doesn't matter how much interest they have to pay - the risk is still ZERO. So the correct extension of the term would be to say that the U.S. government is not leveraged at all, since they can create an infinite amount of equity.

Yes and also no. Yes in the sense that they can set the federal funds rate, no in the sense that they can't dictate to people what rate of interest they're willing to lend at.

But we are only worried about the interest on the national debt here, and they obviously control that. As far as banks, they have always calculated risk and time value into their consumer/business interest rates. Nothing has changed in that regard. My mortgage rate is very low because the banks' cost to borrow was low when the loan was made. So in reality, the Fed funds rate does set the bar for other loan rates.

And I've been stating it right here. The first is that, as a society, we've already paid the opportunity cost of the borrowing, as a society we funded one thing: the government and then didn't fund the infinite variety of things that otherwise could've been funded. Secondly, the borrowing itself is just a form of future taxation and it will slowly crowd out the Federal budget even if interest rates simply return to historical norms. A real spike really puts us in the hole.

And I countered that there is no "opportunity cost" when the money used to purchase bonds wasn't going to be used for spending or investment anyway. Every buyer was (and still is) completely free to use their dollars on spending or investment, but they instead opted for a minuscule but safe return that probably didn't even keep up with inflation. The private sector is more than welcome to spend and/or invest that money, but they don't. Nobody is being "crowded out" of anything.

And bond issuance is not a form of "future taxation," whatever that is. How do you think you are taxed for previous generations' "borrowing"?

What do you think, cheap money is a fundamental right that is here to stay forever? What's predictable is very simple, if you run a cheap money policy for long enough, eventually it just becomes funny money. At the very minimum the United States has been living beyond its means for some time now actually and that's not forever, eventually that reckoning will come.

What makes you believe that money should be expensive? I don't even get the reasoning here. What would you do to make the dollar "expensive," and how do you think that would help our economy?

The United States has not been living above its means at all. Our economy has the productive capacity - the labor, the factories, the materials, the energy, etc. - to produce far more than it does at present. We aren't producing or consuming anywhere near what we could.

 

[cpwill]

I asked this question many times in other threads, and I never have received a coherent answer, so let's try it again.

What are the negative aspects of running federal deficits?

It leads to greater debt.

What are the positive aspects of running federal surpluses?

It allows us to pay down debt.

What are the negative aspects of government debt?

It slows growth, reducing our standard of living and threatening our national fisc.

What are the positive aspects of lowering government debt?

Higher growth due to the greater ability to steer resources towards productive uses.

 

[JohnfrmClevelan]

It leads to greater debt.



It allows us to pay down debt.



It slows growth, reducing our standard of living and threatening our national fisc.

This is the Reinhart & Rogoff argument, which was flawed.

https://www.creditwritedowns.com/20...ff-paper-was-flawed-right-from-the-start.html

http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_301-350/WP322.pdf

This paper is worth a read: Government Debt and Economic Growth | Economic Policy Institute

"In short, the statistical evidence strongly suggests that the causality runs from growth to debt, and not the reverse."

Higher growth due to the greater ability to steer resources towards productive uses.

What resources are being steered away from productive uses now? What, exactly, is the private sector being deprived of here?

 

[Fenton]

But the absolute numbers aren't relevant. What matters is the debt adjusted for GDP. Would you rather be someone earning a $250k salary a year with a $30k car loan or someone who is earning $40k a year with a $25k car loan? That's an easy choice for me. The absolute value of the debt doesn't completely capture the situation. And pointing out that 17.4 trillion (*gasp*) is a staggering number is disingenuous as our GDP happens to be a similarly staggering number.

BBC News - How bad are US debt levels?

Add to that the fact that we are still climbing back out of the nastiest financial crisis since the Great Depression of course debt levels are going to be on the high side.

Not only that but the argument can also be made that the debt and stimulus are better for the recovery, better for the economic health of future generations. That, absent our current debt levels, the recovery would be/would have been even more dismal and we would have wound up leaving our children in a much worse financial position. You're simply misrepresenting the rationale for borrowing during economic downturns, it's not to tide things over now at the expense of future generations (though you may believe that to be the case, that is not the argument as presented by Keynesians). Whether that rationale is correct is another matter.

There is nothing to back up that assertion.

That adding Trillions in new debt either saved us from a Depression or that absent our current debt levels that the recovery would have been even more dismal.

Obama's claims of " Jobs saved " isn't even based on empirical data or even existing metrics for employment calculation.

The Government doesn't allocate capital efficiently, or intelligently, or even ethically. It distributes it to perpetuate Political narratives and agendas.

His " Green job's " iniative is proof of that and Japan's continued economic stuglles is proof of the ineffectiveness of Fiscal Stimulus to " tied things over ".

There is far more evidence that Keynesian Fiscal Stimulus leads to extended economic misery and slows down recoveries.

 

[MTAtech]

The answers could be found by evaluating the same factors in application to one's personal finances.

What would those answers be when applied to your own financial well being?

First, families have to pay back their debt. Governments don’t -- all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.

Second, an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.

This was clearly true of the debt incurred to win World War II. Taxpayers were on the hook for a debt that was significantly bigger, as a percentage of GDP, than debt today; but that debt was also owned by taxpayers, such as all the people who bought savings bonds. So the debt didn’t make postwar America poorer. In particular, the debt didn’t prevent the postwar generation from experiencing the biggest rise in incomes and living standards in our nation’s history.

 

[MTAtech]

...
The Government doesn't allocate capital efficiently, or intelligently, or even ethically. It distributes it to perpetuate Political narratives and agendas.
...

That's just conservative doctrine that is held like a religion and never subjected to intellectual scrutiny. Who says that the private sector allocates capital any more efficiently? A few years ago the private capital markets invested in anything that had "net" in its name. Many of those firms were valued at more than Ford but never had any earnings.

Regarding ethical distribution, prohibition was passed because men would get paid weekly and immediately squander their entire pay in the local saloons and deprive their families.

We could eliminate the fee or tax that goes to pay air traffic controllers and fire the air traffic controllers. Do you really think that the recipients of that tax-savings will use that money more wisely than the government having it spent on keeping planes from crashing into each other?

 

[Born Free]

None of which costs the government anything to pay. Tell me where the real cost is when the government creates dollars.

Here's your answer

The Problem with Printing Money | Economics Help

How, exactly, is the government "leveraged"?

No different than you leverage your house to borrow money to buy a new car.

Do you not agree that the Fed sets interest rates?

Interest rates help control inflation, now there is downward pressure on the price of goods, keeping inflation under control thus the fed can keep interest rates low, but the reverse happens with inflation rises to high. And the people that are really hurt with high inflation are the people on fixed income and the middle class as their dollar does not go as far. The rich can pay a higher price but not the lower income workers.

And what is that "predictable result"? That's the question that I have been trying to get somebody to answer.

Look no further than Greece and Spain. Their credit to pay any loans back makes for extreme interest rates and cuts in government spending and can make no loans at all. This is no different than a bank wanting to not loan you money as you have bad credit or you show you have not way of paying it back.

Do you ever think what will happen when government stops borrowing money, that means less government spending, and think how that would hurt our economy. So you say keep borrowing but there becomes an end to credit to pay it back. Then think what it is going to be like when we have to pay the debt back, not only are we not borrowing but we are taking dollars out of peoples pockets to pay it back (higher taxes). A double hit to our economy. For us to pay back any debt we have to have a roaring economy, unlike what we have now.

 

[pdog]

"Tell me where the real cost is when the government creates dollars." <---this is really the troublesome aspect, its this attitude -- don't worry, we'll just stiff the creditors by paying back less money, they will continue to lend us money ANYWAY.

It allows us to pay down debt.

Please explain how you "pay back/down" China, for example, who I believe holds $1T in treasuries.

We bought products from china with U.S. Dollars. They then chose to purchase bonds with those dollars so they could get a return. Do you refuse the option for treasuries, exposing their dollars to inflation?

 

[pdog]

Here's your answer

The Problem with Printing Money | Economics Help

From your article:
"The reason is that printing more money doesn’t increase economic output in any way – it merely causes inflation."

Inflation is too much money chasing too few goods. What happens though if you increase the number of goods? Plus where is this inflation now?

No different than you leverage your house to borrow money to buy a new car.

Really? You have a money printer at home? That must be awesome.

now there is downward pressure on the price of goods, keeping inflation under control

I'm confused - prices are controlling inflation?

Look no further than Greece and Spain.

Why? Can they print their own money? No. That's a primary reason while I'm still able to vote republican on the state level, despite thinking that they are out of their minds at the federal level. Debt has an entirely different meaning when you can service it at will will. Greece, Spain, Texas, Rhode Island, etc do NOT have their own currency.

 

[pdog]

First, families have to pay back their debt. Governments don’t -- all they need to do is ensure that debt grows more slowly than their tax base.

Technically speaking even a family (husband and wife) could leverage themselves to the hilt if they timed it right. Why die with savings ?

I guess I just wanted to point out another reason why "governments don't" - governments don't have a fixed lifespan, people do. Yet another reason why household comparisons are meaningless to an entity with it's own currency.

 

[jaeger19]

I asked this question many times in other threads, and I never have received a coherent answer, so let's try it again.

What are the negative aspects of running federal deficits?

What are the positive aspects of running federal surpluses?

What are the negative aspects of government debt?

What are the positive aspects of lowering government debt?

1. running a federal deficit can be bad when continuous federal deficits make a government default on its loans OR end up reducing the value of its currency with inflation in order to pay its debts by increase printing of money. When this happens, faith in the currency.. which now is banked only by the "full faith and credit" of the government. In other words.. at its worst point... no other country and no citizen will accept the US dollar as a means of currency.

2. Running a federal surplus certainly helps your credit as a government for those times when its necessary to borrow. In addition, a surplus allows you extra money for infrastructure when needed, and to put money away for "rainy day funds".. (as states especially used to have). this causes less disruption during difficult times.

3. The debt is a negative factor because its the barometer that investors and lenders use to determine the "full faith and credit" of the united states. As the debt grows... so does the money needed to service old debt, not just new debt.

4. Lower the debt helps rebalance the "full faith and credit" of the government. US currency has value only if people believe that US currency has value.. otherwise its just paper with green ink. Thus lowering the debt signals that the government is in good health financially and thus the dollar has worth.

 

[pdog]

1. running a federal deficit can be bad when continuous federal deficits make a government default on its loans OR end up reducing the value of its currency with inflation in order to pay its debts by increase printing of money. When this happens, faith in the currency.. which now is banked only by the "full faith and credit" of the government. In other words.. at its worst point... no other country and no citizen will accept the US dollar as a means of currency.

2. Running a federal surplus certainly helps your credit as a government for those times when its necessary to borrow. In addition, a surplus allows you extra money for infrastructure when needed, and to put money away for "rainy day funds".. (as states especially used to have). this causes less disruption during difficult times.

3. The debt is a negative factor because its the barometer that investors and lenders use to determine the "full faith and credit" of the united states. As the debt grows... so does the money needed to service old debt, not just new debt.

4. Lower the debt helps rebalance the "full faith and credit" of the government. US currency has value only if people believe that US currency has value.. otherwise its just paper with green ink. Thus lowering the debt signals that the government is in good health financially and thus the dollar has worth.

#1a - How do you default if you can create the payment at will?

#1b - This is entirely based on inflation. Why are we not experiencing inflation now? Assuming that the currency made it into hands that could spend it, couldn't we produce more goods to meet the demand?

#2 - Why do we borrow something that we create at will?

#3 - Isn't "full faith" based on the ability to pay? How would we not be able to pay?

#4 - You're still basing everything on inflation which you cannot show. Further, people don't get to arbitrarily decide if their sovereign currency has value. As long as you can go to jail for not paying taxes, it will always have value.