So I'll start by reminding you all of my logic on why high deficits are pretty awesome.
Post-Keynesian Economics wrote:First of all, it is important to remember that a government deficit means more money in our pockets. Or at the very least, a government deficit means more money in the private sector.What the above means is this: government deficits create private sector wealth, while government surpluses drain it. There is no trickery here. When the federal government spends in deficit, it does so by putting financial assets, usually in the form of Treasury bills, in the hands of the public; when it spends in surplus, the net quantity of Treasury bills held by the public declines.
http://www.forbes.com/sites/johntharvey/
In addition, empirical evidence and other countries have proven that a deficit can be a good thing.They thought all kinds of bad things about the deficit. And then, after the 2011 debt ceiling debacle and the formal downgrading of the credit rating of the United States, they were all proven utterly wrong. Immediately after the U.S. was downgraded, interest rates unexpectedly went down! They did not go up as universally feared. The U.S. government was not cut off from spending; was not down on its knees before the IMF begging for funding; and it was not the next Greece.
And the likes of Alan Greenspan and Warren Buffet immediately explained exactly why -- we "print" our own money. Just like Japan and the UK, for example, who also never face funding issues no matter how large their deficits may be, we always have the ability to make any size payment in our own currency -- U.S. dollars. The U.S. government is not like the Greek government that is not the issuer of the euro, and is not like California that is not the issuer of the U.S. dollar. So we can't be the next Greece or the next California, because the U.S. government is never dependent on borrowing or taxing to be able to spend. As the issuer of the dollar, that notion is entirely inapplicable. Yes, too much net spending might cause inflation, but there is never a solvency risk for the issuer of a currency.
http://www.huffingtonpost.com/warren-mosler/fiscal-cliff-debt_b_2114140.html
But don't worry, I know what many of you will jump to - inflation! And you have a legitimate concern, inflation can indeed be a serious issue. That's why if inflation gets too high, we should start reducing spending. But right now, inflation is actually below its target. Compared to the rest of the world, our inflation levels are incredibly healthy. Just look at Europe, where low inflation is actually damaging the ability of private individuals to pay off debt.
But in any case, even if you disagree with everything I just said in the paragraph above, deficit spending likely won't increase inflation anyway.
This article explains why through simple algebra: http://www.forbes.com/sites/johntharvey/2011/05/14/money-growth-does-not-cause-inflation/
I'd now like to make an extension and elaboration on a similar note with regard to the national debt.
For the most part, my arguments about the deficit can be transferred straight over to a debate about the national debt, though there is one potential additional issue: interest rates.
First of all, as you probably already know, the current interest rates on treasury bonds are pretty low.
http://3.bp.blogspot.com/-Scat_VEIW9I/URrH6UrACXI/AAAAAAAABqs/I6shP2ednNo/s1600/U.S.+Treasury+Bond+Interest+Rate+History.jpg
So as long as we maintain a policy that keeps the US a good investment - and keeps interest rates low as a result, then we can basically have as much debt as we want (though I'd prefer to keep it below 200% of GDP, Japan is sort of in a never-before-seen land of debt to GDP and I want to wait and see how it goes for them. In any case, there's no reason to think our debt will ever get that high unless another world war happens.)
Moreover, as an empirical example, the last time interest rates were high (look back above) our debt was actually at a historic low as a percentage of GDP.
http://media.resourceinvestor.com/resourceinvestor/article/2012/04/22/4-23-12-hgm-1-usdebttogdp2009-edited.jpg
"But WAIT!" you might exclaim. "Just in case interest rates get higher, shouldn't we try to keep our debt low?"
The truth is, high interest rates are bad no matter how big our debt is. And to get our national debt so low that high interest rates "wouldn't matter" would basically mean making our national debt close to zero, which is bad in itself.
That's where we get into not only why that national debt isn't a problem, but why it's actually pretty awesome for us.
As one columnist for The Week Magazine puts it, the national debt is our greatest export.
http://theweek.com/article/index/253564/americas-greatest-export-is-its-debt
The enormous trade deficit makes the U.S. a massive net importer of capital. And the world loves this. The U.S. government is the market leader in the provision of safe assets to the global financial system. And it is the number one provider of quality investment products for the world's savers. That's where the "glut of capital" that Ben Bernanke talks about comes from. The savings of the world come to America. It is the world's biggest investment fund.
We have a lot more capital because of our national debt. That means a stronger economy, higher standards of living, etc. And there is huge demand for US Dollars. Plus, when people buy stuff from us, they want to but those dollars in a "safe place." And there's no safer place to put them where they can accumulate in value than in US Treasuries.
So, as for as consequences, I would say that this means we should stop talking about the national debt like it is something we need to "fix." Instead, we should ensure its eternal stability by pursuing policies that keep inflation stable and interest rates low. The most important part of this is keeping demand for the dollar high. If we make our economic focus to keep high demand for the dollar, it's actually pretty easy. We pursue a foreign policy of dollarization when viable and appealing to countries especially in Latin America, and here at home we make sure that we spend more than we take in - but spend it on awesome ventures that make us a good investment. Let's look to a wide variety of energy sources, let's build mass transportation, and let's cut taxes and pursue subsidies for businesses that are innovating and making us an even better investment.
TLDR: Deficits are good, the national debt is good, we don't have to worry about inflation or interest rates, the national debt makes all of our lives easier and as a result we should stop worrying about it and make sure we stay a good investment.
Okay, so it was recommended that I add some specific discussion points, which is a good idea as far as actually getting responses. So I'll pose these questions:
Is the US National Debt good?
Should other countries allow the US to maintain its current debt policy?
What kind of policy should the US have with regard to its debt, inflation, interest rates, etc.?
