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Where does the fear of the "national debt" come from?

David_N

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Is it the word "debt" that scares politicians and americans? I'm genuinely curious, for decades it's been doom and gloom, the debt can't go any higher, we're all dead when china "cashes in," we're going to burden our kids, etc...
 

Absentglare

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Is it the word "debt" that scares politicians and americans? I'm genuinely curious, for decades it's been doom and gloom, the debt can't go any higher, we're all dead when china "cashes in," we're going to burden our kids, etc...

These slides from a speech explain that fear of public debt helps to reinforce a zero interest rate trap like we're seeing in Japan and the USA:

http://sims.princeton.edu/yftp/Lindau/LindauSlides.pdf

The proposed solution is government spending without projecting the expectation to raise taxes or cut spending in the future.

Great !
 

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Is it the word "debt" that scares politicians and americans? I'm genuinely curious, for decades it's been doom and gloom, the debt can't go any higher, we're all dead when china "cashes in," we're going to burden our kids, etc...

If we hadn't run up the debt, we could double Social Security, not that that is how I would use the cash. ;)
 

joG

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These slides from a speech explain that fear of public debt helps to reinforce a zero interest rate trap like we're seeing in Japan and the USA:

http://sims.princeton.edu/yftp/Lindau/LindauSlides.pdf

The proposed solution is government spending without projecting the expectation to raise taxes or cut spending in the future.

Great !

Just let government print money till you can pay back the national debt from your Swiss Franc sight deposit.
 

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Is it the word "debt" that scares politicians and americans? I'm genuinely curious, for decades it's been doom and gloom, the debt can't go any higher, we're all dead when china "cashes in," we're going to burden our kids, etc...

Comes from ignorance and lack of education.
 

Fishking

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Because having debt makes you less stable and less able to weather economic storms. It also costs a significant amount in interest rates. We spend tens of billions of dollars a year, simply paying what equates to a minimum payment on our credit card. Just imagine all the "free" college that could provide or at what point do those payments actually start having a significant effect.

Fact is, the only reason why we have been insulated from normal economic realities is the rest of the world is floating our debt for us. We have trillions out in the petrol dollar and trillions out in international trade that's keeping out dollar afloat. If there ever came a time where people started significantly moving away from using the dollar in either of these two areas the economic realities would come crashing in so hard it would make the Great Depression look like a bull market.
 

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"Where does the fear of the "national debt" come from?"

Common sense and experience.
 

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Because having debt makes you less stable and less able to weather economic storms. It also costs a significant amount in interest rates. We spend tens of billions of dollars a year, simply paying what equates to a minimum payment on our credit card. Just imagine all the "free" college that could provide or at what point do those payments actually start having a significant effect.

Fact is, the only reason why we have been insulated from normal economic realities is the rest of the world is floating our debt for us. We have trillions out in the petrol dollar and trillions out in international trade that's keeping out dollar afloat. If there ever came a time where people started significantly moving away from using the dollar in either of these two areas the economic realities would come crashing in so hard it would make the Great Depression look like a bull market.

I've heard this idea before, in the argument that Saddam Hussein's prospective switch to the at-the-time comparatively strong Euro in pricing Iraq's oil could (being one of the world's biggest oil-producing countries) prompt others to follow, and produce catastrophic consequences for the US economy. I'm not really sure how the idea is meant to pan out in practice though: Would the consequence only be depreciation of the US dollar and national inflation? 'cos spread over a five or ten years, that wouldn't exactly seem to be catastrophic! Or is there more to it than that?
 

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Is it the word "debt" that scares politicians and americans? I'm genuinely curious, for decades it's been doom and gloom, the debt can't go any higher, we're all dead when china "cashes in," we're going to burden our kids, etc...

Well, if you are on board with spending the money of other people including that of your children and their children, your are living in the right country at the right time.

I'm old and hoping that the walls don't come crashing down before I die.

If the USA ran it's house the same way that I do, we'd be carrying no debt, SS would be fully funded, there would be a surplus in the Treasury and our neighbors would know they could count on us and work with us if needed.

They'd also know to stay off my lawn...

Just sayin'...
 

code1211

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I've heard this idea before, in the argument that Saddam Hussein's prospective switch to the at-the-time comparatively strong Euro in pricing Iraq's oil could (being one of the world's biggest oil-producing countries) prompt others to follow, and produce catastrophic consequences for the US economy. I'm not really sure how the idea is meant to pan out in practice though: Would the consequence only be depreciation of the US dollar and national inflation? 'cos spread over a five or ten years, that wouldn't exactly seem to be catastrophic! Or is there more to it than that?

That's very interesting and pretty much unreported in the torrent of the media reports on that war. Maybe too complex to relate in a 30 second sound bite.

This would at least make some sense in a stupid reactionary kind of way.

Maybe the invasion troops should have been looking for Euros rather than WMD...
 

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Is it the word "debt" that scares politicians and americans? I'm genuinely curious, for decades it's been doom and gloom, the debt can't go any higher, we're all dead when china "cashes in," we're going to burden our kids, etc...

From a couple of reads, your other thread and its linked article don't really seem to explain why America's gigantic national debt is a good thing; only trying to argue that it's not so bad after all.

And a good case might be made for national indebtedness during major economic downturns, to provide stimulus, which might then be paid off after recovery.

But massive, long-term indebtedness? I'm almost economically illiterate, so if these are mind-numbingly simple and/or factually incorrect objections please forgive me, but I'm keen to learn:

1 > Debt must be owed to either foreign or private interests, at the expense of the public. How can it be considered a good thing to keep handing over wads of public cash to other governments, private banks or wealthy speculators, however long payment is deferred? If it's necessary, so be it, and good on them for helping out the stimulus/recovery; but as a general public policy?

2 > Instability of interest rates could be crippling on a large debt. Your other thread said that interest on the US national debt halved between 2007 and 2015, if memory serves; which surely implies that under different circumstances it could just as easily double. Opinions seem to differ as to how much control the government has over those interest rates; your source claims little/none, that it's a mark of "investor confidence"; your critic claims that it's partly/mostly due to government controls. But I find it hard to imagine anyone would make those loans in the first place if interest was entirely up to government whimsy. So the possibility of higher rates on a large debt must surely be acknowledges?

3 > Paying the debt is either a cash-constrained financial burden, or requires creation of a lot of new money. Neither of which is a big problem with a small debt, but obviously the former is a big problem (and likely imposition on future generations) with a large debt, and the latter runs the risk of causing too much inflation; the larger the debt, the more risk that it'll be called in/paid off too quickly and create too much inflation.
 

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Is it the word "debt" that scares politicians and americans? I'm genuinely curious, for decades it's been doom and gloom, the debt can't go any higher, we're all dead when china "cashes in," we're going to burden our kids, etc...

The fear of National Debt came from liberals who have spent 30 years trying to invent something bad to attach to President Reagan. Now that they have been shown to support candidates who haven't seen a dollar they don't want to borrow, debt is good.

Kind of shows how intellectually vacant they are.
 

Absentglare

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Just let government print money till you can pay back the national debt from your Swiss Franc sight deposit.

It sounds like you don't understand how modern economics works.
 

Absentglare

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Because having debt makes you less stable and less able to weather economic storms. It also costs a significant amount in interest rates. We spend tens of billions of dollars a year, simply paying what equates to a minimum payment on our credit card. Just imagine all the "free" college that could provide or at what point do those payments actually start having a significant effect.

Fact is, the only reason why we have been insulated from normal economic realities is the rest of the world is floating our debt for us. We have trillions out in the petrol dollar and trillions out in international trade that's keeping out dollar afloat. If there ever came a time where people started significantly moving away from using the dollar in either of these two areas the economic realities would come crashing in so hard it would make the Great Depression look like a bull market.

This is, of course, completely wrong.

Debt, itself, doesn't hurt you when you are sovereign in your own currency. You explained no valid reason why debt is a burden- yes, we pay interest, and that interest we pay is close to inflation, so we are effectively borrowing money for free. Further, we're getting economic growth out of it.

And i don't care what other countries do with their dollars. Good, they should dump their dollars, they'll bring them back to our shores, make us wealthier while making our exports more appealing. Win win. Doesn't hurt us a bit.
 

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This is, of course, completely wrong.

And i don't care what other countries do with their dollars. Good, they should dump their dollars, they'll bring them back to our shores, make us wealthier while making our exports more appealing. Win win. Doesn't hurt us a bit.

Hmmm...you say I have it completely wrong yet you don't care what other countries do with our dollar. Not only that but you mistakenly believe that our dollars being dumped will work out for us and make us richer. That is what is completely wrong. Our money coming back in those amounts doesn't make us richer. It cheapens the dollar and will cause higher rates of inflation. Our dollar being used is what's keeping it afloat.
 

Absentglare

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Hmmm...you say I have it completely wrong yet you don't care what other countries do with our dollar. Not only that but you mistakenly believe that our dollars being dumped will work out for us and make us richer. That is what is completely wrong. Our money coming back in those amounts doesn't make us richer. It cheapens the dollar and will cause higher rates of inflation. Our dollar being used is what's keeping it afloat.

Which is exactly what we've been told China is doing to keep their exports competitively priced.

"In short there is every reason to believe that if a loss of confidence in the dollar led to a fall in its value that we would see a decline in the size of the trade deficit. If the trade deficit fell by 2 percentage points of GDP (@ $330 billion), this would directly lead to close to 2.7 million jobs. If we assume a multiplier effect of 1.5, then we would be looking at over 4 million jobs being created by this loss of confidence in the dollar. Are you scared yet?"

If the Dollar Stopped Being the Preeminent Reserve Currency It Would Mean More Jobs and Growth | Beat the Press | Blogs | Publications | The Center for Economic and Policy Research
 

TobyOne

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Portugal, Italy, Ireland and Greece all reached the point where big government weenies literally ran out of other people's money. In the world market it comes when creditors won't loan you any more money and you lose control of your own economy. The only reason the US isn't going through similar pain is that other countries debts and other countries currency make ours look good.

It was ironic that soon after our debt was downgraded instead there was a flight to quality to US investments because the Euro was under pressure. Its a crazy world when the dollar is seen as a safe haven.
 

Absentglare

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From a couple of reads, your other thread and its linked article don't really seem to explain why America's gigantic national debt is a good thing; only trying to argue that it's not so bad after all.

And a good case might be made for national indebtedness during major economic downturns, to provide stimulus, which might then be paid off after recovery.

But massive, long-term indebtedness? I'm almost economically illiterate, so if these are mind-numbingly simple and/or factually incorrect objections please forgive me, but I'm keen to learn:

1 > Debt must be owed to either foreign or private interests, at the expense of the public. How can it be considered a good thing to keep handing over wads of public cash to other governments, private banks or wealthy speculators, however long payment is deferred? If it's necessary, so be it, and good on them for helping out the stimulus/recovery; but as a general public policy?

2 > Instability of interest rates could be crippling on a large debt. Your other thread said that interest on the US national debt halved between 2007 and 2015, if memory serves; which surely implies that under different circumstances it could just as easily double. Opinions seem to differ as to how much control the government has over those interest rates; your source claims little/none, that it's a mark of "investor confidence"; your critic claims that it's partly/mostly due to government controls. But I find it hard to imagine anyone would make those loans in the first place if interest was entirely up to government whimsy. So the possibility of higher rates on a large debt must surely be acknowledges?

3 > Paying the debt is either a cash-constrained financial burden, or requires creation of a lot of new money. Neither of which is a big problem with a small debt, but obviously the former is a big problem (and likely imposition on future generations) with a large debt, and the latter runs the risk of causing too much inflation; the larger the debt, the more risk that it'll be called in/paid off too quickly and create too much inflation.

1> We are basically borrowing money for free, interest rates are close to inflation :

"A combination of unusual and unsustainable forces has pushed the cost of borrowing as low as it has ever been, so low that many investors effectively are paying to lend money to the government.

Investors buying five-year federal debt are accepting such low interest rates that inflation is on pace to reduce the value of their investments by more than 1 percent each year. Yet demand for United States Treasuries remains much greater than the supply."

A U.S. Boon in Low-Cost Borrowing - NYTimes.com

Granted, we won't be able to borrow for free forever, but debt can also be bought by the federal government, which then pays interest to itself- that accounts for maybe $5 trillion of our debt.

2> It is possible that interest rates will go up, but why would they ? The government can set the rate, and someone may elect to buy or not buy the bond. Generally, they have to raise interest rates when investors lose confidence in the bonds. This is one of the reasons that it is believed the strong military of the US is of great benefit to those who heavily invest in the US- it serves as a powerful stability guarantee.

But i digress. We buy a lot of our own bonds. That adds money to the supply and keeps interest rates down.

Forbes Welcome

3> Paying down debt either requires taking money out of the private sector (taxation) or taking out more debt. We've been borrowing and spending quite a bit, yet we haven't seen much inflation. There is an explanation for this- inflation doesn't necessarily occur when the government creates money. If the created money leads to production that would otherwise not have occurred, then the created money may not lead to inflation.

Said another way, if our borrowings become money well-spent, they don't hurt us in any meaningful way. As long as the economy continues to grow, we can continue to borrow. The question may be "how much," but i think it's clear that we aren't suffering from inflation. And i think that, even if we do have more inflation, that's not the end of the world.
 

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If we hadn't run up the debt, we could double Social Security, not that that is how I would use the cash. ;)

Huh? We could double social security anytime we want. That's just a fact. Should we? That's another debate.
 

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1> We are basically borrowing money for free, interest rates are close to inflation :

"A combination of unusual and unsustainable forces has pushed the cost of borrowing as low as it has ever been, so low that many investors effectively are paying to lend money to the government.

Investors buying five-year federal debt are accepting such low interest rates that inflation is on pace to reduce the value of their investments by more than 1 percent each year. Yet demand for United States Treasuries remains much greater than the supply."

A U.S. Boon in Low-Cost Borrowing - NYTimes.com

Granted, we won't be able to borrow for free forever, but debt can also be bought by the federal government, which then pays interest to itself- that accounts for maybe $5 trillion of our debt.

So the amount of wealth transferred by national debt from public to private or foreign hands is only the loan's interest rate minus inflation. Not the whole value of the loan; I should've known that, didn't really think that one through! So at current interest/inflation rates, that would make US debt a net gain in public wealth.

But on the other hand, if interest rates were say 1% higher than inflation, that would still mean a net transfer to private/foreign hands of some $130 billion per year, wouldn't it? And historically, higher interest than inflation seems to be the norm (eg. 1990 inflation ~5%, interest ~8%; 2000 inflation ~3%, interest ~6%; 2007 inflation ~3%, interest 5%), as should be expected; why would anyone pay to lend the government money under normal/prosperous circumstances, after all? If interest rates were 3% higher than inflation on current US debt to private/foreign entities, it would mean almost $500 billion per year in net loss to the public.

So wouldn't it be better to avoid such huge debt?

2> It is possible that interest rates will go up, but why would they ? The government can set the rate, and someone may elect to buy or not buy the bond. Generally, they have to raise interest rates when investors lose confidence in the bonds. This is one of the reasons that it is believed the strong military of the US is of great benefit to those who heavily invest in the US- it serves as a powerful stability guarantee.

But i digress. We buy a lot of our own bonds. That adds money to the supply and keeps interest rates down.

Forbes Welcome

Why would anyone buy the bonds if they're likely to be losing value on it? I'm not certain this is the correct information, but it seems that while the five year nominal interest rates have been around 1.5% for most of 2013-2015 (inflation at 1.6%, 1.5 and 0.1% respectively), the ten year interest rates have been generally above 2%, and 2.5-3% for 20 years. I wonder how much of the recent borrowing has been at those higher interest rates, rather than the well-publicised low rates which arguably benefit the public?
 

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3> Paying down debt either requires taking money out of the private sector (taxation) or taking out more debt. We've been borrowing and spending quite a bit, yet we haven't seen much inflation. There is an explanation for this- inflation doesn't necessarily occur when the government creates money. If the created money leads to production that would otherwise not have occurred, then the created money may not lead to inflation.

Said another way, if our borrowings become money well-spent, they don't hurt us in any meaningful way. As long as the economy continues to grow, we can continue to borrow. The question may be "how much," but i think it's clear that we aren't suffering from inflation. And i think that, even if we do have more inflation, that's not the end of the world.

Fair enough, but I don't think that really answers the question/objection. If you borrow a trillion dollars in 2017 and that money is sensibly invested in the economy leading to growth which counterbalances any inflationary effect, fair enough; but then if you keep borrowing rather than paying off the debt, it might be many years later before that balance is wholly returned to private creditors. So the initial economic growth is no longer relevant.

Assuming there's always willing creditors, you could keep on taking out new loans indefinitely (which is the problem of points 1 and 2, which are essentially the same objection in hindsight).

Or, to pay off the debt, you've either saddled the country of future decades with a vast burden which they didn't ask for and potentially haven't benefitted from; or else will need to print masses of new money which will cause a lot of inflation. If one or the other is managed so that it's done over a long period of time it might not be a big deal: But obviously the bigger the debt, the harder that will be do to.
 

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Well, if you are on board with spending the money of other people including that of your children and their children, your are living in the right country at the right time.

I'm old and hoping that the walls don't come crashing down before I die.

If the USA ran it's house the same way that I do, we'd be carrying no debt, SS would be fully funded, there would be a surplus in the Treasury and our neighbors would know they could count on us and work with us if needed.

They'd also know to stay off my lawn...

Just sayin'...

Would you have your own printing press too like the US,. Govt. has? Because if you did the walls couldn't come down.
 
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