US National Debt / Deficit - How does it end?

[leannemckim46]

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.

The "multiplier effect" is part of the Keynesian theory of economics and is followed by many liberals. No matter how the government spends each additional dollar it will always create less then one additional dollar in economic output. (The Keynesians actually do not believe that government money needs to be channeled into productive investments).

Additionally if your statement was somehow true (it isn't) the government is still not able to put money to good use in efficient manner, the private sector is much better at this.

[RoadTrain]

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.

The "multiplier effect" is part of the Keynesian theory of economics and is followed by many liberals. No matter how the government spends each additional dollar it will always create less then one additional dollar in economic output. (The Keynesians actually do not believe that government money needs to be channeled into productive investments).

Let's get your facts straight. Economic output is measured by GDP. Expenditure approach of calculating GDP includes government spending in full, not some percentage. If it's not what you meant, please explain in detail.

In fact what government deficit spending does is taking money from those who don't want to spend and giving them to those who want to, but can't. It's that simple. It creates additional demand economy-wide that otherwise wouldn't be there. Yes, private sector is probably better at investing, but it wouldn't matter is there was no demand.

[Unbelive]

I have a lot of my own thoughts and fears about where the US national debt is leading our nation and the world. I feel like I’ve done enough of my own studying to have a good understanding of what the likely outcome(s) are but want to get some perspective from other well informed individuals here on bitcointalk.

My conclusion is that the US debt is already so out of control that it will just keep rising until we either default on our loans or we enter a period of rapid inflation as we try to pull a Weimar Republic and print our way out of debt. Maybe someone will contradict this conclusion but I think that the majority will agree that the US financial collapse is beyond preventing at this point even if it is for different reasons than my own.

The real area of interest to me is how does this end? I’ve been reading the book “Patriots” which I believe is the darkest possible scenario for a post economic collapse US. The collapse I am more inclined to believe in is that we’ll face hyperinflation for a short period until the deficit is effectively paid off and during this time our economy will become a basket case. Critical services (electricity, police, firemen, most businesses), communication (Internet, TV, newspapers), and our government will continue to function throughout. The chaos will be at its worst for a matter of months. The worst hit will be the poor who depend on services that may fail such as welfare, food stamps, and other entitlements. There will be regional violence but nothing large scale or long lasting. The loss of life due to things relating to the collapse will number in the thousands or maybe tens of thousands but certainly not millions.

What is everyone else’s view on just how this could play out? Or perhaps are there any who believe this sort of collapse will just never happen?

You will just loans new loans to pay of old ones. Luckily now they are cheap. But that might change soon.

[mustang77]

Usually, with a default. I would diversify real good by the time this approaches.

[dankkk]

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.

The "multiplier effect" is part of the Keynesian theory of economics and is followed by many liberals. No matter how the government spends each additional dollar it will always create less then one additional dollar in economic output. (The Keynesians actually do not believe that government money needs to be channeled into productive investments).

Let's get your facts straight. Economic output is measured by GDP. Expenditure approach of calculating GDP includes government spending in full, not some percentage. If it's not what you meant, please explain in detail.

In fact what government deficit spending does is taking money from those who don't want to spend and giving them to those who want to, but can't. It's that simple. It creates additional demand economy-wide that otherwise wouldn't be there. Yes, private sector is probably better at investing, but it wouldn't matter is there was no demand.

When the government spends an additional dollar, the private sector will spend some amount less. The reason for this is because when the government borrows money the private sector will need to lend to it. US government debt is generally considered to be near risk free, and can be used as collateral for loans at almost 100% of it's value. Since the private sector can not borrow 100% of the value of government debt, the amount below 100% that cannot be borrowed against is the amount of lower economic output due to additional government spending.

[The One]

It's very simple.

1. Do nothing...stick your fingers in your ears....pray to the lord.
The economic will collapse.

2. Create money to pay off the debt and at the same time a massive wealth tax on those with too much dosh......the money created to pay off the debt will incur a massive tax and that tax money will be destroyed......this will prevent hyper-inflation.

[RoadTrain]

When the government spends an additional dollar, the private sector will spend some amount less. The reason for this is because when the government borrows money the private sector will need to lend to it. US government debt is generally considered to be near risk free, and can be used as collateral for loans at almost 100% of it's value. Since the private sector can not borrow 100% of the value of government debt, the amount below 100% that cannot be borrowed against is the amount of lower economic output due to additional government spending.

I think I'm kinda confused. Do you want to say that when government spends additional dollar, the economic output effectively decreases?

Not to say that it's not private sector that needs to lend to the gov't, it's the gov't that issues debt so that private sector can easily net save.

[snappa4ever]

When the government spends an additional dollar, the private sector will spend some amount less. The reason for this is because when the government borrows money the private sector will need to lend to it. US government debt is generally considered to be near risk free, and can be used as collateral for loans at almost 100% of it's value. Since the private sector can not borrow 100% of the value of government debt, the amount below 100% that cannot be borrowed against is the amount of lower economic output due to additional government spending.

I think I'm kinda confused. Do you want to say that when government spends additional dollar, the economic output effectively decreases?

Not to say that it's not private sector that needs to lend to the gov't, it's the gov't that issues debt so that private sector can easily net save.

I would argue that when the government spends an additional dollar the private sector will spend a little bit less (at first well under a penny, but if government spends gets to high enough levels it will increase). Therefore when the government spends an additional dollar the total economy increases by less then one dollar.

[RoadTrain]

When the government spends an additional dollar, the private sector will spend some amount less. The reason for this is because when the government borrows money the private sector will need to lend to it. US government debt is generally considered to be near risk free, and can be used as collateral for loans at almost 100% of it's value. Since the private sector can not borrow 100% of the value of government debt, the amount below 100% that cannot be borrowed against is the amount of lower economic output due to additional government spending.

I think I'm kinda confused. Do you want to say that when government spends additional dollar, the economic output effectively decreases?

Not to say that it's not private sector that needs to lend to the gov't, it's the gov't that issues debt so that private sector can easily net save.

I would argue that when the government spends an additional dollar the private sector will spend a little bit less (at first well under a penny, but if government spends gets to high enough levels it will increase). Therefore when the government spends an additional dollar the total economy increases by less then one dollar.

And once again we come to the GDP calculating principle which clearly defines how government spending contributes to the economic output.

[zorke]

And once again we come to the GDP calculating principle which clearly defines how government spending contributes to the economic output.

If the government spends an additional dollar then $1 is added to GDP. If as a result of the additional borrowing the government needs to borrow as a result of this additional $1 in spending the private sector will spend (lets say) $0.01 less, therefore GDP would decline by $0.01. The net effect in this scenario is that government spending goes up by $1.00 but GDP only goes up by $0.99.

[RoadTrain]

And once again we come to the GDP calculating principle which clearly defines how government spending contributes to the economic output.

If the government spends an additional dollar then $1 is added to GDP. If as a result of the additional borrowing the government needs to borrow as a result of this additional $1 in spending the private sector will spend (lets say) $0.01 less, therefore GDP would decline by $0.01. The net effect in this scenario is that government spending goes up by $1.00 but GDP only goes up by $0.99.

That's a good explanation, but I don't see any reason why the increase in GDP is necassirily lower than additional government spending.
Keynes introduced a term to describe this effect: fiscal multiplier.

[manselr]

You are out of your mind if you think the debt will ever be paid. Check this beautiful page:

http://www.usdebtclock.org/

Numbers speak for themselves. I dont know if it will be Bitcoin, a new FIAT, or something, but the debt as we know it... that cannot be paid in a million years.

[CMMPro]

With extreme measures they can barely slow the rate of increase....talk a bout any sort of reversal and pay down.

[snappa4ever]

And once again we come to the GDP calculating principle which clearly defines how government spending contributes to the economic output.

If the government spends an additional dollar then $1 is added to GDP. If as a result of the additional borrowing the government needs to borrow as a result of this additional $1 in spending the private sector will spend (lets say) $0.01 less, therefore GDP would decline by $0.01. The net effect in this scenario is that government spending goes up by $1.00 but GDP only goes up by $0.99.

That's a good explanation, but I don't see any reason why the increase in GDP is necassirily lower than additional government spending.
Keynes introduced a term to describe this effect: fiscal multiplier.

They are wrong. This is why in the 2009 stimulus package, it cost ~$300k for each job that was created that was paying at most ~$50k

If this actually worked then there would never be a recession because countries could simply "stimulate" themselves out of negative economic growth.

[Grand_Voyageur]

- Assess the range of potential dangers to the US, along with benefits of US influence, and scale military spending appropriately, or let it grow more slowly with time.

Unfortunately scaling back the military kills huge numbers of jobs.

Scaling back the military kills huge numbers of unproductive jobs. If you put those people to work doing productive things instead, everybody will be better off.

Both military and defense industry related jobs are actually incredibly productive. The weapons that are created by defense related companies are able to save thousands (if not millions) of lives and can do incredible damage to our enemies. These weapons also can deter others from even thinking about attacking us.

Also economic studies told us that for every bucks US Govt put in Defense spending they got more than 1 buck growth in the US GDP. Only food stamps do better! 

[600watt]

the western elites know that it has driven the financial system and with it the entire economy so deep into the shit that there is no escape. defaulting would be admitting that they fucked up. the elites want to still be the elites AFTER the collapse. they cannot stay up there while admitting it was their beliefs, their ideology, their greed that got us into this mess. they need a scapegoat.

this scapegoat is and always has been: war

the elites will rather unleash an apocalypse which they can later blame all the cruelty on, than just admit they fucked up and leave the stage. afterwards they will tell the tale that it all broke during and because of the recent world war, and after everything is reset they will continue with their old ideology.

[RoadTrain]

And once again we come to the GDP calculating principle which clearly defines how government spending contributes to the economic output.

If the government spends an additional dollar then $1 is added to GDP. If as a result of the additional borrowing the government needs to borrow as a result of this additional $1 in spending the private sector will spend (lets say) $0.01 less, therefore GDP would decline by $0.01. The net effect in this scenario is that government spending goes up by $1.00 but GDP only goes up by $0.99.

That's a good explanation, but I don't see any reason why the increase in GDP is necassirily lower than additional government spending.
Keynes introduced a term to describe this effect: fiscal multiplier.

They are wrong. This is why in the 2009 stimulus package, it cost ~$300k for each job that was created that was paying at most ~$50k

If this actually worked then there would never be a recession because countries could simply "stimulate" themselves out of negative economic growth.

That's a weak argument. If you use a microscope to hammer in nails it's no wonder why it doesn't work well.
Budget is a powerful tool, but it should be used wisely. E.g. in expansionary economic regime increasing government spending might be pointless, while in a recession it makes a lot more sense.
http://www.nber.org/papers/w17447

[Q7]

Debt write-off? That's how i see it.

[CMMPro]

Debt write off? You know who are the bag holders then? US bond holders

All that wealth that the baby boomers have squirreled away for retirement...gone with the stroke of a pen.

It's already happening via inflation and QE....it's like a more secret and sinister version of Cyprus.

[redHeadBlunder]

And once again we come to the GDP calculating principle which clearly defines how government spending contributes to the economic output.

If the government spends an additional dollar then $1 is added to GDP. If as a result of the additional borrowing the government needs to borrow as a result of this additional $1 in spending the private sector will spend (lets say) $0.01 less, therefore GDP would decline by $0.01. The net effect in this scenario is that government spending goes up by $1.00 but GDP only goes up by $0.99.

That's a good explanation, but I don't see any reason why the increase in GDP is necassirily lower than additional government spending.
Keynes introduced a term to describe this effect: fiscal multiplier.

They are wrong. This is why in the 2009 stimulus package, it cost ~$300k for each job that was created that was paying at most ~$50k

If this actually worked then there would never be a recession because countries could simply "stimulate" themselves out of negative economic growth.

That's a weak argument. If you use a microscope to hammer in nails it's no wonder why it doesn't work well.
Budget is a powerful tool, but it should be used wisely. E.g. in expansionary economic regime increasing government spending might be pointless, while in a recession it makes a lot more sense.
http://www.nber.org/papers/w17447

He was arguing that you could prevent recessions by doing exactly what you are suggesting the government do.

IF the Kensians were correct then anytime there was a contraction in real GDP, the government could simply spend more money to "create" economic growth which would stop such recession.