National Debt Thread II: Attack of the Fiscal Responsibility

[Post-Keynesian Economics]

After seeing a few... erm... less than informed (in my opinion) statements on the national debt in this forum, I'd like to again open up the validity of concern over the national debt back up for another debate.

Now, last time (viewtopic.php?f=20&t=286208), I laid out my argument and though it was provocative, it didn't get a lot of substantial opposition simply because nobody really wanted to respond to my giant text blocks of arguments. And that's understandable. So, in an effort to be more accessible and less jargon-y, I want to present my argument in a more simplistic sense and then if anyone wants to get deep and dirty in the economics, I'm happy to get in there with them.


Here's just a few simple reasons why our national debt is not as dire of a situation as it is portrayed.

1. China only owns about 8% of our debt. Most of our debt is owed to individuals and banks within the United States.

2. No country can "call in" our debt. That's not how public bond markets work. If a country wants money for its debt holdings, it will sell bonds to another country.

3. The main difference between the US and Greece is that Greece does not fully control its own currency.

4. The national debt of the United States is not currently the biggest for the nation in history because it was bigger as a proportion of GDP during World War II, and our debt did not keep our economy from booming.

5. Lack of debt does not insulate us from economic problems, proven when paying off our debt in 1835 was followed by a long recession.

6. Many nations have larger debts relative to GDP including Ireland, Iceland, the UK, the Netherlands, Belgium, Monaco, Switzerland, Portugal, Austria, Sweden, France, Denmark, Finland, Germany, and New Zealand.

7. The only time in modern US history that we dealt with an inflation problem was during a time of relatively low debt and was caused by forces outside the domestic economy.

So, NSG, are you concerned about the national debt? Should we be really working towards a balanced budget? Should we be cutting spending if only to "reduce the national debt?"

I'm eager to hear your responses.

[Elemental North]

After seeing a few... erm... less than informed (in my opinion) statements on the national debt in this forum, I'd like to again open up the validity of concern over the national debt back up for another debate.

Now, last time (viewtopic.php?f=20&t=286208), I laid out my argument and though it was provocative, it didn't get a lot of substantial opposition simply because nobody really wanted to respond to my giant text blocks of arguments. And that's understandable. So, in an effort to be more accessible and less jargon-y, I want to present my argument in a more simplistic sense and then if anyone wants to get deep and dirty in the economics, I'm happy to get in there with them.


Here's just a few simple reasons why our national debt is not as dire of a situation as it is portrayed.

1. China only owns about 8% of our debt. Most of our debt is owed to individuals and banks within the United States.

2. No country can "call in" our debt. That's not how public bond markets work. If a country wants money for its debt holdings, it will sell bonds to another country.

3. The main difference between the US and Greece is that Greece does not fully control its own currency.

4. The national debt of the United States is not currently the biggest for the nation in history because it was bigger as a proportion of GDP during World War II, and our debt did not keep our economy from booming.

5. Lack of debt does not insulate us from economic problems, proven when paying off our debt in 1835 was followed by a long recession.

6. Many nations have larger debts relative to GDP including Ireland, Iceland, the UK, the Netherlands, Belgium, Monaco, Switzerland, Portugal, Austria, Sweden, France, Denmark, Finland, Germany, and New Zealand.

7. The only time in modern US history that we dealt with an inflation problem was during a time of relatively low debt and was caused by forces outside the domestic economy.

So, NSG, are you concerned about the national debt? Should we be really working towards a balanced budget? Should we be cutting spending if only to "reduce the national debt?"

I'm eager to hear your responses.

Well in the view of Fiat Currency, and the fact that if it wanted to, this country could pay off it's debt, give everyone a Christmas bonus, healthcare, a free ride to college and a new puppy because of the Fiat state of our currency, I do not think it of very much worry. However, cutting spending in things like defense is still important, if we're not going to admit the above fact, and the consequences associated with it.

[Llamalandia]

If the fed continues a policy of low (basically zero) interest rates and continues to allow our currency to devalue relatively speaking, we'll be screwed as the rest of the world will in fact eventually drop the dollar as the world reserve currency and either adopt the renminbi the IMF xdr, the euro or some other "bankor" like international currency instead. Once dollar hegemony falls no one will really be clamping to buy our debt at which point they are in effect "defacto calling" our debt. Likewise increasing our debt load too far may also weaken the dollar in the world economy hence again causing it to be dropped in favor of something else.

[Post-Keynesian Economics]

After seeing a few... erm... less than informed (in my opinion) statements on the national debt in this forum, I'd like to again open up the validity of concern over the national debt back up for another debate.

Now, last time (viewtopic.php?f=20&t=286208), I laid out my argument and though it was provocative, it didn't get a lot of substantial opposition simply because nobody really wanted to respond to my giant text blocks of arguments. And that's understandable. So, in an effort to be more accessible and less jargon-y, I want to present my argument in a more simplistic sense and then if anyone wants to get deep and dirty in the economics, I'm happy to get in there with them.


Here's just a few simple reasons why our national debt is not as dire of a situation as it is portrayed.

1. China only owns about 8% of our debt. Most of our debt is owed to individuals and banks within the United States.

2. No country can "call in" our debt. That's not how public bond markets work. If a country wants money for its debt holdings, it will sell bonds to another country.

3. The main difference between the US and Greece is that Greece does not fully control its own currency.

4. The national debt of the United States is not currently the biggest for the nation in history because it was bigger as a proportion of GDP during World War II, and our debt did not keep our economy from booming.

5. Lack of debt does not insulate us from economic problems, proven when paying off our debt in 1835 was followed by a long recession.

6. Many nations have larger debts relative to GDP including Ireland, Iceland, the UK, the Netherlands, Belgium, Monaco, Switzerland, Portugal, Austria, Sweden, France, Denmark, Finland, Germany, and New Zealand.

7. The only time in modern US history that we dealt with an inflation problem was during a time of relatively low debt and was caused by forces outside the domestic economy.

So, NSG, are you concerned about the national debt? Should we be really working towards a balanced budget? Should we be cutting spending if only to "reduce the national debt?"

I'm eager to hear your responses.

Well in the view of Fiat Currency, and the fact that if it wanted to, this country could pay off it's debt, give everyone a Christmas bonus, healthcare, a free ride to college and a new puppy because of the Fiat state of our currency, I do not think it of very much worry. However, cutting spending in things like defense is still important, if we're not going to admit the above fact, and the consequences associated with it.

It's a balancing act. Yes, in the view of fiat currency, we COULD do exactly what you say. But inflation would skyrocket. That's why we, as good managers of money, offset these issues through not spending when we don't have to (like paying off the debt entirely, which would only cause harm) and by taxing.

[Eastern Equestria]

After seeing a few... erm... less than informed (in my opinion) statements on the national debt in this forum, I'd like to again open up the validity of concern over the national debt back up for another debate.

Now, last time (viewtopic.php?f=20&t=286208), I laid out my argument and though it was provocative, it didn't get a lot of substantial opposition simply because nobody really wanted to respond to my giant text blocks of arguments. And that's understandable. So, in an effort to be more accessible and less jargon-y, I want to present my argument in a more simplistic sense and then if anyone wants to get deep and dirty in the economics, I'm happy to get in there with them.


Here's just a few simple reasons why our national debt is not as dire of a situation as it is portrayed.

1. China only owns about 8% of our debt. Most of our debt is owed to individuals and banks within the United States.

2. No country can "call in" our debt. That's not how public bond markets work. If a country wants money for its debt holdings, it will sell bonds to another country.

3. The main difference between the US and Greece is that Greece does not fully control its own currency.

4. The national debt of the United States is not currently the biggest for the nation in history because it was bigger as a proportion of GDP during World War II, and our debt did not keep our economy from booming.

5. Lack of debt does not insulate us from economic problems, proven when paying off our debt in 1835 was followed by a long recession.

6. Many nations have larger debts relative to GDP including Ireland, Iceland, the UK, the Netherlands, Belgium, Monaco, Switzerland, Portugal, Austria, Sweden, France, Denmark, Finland, Germany, and New Zealand.

7. The only time in modern US history that we dealt with an inflation problem was during a time of relatively low debt and was caused by forces outside the domestic economy.

So, NSG, are you concerned about the national debt? Should we be really working towards a balanced budget? Should we be cutting spending if only to "reduce the national debt?"

I'm eager to hear your responses.

Well in the view of Fiat Currency, and the fact that if it wanted to, this country could pay off it's debt, give everyone a Christmas bonus, healthcare, a free ride to college and a new puppy because of the Fiat state of our currency, I do not think it of very much worry. However, cutting spending in things like defense is still important, if we're not going to admit the above fact, and the consequences associated with it.

Why should we cut defense spending? Everyone likes to point out that we spend more on defense than the next 8 highest countries combined, but they all gloss over the fact that the US's GDP is so tremendous that we can afford to spend that much on our military while only spending a very comparative portion of our GDP on the military as other nations.

In other words, we spend very similar percentages of our GDP on the military as other highly industrialized nations. The difference is that our GDP happens to be the largest by far. That's what makes it seem so lopsided.

[Llamalandia]

As to point three well the us isn't supposed to fully control it's currency either exactly. That's why we have a weirdly paeudoquasi independent bank called the federal reserve to manage the currency. But even that aside, Weimar controlled its currency, still didn't do well. Plus more recent history is riddle with other examples of bankrupt countries, mostly in Africa and South America .

[Post-Keynesian Economics]

If the fed continues a policy of low (basically zero) interest rates and continues to allow our currency to devalue relatively speaking, we'll be screwed as the rest of the world will in fact eventually drop the dollar as the world reserve currency and either adopt the renminbi the IMF xdr, the euro or some other "bankor" like international currency instead. Once dollar hegemony falls no one will really be clamping to buy our debt at which point they are in effect "defacto calling" our debt. Likewise increasing our debt load too far may also weaken the dollar in the world economy hence again causing it to be dropped in favor of something else.

Why will that cause them to drop the dollar as the world reserve currency? Wouldn't they prefer the most reliable investment possible? You're really going to tell me that the IMF or EU is more stable than the United States?

And in any case, that's why we should pursue dollarization rather than debt reduction.

[Llamalandia]

Also to point 6 you forgot Japan. I assume that was mere oversight and not intentional. After all their debt to gdp is like 2:1 practically. Though they do also have foreign bonds which offset their debt somewhat if I recall correctly.

[Atlanticatia]

I'm not really worried about our current budget deficit.

Obama was 100% right to spend into deficit a lot during the recession, to support the economy and stimulate it. IMO whenever the economy starts to slow, spending should increase which may or may not come with a deficit. (Considering what the fiscal position was before spending)

Bush was not right to create large deficits, however. His was caused by his choice to spend massively on two wars by cutting taxes for the wealthy. There's no excuse. We could have paid for his huge amounts of spending (and expanding the "security" state) by taxes, not borrowing during that time. We weren't in economic recession.

We should eventually have a goal of reducing the deficit to 1-2% of GDP, or to a balanced budget/surplus. However, that goal should NOT be reached by cutting spending because that'd hurt the economy.

I don't really have a problem with continuing a deficit of ~2% of GDP, however it'd be in our best interests to not have one at the moment. This is because interest payments will eventually increase, which will make it harder to have new spending. So we should focus on reducing debt in the long term, and consider the effects on the middle and working class, and economic growth.

I think that too much debt can be a problem at a certain point, however we're not there. If we got more debt, then hit another big recession, it might be harder to borrow to stimulate the economy which can hurt the country and credit rating.

TL;DR: So basically Obama was right to deficit spend, Bush really wasn't, and we should slow decrease the deficit however it isn't a big issue, and decrease debt in the long term so we're not hurt by any big future shocks and interest payments don't become a problem.

Btw- net debt in the US is higher as a % of GDP by some of those countries. (The US is on the higher end in the developed world, but we have the ability to take on that type of credit)

[Post-Keynesian Economics]

As to point three well the us isn't supposed to fully control it's currency either exactly. That's why we have a weirdly paeudoquasi independent bank called the federal reserve to manage the currency. But even that aside, Weimar controlled its currency, still didn't do well. Plus more recent history is riddle with other examples of bankrupt countries, mostly in Africa and South America .

True, Weimar DID control its currency - but other nations were forcing it to pay war debts, not because they wanted a valuable investment but because they wanted Germany to be punished. And they had the firepower to force Germany to do so. Very different situation.

As for Africa and South America, many of those countries could see a coup at any given second and their government declared illegitimate. Nobody thinks the US will collapse. Hence why we are a good investment.

[Post-Keynesian Economics]

Also to point 6 you forgot Japan. I assume that was mere oversight and not intentional. After all their debt to gdp is like 2:1 practically. Though they do also have foreign bonds which offset their debt somewhat if I recall correctly.

I'm aware. I was just giving some examples.

[Elemental North]

Well in the view of Fiat Currency, and the fact that if it wanted to, this country could pay off it's debt, give everyone a Christmas bonus, healthcare, a free ride to college and a new puppy because of the Fiat state of our currency, I do not think it of very much worry. However, cutting spending in things like defense is still important, if we're not going to admit the above fact, and the consequences associated with it.

Why should we cut defense spending? Everyone likes to point out that we spend more on defense than the next 8 highest countries combined, but they all gloss over the fact that the US's GDP is so tremendous that we can afford to spend that much on our military while only spending a very comparative portion of our GDP on the military as other nations.

In other words, we spend very similar percentages of our GDP on the military as other highly industrialized nations. The difference is that our GDP happens to be the largest by far. That's what makes it seem so lopsided.

Because the money we are spending there can be spent other places that are of far more importance. Also, if we are going to again ignore the fiat state of our currency Keynsian, then the debt is EXTREMELEY important, because if default in paying our debt, owed to other countries, it will lower our credit rating, which will lower the faith in our money, which will cause people to pull their investments, which will lower the worth of our currency, which in turn, will cause people to drop the dollar, which would not be good.

[Post-Keynesian Economics]

I'm not really worried about our current budget deficit.

Obama was 100% right to spend into deficit a lot during the recession, to support the economy and stimulate it. IMO whenever the economy starts to slow, spending should increase which may or may not come with a deficit. (Considering what the fiscal position was before spending)

Bush was not right to create large deficits, however. His was caused by his choice to spend massively on two wars by cutting taxes for the wealthy. There's no excuse. We could have paid for his huge amounts of spending (and expanding the "security" state) by taxes, not borrowing during that time. We weren't in economic recession.

We should eventually have a goal of reducing the deficit to 1-2% of GDP, or to a balanced budget/surplus. However, that goal should NOT be reached by cutting spending because that'd hurt the economy.

I don't really have a problem with continuing a deficit of ~2% of GDP, however it'd be in our best interests to not have one at the moment. This is because interest payments will eventually increase, which will make it harder to have new spending. So we should focus on reducing debt in the long term, and consider the effects on the middle and working class, and economic growth.

I think that too much debt can be a problem at a certain point, however we're not there. If we got more debt, then hit another big recession, it might be harder to borrow to stimulate the economy which can hurt the country and credit rating.

TL;DR: So basically Obama was right to deficit spend, Bush really wasn't, and we should slow decrease the deficit however it isn't a big issue, and decrease debt in the long term so we're not hurt by any big future shocks and interest payments don't become a problem.

Btw- net debt in the US is higher as a % of GDP by some of those countries. (The US is on the higher end in the developed world, but we have the ability to take on that type of credit)

Why is there any reason to think interest payments will increase to a significant enough point that it actually hinders our ability to spend? How would this happen?

Also, source for net debt in the US being higher as a percentage of GDP than the countries I mentioned?

[America Libertaria]

Our deficit should be incredibly higher and spending should be through the roof. For our peoples sake and our economy's.

[Atlanticatia]

We spend about ~4% of GDP on defense.

We should spend around 2-2.5%, which is what NATO recommends (I think) and would put us in line with China, the UK, and France.

$350 to $425 billion would be a fair amount.

[Eastern Equestria]

Why should we cut defense spending? Everyone likes to point out that we spend more on defense than the next 8 highest countries combined, but they all gloss over the fact that the US's GDP is so tremendous that we can afford to spend that much on our military while only spending a very comparative portion of our GDP on the military as other nations.

In other words, we spend very similar percentages of our GDP on the military as other highly industrialized nations. The difference is that our GDP happens to be the largest by far. That's what makes it seem so lopsided.

Because the money we are spending there can be spent other places that are of far more importance.

That I don't disagree with. But I still think that everyone who gripes about our "exorbitant" military spending needs to look at the matter from perspective.

Also, if we are going to again ignore the fiat state of our currency Keynsian, then the debt is EXTREMELEY important, because if default in paying our debt, owed to other countries, it will lower our credit rating, which will lower the faith in our money, which will cause people to pull their investments, which will lower the worth of our currency, which in turn, will cause people to drop the dollar, which would not be good.

The United States has never been in danger of defaulting on our debts. As a matter of fact, we have an excellent credit rating in the international economic community.

[Llamalandia]

If the fed continues a policy of low (basically zero) interest rates and continues to allow our currency to devalue relatively speaking, we'll be screwed as the rest of the world will in fact eventually drop the dollar as the world reserve currency and either adopt the renminbi the IMF xdr, the euro or some other "bankor" like international currency instead. Once dollar hegemony falls no one will really be clamping to buy our debt at which point they are in effect "defacto calling" our debt. Likewise increasing our debt load too far may also weaken the dollar in the world economy hence again causing it to be dropped in favor of something else.

Why will that cause them to drop the dollar as the world reserve currency? Wouldn't they prefer the most reliable investment possible? You're really going to tell me that the IMF or EU is more stable than the United States?

And in any case, that's why we should pursue dollarization rather than debt reduction.

Eventually yeah. I mean people are going to say woah hey ok 200% debt to gdp ok, 300% eh getting a little deep in he hole, once we pass say the 350 mark countries are going to look to other currencies for more stability especially as the Brics mature. We've already seen rumblings among china and Russia of redominating their bilateral trading in terms of rmb and rubles thus cutting out the middle man that is the usd.


That said further encouraging dollarization isn't really a solution either as after all eventually countries will "cut their losses" and drop their dollar holdings. Plus further dollarization exposes the USA to foreign manipulation. I mean imagine if say the Chinese or Russians are pissed off at us enough and decide to flood the market sight their use holdings? I mean we've seen what currency traders can do to a country as evidenced by what George soros did to the economy of the uk when he shorted the pound sterling.

[Atlanticatia]

I'm not really worried about our current budget deficit.

Obama was 100% right to spend into deficit a lot during the recession, to support the economy and stimulate it. IMO whenever the economy starts to slow, spending should increase which may or may not come with a deficit. (Considering what the fiscal position was before spending)

Bush was not right to create large deficits, however. His was caused by his choice to spend massively on two wars by cutting taxes for the wealthy. There's no excuse. We could have paid for his huge amounts of spending (and expanding the "security" state) by taxes, not borrowing during that time. We weren't in economic recession.

We should eventually have a goal of reducing the deficit to 1-2% of GDP, or to a balanced budget/surplus. However, that goal should NOT be reached by cutting spending because that'd hurt the economy.

I don't really have a problem with continuing a deficit of ~2% of GDP, however it'd be in our best interests to not have one at the moment. This is because interest payments will eventually increase, which will make it harder to have new spending. So we should focus on reducing debt in the long term, and consider the effects on the middle and working class, and economic growth.

I think that too much debt can be a problem at a certain point, however we're not there. If we got more debt, then hit another big recession, it might be harder to borrow to stimulate the economy which can hurt the country and credit rating.

TL;DR: So basically Obama was right to deficit spend, Bush really wasn't, and we should slow decrease the deficit however it isn't a big issue, and decrease debt in the long term so we're not hurt by any big future shocks and interest payments don't become a problem.

Btw- net debt in the US is higher as a % of GDP by some of those countries. (The US is on the higher end in the developed world, but we have the ability to take on that type of credit)

Why is there any reason to think interest payments will increase to a significant enough point that it actually hinders our ability to spend? How would this happen?

Also, source for net debt in the US being higher as a percentage of GDP than the countries I mentioned?

I don't think it will hinder our ability to spend at all, but in this country it's hard to get spending put through and for politics' sake it'd probably be best to have lower interest payments, so we can spend more on things like single payer health care. (If only, sigh)

and: http://www.economywatch.com/economic-st ... ntage_GDP/

[Llamalandia]

We spend about ~4% of GDP on defense.

We should spend around 2-2.5%, which is what NATO recommends (I think) and would put us in line with China, the UK, and France.

$350 to $425 trillion would be a fair amount.

Wait what? You meant billion right?

[Eastern Equestria]

We spend about ~4% of GDP on defense.

We should spend around 2-2.5%, which is what NATO recommends (I think) and would put us in line with China, the UK, and France.

$350 to $425 trillion would be a fair amount.

Wait what? You meant billion right?

Of course he did.

[Atlanticatia]

Wait what? You meant billion right?

Of course he did.

Yeah. I just realized that. Billion.

[Geilinor]

Because the money we are spending there can be spent other places that are of far more importance.

That I don't disagree with. But I still think that everyone who gripes about our "exorbitant" military spending needs to look at the matter from perspective.

Also, if we are going to again ignore the fiat state of our currency Keynsian, then the debt is EXTREMELEY important, because if default in paying our debt, owed to other countries, it will lower our credit rating, which will lower the faith in our money, which will cause people to pull their investments, which will lower the worth of our currency, which in turn, will cause people to drop the dollar, which would not be good.

The United States has never been in danger of defaulting on our debts. As a matter of fact, we have an excellent credit rating in the international economic community.

Exactly. The only decline in credit rating we've ever had was due to Congress unnecessarily setting things up in a bad way.

[Elemental North]

Because the money we are spending there can be spent other places that are of far more importance.

That I don't disagree with. But I still think that everyone who gripes about our "exorbitant" military spending needs to look at the matter from perspective.

Also, if we are going to again ignore the fiat state of our currency Keynsian, then the debt is EXTREMELEY important, because if default in paying our debt, owed to other countries, it will lower our credit rating, which will lower the faith in our money, which will cause people to pull their investments, which will lower the worth of our currency, which in turn, will cause people to drop the dollar, which would not be good.

The United States has never been in danger of defaulting on our debts. As a matter of fact, we have an excellent credit rating among the international community.

That is egregiously untrue. We were very, VERY close to defaulting not too long ago, and as such Standard & Poors lowered our credit rating. Whilst it was not as low as Greece, it was the first time our rating had been lowered since the Great Depression.

"We have lowered our long-term sovereign credit rating on the United
States of America to 'AA+' from 'AAA' and affirmed the 'A-1+' short-term
rating.

We have also removed both the short- and long-term ratings from
CreditWatch negative.

The downgrade reflects our opinion that the fiscal consolidation plan
that Congress and the Administration recently agreed to falls short of
what, in our view, would be necessary to stabilize the government's
medium-term debt dynamics."

-Standard & Poors

[Geilinor]

That I don't disagree with. But I still think that everyone who gripes about our "exorbitant" military spending needs to look at the matter from perspective.



The United States has never been in danger of defaulting on our debts. As a matter of fact, we have an excellent credit rating among the international community.

That is egregiously untrue. We were very, VERY close to defaulting not too long ago, and as such Standard & Poors lowered our credit rating. Whilst it was not as low as Greece, it was the first time our rating had been lowered since the Great Depression.

The reason we were close to defaulting was not because we didn't have the money to pay our debts, but because Congress almost didn't approve the money. Greece needs the EU and IMF to give it the money.

[Llamalandia]

Well on let me ask at what point does our debt to gdp ratio become too large to be sustainable? Or else what absolute debt (ie how many trillions in the red) can we have before people stop buying new bond issues from the us treasury?