US National Debt / Deficit - How does it end?

[twiifm]

2)If they ISSUE DEBT and spent it into the economy, then all they did was dilute everyone else's dollar holdings. Again, it wouldn't matter if it was spent by the unproductive ditch diggers on real goods, because the effect would be the same. As new money circulates through the economy the falsely perceived increase in wealth causes prices to be bid up. This is why the term inflation traditionally referred to an expansion of the money supply and price inflation is an effect of it. If wages keep up with inflation it might not be as bad, but typically they don't. People on fixed incomes and savers are also punished. Ask yourself why it's illegal for the average Joe to counterfeit money? So, why is ok for the gov?

Where the hell do you get this "create new currency" thing and constantly put these words in my mouth? I never said that in my post.
And inflation is much more complicated than "expansion of the money supply".

See correction above in BOLD. I say, "create new currency" and you say, "debt issuance" or "deficit spending". They are the same, except the terms you use make it unnecessarily complex sounding.

Those 4 million unproductive people in your example would be much better employed, but not at the expense of everyone else. They need to find productive jobs by creating value as entrepreneurs or being hired by a existing productive company.

It's a dilemma that socialists and capitalists can argue about forever. I won't.

I will make my final attempt at explaining this:

Scenario #1:

You build a house. You burn it down. You build another house.
Q: How many houses do you have?
A: 1

Scenario #2:

You build a house. You don't burn it down. You build another house.
Q: How many houses do you have?
A: 2


A child can understand that the same effort went into both scenarios, but that scenario #2 resulted in additional net wealth. How can you not understand how unproductive this is?

You don't need to argue with me, the empirical evidence proves that Socialism is complete bullshit.

I'd recommend reading some Murray Rothbard, Mises, Schiff, etc.

Who is Schiff?  Peter Schiff? Rothbard? LOL You just lost any credibility

I think the problem here is Roadtrain understands how Central Banking works and you don't.

You don't have to read any economists work.  Just go to the Federal Reserve website and start there first

[btcbug]

Who is Schiff?  Peter Schiff? Rothbard? LOL You just lost any credibility

I think the problem here is Roadtrain understands how Central Banking works and you don't.

You don't have to read any economists work.  Just go to the Federal Reserve website and start there first

Ok I guess I don't understand central banking. You win! It's fine to keep issuing debt and in turn encourage the expansion of welfare and warfare.

[wasserman99]

I say, "create new currency" and you say, "debt issuance" or "deficit spending". They are the same, except the terms you use make it unnecessarily complex sounding.

No, they aren't the same.

A child can understand that the same effort went into both scenarios, but that scenario #2 resulted in additional net wealth. You don't need to argue with me, the empirical evidence proves that Socialism is complete bullshit.

You missed my point.

Scenario #1: People are unemployed.
Net effect: poverty, human capital depreciation.

Scenario #2: People are digging ditches.
Net effect: we have ditches, poverty is reduced, still human capital depreciation.

Scenario #3: People are building infrastructure: roads, bridges, etc...
Net effect: we have improved infrastructure, human capital is preserved, poverty is reduced.

I prefer the third scenario, while you seem to prefer the first.

While the 3rd scenario does sound good on paper, in reality it is not. The fact is that government is worse at spending money then the private sector is (in other words it is spent less efficiently). You imply that the government would pay for all this which means that taxpayer money would not be spent efficiently (all money that government spends will eventually be paid for by taxpayers), unless you are part of the 47% who pay no taxes and rely exclusively on government you should care about this. For example the 2009 stimulus package that president Obama and the democrats passed ended up costing around $300,000 per ~$40,000 per year job created as a result of the stimulus.

Another problem is that you assume that we need more/better infrastructure. In many cases we do not and the money would be spent on things that would not even be used. One example of this is the $100 billion bullet train to no where in CA. Not only is the project expected to generate vastly less amounts of revenue then it will cost to build, but it is estimated to be greatly underutilized.

[RoadTrain]

While the 3rd scenario does sound good on paper, in reality it is not. The fact is that government is worse at spending money then the private sector is (in other words it is spent less efficiently). You imply that the government would pay for all this which means that taxpayer money would not be spent efficiently (all money that government spends will eventually be paid for by taxpayers), unless you are part of the 47% who pay no taxes and rely exclusively on government you should care about this. For example the 2009 stimulus package that president Obama and the democrats passed ended up costing around $300,000 per ~$40,000 per year job created as a result of the stimulus.

You haven't read the discussion from the beginning it seems. Because this premise is wrong in the modern monetary system:

all money that government spends will eventually be paid for by taxpayers

Another problem is that you assume that we need more/better infrastructure. In many cases we do not and the money would be spent on things that would not even be used. One example of this is the $100 billion bullet train to no where in CA. Not only is the project expected to generate vastly less amounts of revenue then it will cost to build, but it is estimated to be greatly underutilized.

There's always something to improve. If infrastructure is perfect, then spend money on fundamental science, medicine, education, whatever.

[51percemt]

While the 3rd scenario does sound good on paper, in reality it is not. The fact is that government is worse at spending money then the private sector is (in other words it is spent less efficiently). You imply that the government would pay for all this which means that taxpayer money would not be spent efficiently (all money that government spends will eventually be paid for by taxpayers), unless you are part of the 47% who pay no taxes and rely exclusively on government you should care about this. For example the 2009 stimulus package that president Obama and the democrats passed ended up costing around $300,000 per ~$40,000 per year job created as a result of the stimulus.

I haven't read the discussion from the beginning it seems. Because this premise is wrong in the modern monetary system:

all money that government spends will eventually be paid for by taxpayers

Another problem is that you assume that we need more/better infrastructure. In many cases we do not and the money would be spent on things that would not even be used. One example of this is the $100 billion bullet train to no where in CA. Not only is the project expected to generate vastly less amounts of revenue then it will cost to build, but it is estimated to be greatly underutilized.

There's always something to improve. If infrastructure is perfect, then spend money on fundamental science, medicine, education, whatever.

All money that government spends does eventually need to be paid for by taxpayers. Even if the government never pays back the debt they incur to spend this money the government will need to have otherwise higher taxes in order to service the debt forever.

All of you suggestions for government to spend money on other things (science, medicine, education, ect) could be more efficiently done in the private sector.

[RoadTrain]

All money that government spends does eventually need to be paid for by taxpayers. Even if the government never pays back the debt they incur to spend this money the government will need to have otherwise higher taxes in order to service the debt forever.

All of you suggestions for government to spend money on other things (science, medicine, education, ect) could be more efficiently done in the private sector.

I suggest you reading Modern Monetary Theory basics, which explain why government debt doesn't matter in the modern (fiat) monetary system.
If you go deep enough, you'll get what I mean here.

[zorke]

All money that government spends does eventually need to be paid for by taxpayers. Even if the government never pays back the debt they incur to spend this money the government will need to have otherwise higher taxes in order to service the debt forever.

All of you suggestions for government to spend money on other things (science, medicine, education, ect) could be more efficiently done in the private sector.

I suggest you reading Modern Monetary Theory basics, which explain why government debt doesn't matter in the modern (fiat) monetary system.
If you go deep enough, you'll get what I mean here.

This is only an economic theory. What it fails to account for is the fact that government borrowing must be offset by a less amount of lending in the private sector.

[RoadTrain]

All money that government spends does eventually need to be paid for by taxpayers. Even if the government never pays back the debt they incur to spend this money the government will need to have otherwise higher taxes in order to service the debt forever.

All of you suggestions for government to spend money on other things (science, medicine, education, ect) could be more efficiently done in the private sector.

I suggest you reading Modern Monetary Theory basics, which explain why government debt doesn't matter in the modern (fiat) monetary system.
If you go deep enough, you'll get what I mean here.

This is only an economic theory. What it fails to account for is the fact that government borrowing must be offset by a less amount of lending in the private sector.

What does it mean? Care to elaborate?

[zorke]

All money that government spends does eventually need to be paid for by taxpayers. Even if the government never pays back the debt they incur to spend this money the government will need to have otherwise higher taxes in order to service the debt forever.

All of you suggestions for government to spend money on other things (science, medicine, education, ect) could be more efficiently done in the private sector.

I suggest you reading Modern Monetary Theory basics, which explain why government debt doesn't matter in the modern (fiat) monetary system.
If you go deep enough, you'll get what I mean here.

This is only an economic theory. What it fails to account for is the fact that government borrowing must be offset by a less amount of lending in the private sector.

What does it mean? Care to elaborate?

For every dollar that is lent to the government, there is one less dollar that can not be lent to the private sector or invested in the private sector. I agree that US government bonds are treated almost like cash, however there is a limit as to how much these bonds can be borrowed against.

[leannemckim46]

While the 3rd scenario does sound good on paper, in reality it is not. The fact is that government is worse at spending money then the private sector is (in other words it is spent less efficiently). You imply that the government would pay for all this which means that taxpayer money would not be spent efficiently (all money that government spends will eventually be paid for by taxpayers), unless you are part of the 47% who pay no taxes and rely exclusively on government you should care about this. For example the 2009 stimulus package that president Obama and the democrats passed ended up costing around $300,000 per ~$40,000 per year job created as a result of the stimulus.

I haven't read the discussion from the beginning it seems. Because this premise is wrong in the modern monetary system:

all money that government spends will eventually be paid for by taxpayers

Another problem is that you assume that we need more/better infrastructure. In many cases we do not and the money would be spent on things that would not even be used. One example of this is the $100 billion bullet train to no where in CA. Not only is the project expected to generate vastly less amounts of revenue then it will cost to build, but it is estimated to be greatly underutilized.

There's always something to improve. If infrastructure is perfect, then spend money on fundamental science, medicine, education, whatever.

All money that government spends does eventually need to be paid for by taxpayers. Even if the government never pays back the debt they incur to spend this money the government will need to have otherwise higher taxes in order to service the debt forever.

All of you suggestions for government to spend money on other things (science, medicine, education, ect) could be more efficiently done in the private sector.

This is why it is bad to try to "stimulate" your way out of a recession as the money that is used for stimulus will ultimately need to be paid back via taxpayers (with interest). This is not a very efficient way of causing the economy to grow.

[btcbug]

While the 3rd scenario does sound good on paper, in reality it is not. The fact is that government is worse at spending money then the private sector is (in other words it is spent less efficiently). You imply that the government would pay for all this which means that taxpayer money would not be spent efficiently (all money that government spends will eventually be paid for by taxpayers), unless you are part of the 47% who pay no taxes and rely exclusively on government you should care about this. For example the 2009 stimulus package that president Obama and the democrats passed ended up costing around $300,000 per ~$40,000 per year job created as a result of the stimulus.

I haven't read the discussion from the beginning it seems. Because this premise is wrong in the modern monetary system:

all money that government spends will eventually be paid for by taxpayers

Another problem is that you assume that we need more/better infrastructure. In many cases we do not and the money would be spent on things that would not even be used. One example of this is the $100 billion bullet train to no where in CA. Not only is the project expected to generate vastly less amounts of revenue then it will cost to build, but it is estimated to be greatly underutilized.

There's always something to improve. If infrastructure is perfect, then spend money on fundamental science, medicine, education, whatever.

All money that government spends does eventually need to be paid for by taxpayers. Even if the government never pays back the debt they incur to spend this money the government will need to have otherwise higher taxes in order to service the debt forever.

All of you suggestions for government to spend money on other things (science, medicine, education, ect) could be more efficiently done in the private sector.

This is why it is bad to try to "stimulate" your way out of a recession as the money that is used for stimulus will ultimately need to be paid back via taxpayers (with interest). This is not a very efficient way of causing the economy to grow.

Another thing that's strange is how the idea of a recession been so made out to be so horrible. A recession is a necessary correction or adjustment to misallocation of resources. There is much reason to believe that if the government would stop intervening and "stimulating" that this would actually lessen the severity of booms and busts, but of course politicians think and teach that it's the opposite.

[twiifm]

While the 3rd scenario does sound good on paper, in reality it is not. The fact is that government is worse at spending money then the private sector is (in other words it is spent less efficiently). You imply that the government would pay for all this which means that taxpayer money would not be spent efficiently (all money that government spends will eventually be paid for by taxpayers), unless you are part of the 47% who pay no taxes and rely exclusively on government you should care about this. For example the 2009 stimulus package that president Obama and the democrats passed ended up costing around $300,000 per ~$40,000 per year job created as a result of the stimulus.

I haven't read the discussion from the beginning it seems. Because this premise is wrong in the modern monetary system:

all money that government spends will eventually be paid for by taxpayers

Another problem is that you assume that we need more/better infrastructure. In many cases we do not and the money would be spent on things that would not even be used. One example of this is the $100 billion bullet train to no where in CA. Not only is the project expected to generate vastly less amounts of revenue then it will cost to build, but it is estimated to be greatly underutilized.

There's always something to improve. If infrastructure is perfect, then spend money on fundamental science, medicine, education, whatever.

All money that government spends does eventually need to be paid for by taxpayers. Even if the government never pays back the debt they incur to spend this money the government will need to have otherwise higher taxes in order to service the debt forever.

All of you suggestions for government to spend money on other things (science, medicine, education, ect) could be more efficiently done in the private sector.

This is why it is bad to try to "stimulate" your way out of a recession as the money that is used for stimulus will ultimately need to be paid back via taxpayers (with interest). This is not a very efficient way of causing the economy to grow.

Another thing that's strange is how the idea of a recession been so made out to be so horrible. A recession is a necessary correction or adjustment to misallocation of resources. There is much reason to believe that if the government would stop intervening and "stimulating" that this would actually lessen the severity of booms and busts, but of course politicians think and teach that it's the opposite.

There's a difference between normal recession and what happened in 2008

[RoadTrain]

All money that government spends does eventually need to be paid for by taxpayers. Even if the government never pays back the debt they incur to spend this money the government will need to have otherwise higher taxes in order to service the debt forever.

All of you suggestions for government to spend money on other things (science, medicine, education, ect) could be more efficiently done in the private sector.

I suggest you reading Modern Monetary Theory basics, which explain why government debt doesn't matter in the modern (fiat) monetary system.
If you go deep enough, you'll get what I mean here.

This is only an economic theory. What it fails to account for is the fact that government borrowing must be offset by a less amount of lending in the private sector.

What does it mean? Care to elaborate?

For every dollar that is lent to the government, there is one less dollar that can not be lent to the private sector or invested in the private sector. I agree that US government bonds are treated almost like cash, however there is a limit as to how much these bonds can be borrowed against.

Wrong, government borrowing doesn't crowd out private investment per se. Government borrowing is a vertical transaction, while private investment is horizontal.

There's an article explaining this fallacy in simple words.
http://econrevival.blogspot.ru/2013/10/crowding-out-and-its-relation-to.html

[panju1]

Wrong, government borrowing doesn't crowd out private investment per se. Government borrowing is a vertical transaction, while private investment is horizontal.

There's an article explaining this fallacy in simple words.
http://econrevival.blogspot.ru/2013/10/crowding-out-and-its-relation-to.html

The blog does have some disclaimers.

Having said all this, is it possible that in some cases government spending influences business incentives to a degree that might cause less private investment. 

[RoadTrain]

Wrong, government borrowing doesn't crowd out private investment per se. Government borrowing is a vertical transaction, while private investment is horizontal.

There's an article explaining this fallacy in simple words.
http://econrevival.blogspot.ru/2013/10/crowding-out-and-its-relation-to.html

The blog does have some disclaimers.

Having said all this, is it possible that in some cases government spending influences business incentives to a degree that might cause less private investment. 

Of course it is. Probably. And I noted it by using adverb per se.

It's a government's responsibility to spend wisely, to try to achieve maximum efficiency in resource utilization. But that's not what most governments do.

[zorke]

All money that government spends does eventually need to be paid for by taxpayers. Even if the government never pays back the debt they incur to spend this money the government will need to have otherwise higher taxes in order to service the debt forever.

All of you suggestions for government to spend money on other things (science, medicine, education, ect) could be more efficiently done in the private sector.

I suggest you reading Modern Monetary Theory basics, which explain why government debt doesn't matter in the modern (fiat) monetary system.
If you go deep enough, you'll get what I mean here.

This is only an economic theory. What it fails to account for is the fact that government borrowing must be offset by a less amount of lending in the private sector.

What does it mean? Care to elaborate?

For every dollar that is lent to the government, there is one less dollar that can not be lent to the private sector or invested in the private sector. I agree that US government bonds are treated almost like cash, however there is a limit as to how much these bonds can be borrowed against.

Wrong, government borrowing doesn't crowd out private investment per se. Government borrowing is a vertical transaction, while private investment is horizontal.

There's an article explaining this fallacy in simple words.
http://econrevival.blogspot.ru/2013/10/crowding-out-and-its-relation-to.html

If government borrowing does not crowd our private investment then there would be no need for credit ratings for governments because it would be assumed that the debt would be paid back because they can borrow unlimited amounts without consequence to the private sector.

[toleng]

Wrong, government borrowing doesn't crowd out private investment per se. Government borrowing is a vertical transaction, while private investment is horizontal.

There's an article explaining this fallacy in simple words.
http://econrevival.blogspot.ru/2013/10/crowding-out-and-its-relation-to.html

The blog does have some disclaimers.

Having said all this, is it possible that in some cases government spending influences business incentives to a degree that might cause less private investment. 

Of course it is. Probably. And I noted it by using adverb per se.

It's a government's responsibility to spend wisely, to try to achieve maximum efficiency in resource utilization. But that's not what most governments do.

The government does not spend wisely, and is very inefficient in utilizing resources. Money lent to the government will be used less efficiently then money lent to the private sector.

If you say "per se" then your statement is effectively false.

[leannemckim46]

Wrong, government borrowing doesn't crowd out private investment per se. Government borrowing is a vertical transaction, while private investment is horizontal.

There's an article explaining this fallacy in simple words.
http://econrevival.blogspot.ru/2013/10/crowding-out-and-its-relation-to.html

The blog does have some disclaimers.

Having said all this, is it possible that in some cases government spending influences business incentives to a degree that might cause less private investment. 

I think that when government spending is at lower, "normal" levels then an additional dollar of government spending will cause overall private spending to decrease very little, if anything at all. However as government spending increases to a high percentage of GDP (including spending on interest on debt) then an additional dollar of government spending will cause private spending to decrease by similar amounts (or potentially more then a dollar if government spending is high enough).

[RoadTrain]

If government borrowing does not crowd our private investment then there would be no need for credit ratings for governments because it would be assumed that the debt would be paid back because they can borrow unlimited amounts without consequence to the private sector.

Weak argument. And yes, there ratings are useless for countries that issue debt in their own currencies.

The government does not spend wisely, and is very inefficient in utilizing resources. Money lent to the government will be used less efficiently then money lent to the private sector.

Bold term. And again it doesn't consider sectoral balances. Lending inside the private sector is completely different from "lending" to government. These are not interchangeable.

Also elaborate on what you mean when saying "money lent to the private sector". If you talk about ordinary bank credit, then it's not constrained at all and government debt has nothing to do with it.
Interest rates are set by the Fed, it's all that matters.

If you say "per se" then your statement is effectively false.

Why on earth is that? It influences the statement's meaning, not its validity. If you read carefully that quote

Having said all this, is it possible that in some cases government spending influences business incentives to a degree that might cause less private investment.  

you'll notice that it's about spending, while I talk about borrowing. Government spending can probably influence business incentives to reduce investment even with a surplus budget.

[botany]

I think that when government spending is at lower, "normal" levels then an additional dollar of government spending will cause overall private spending to decrease very little, if anything at all. However as government spending increases to a high percentage of GDP (including spending on interest on debt) then an additional dollar of government spending will cause private spending to decrease by similar amounts (or potentially more then a dollar if government spending is high enough).

Apart from the quantum of spending, we should also look at where the money is going in. If it is just being spent to maintain a bloated bureaucracy and fund some pet projects, then it is effectively going down the drain. On the other hand, if it is being channelled into productive investments, it would have a multiplier effect.