On Government debt

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Parodite
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On Government debt

Post by Parodite »

Any informed opinions about whether gvt dept is an inevitable fact of life? Are there any gvts who were or are functioning without dept? Is it possible for gvts to function without dept? Should it be a constitutional obligation for a gvt to stay out of dept?

Just thinking out loud.. its not all clear to me.

Economy goes up and down.. but it seems to me that it is way preferable the ups and downs to occur above the surface without a gvt going into debt ever. Systemic debt is a slippery slope, very risky. It can be an emergency measure... martial law.. at best.

A philosophy for getting rich I read once in a book by a German multi millionaire. His family for some generations already had one holy rule in place: no matter your level of income, always save 10%. Which also means to never go into debt of course. A debt is like starting the 100 sprint but having to run 120 in fact... or more. You can't keep running on borrowed money.

Somebody who has nothing though.. cannot run to begin with. If he borrows money, going into debt.. he can start a business, pay back the money with some interest and end up in a situation where he can apply the 10% saving rule if his business is successful.

So going into debt temporarily can in fact be good for the economy. Leverage. But the fingerprint of success is that the debt was temporal, never systemic long term. No business survives when it is in debt too long without sponsors. It may receive government subsidies, but then the debt problem is transferred from business to government which is the tax payer, the consumer. Consumers with less money are equally bad for business, so there is no net profit of moving around debt and risk from a to b to c. At one point debt and risk return back home full circle. This is also very obvious in the current financial crisis.

Startup businesses on borrowed money that go bankrupt because they cannot start to make money and save...are not a problem. Bankruptcy is a mechanism that prevents such a business to destroy even more wealth by borrowing more money that will never be payed back. Debt is more problematic for gvts of course, because there is no market that will make it go bankrupt in time. This creates a huge risk for economy. Which is also easy to see in the current crisis. Gvt overspending/debt is dragging economy down or killing it.

Complicating factor in general is that banks make money on the debt of others. Debt is the product they sell, and the only product ( packaged in all sorts of different financial "products" that at their core still are debts+risk) This will always push business and gvt into more debt and risky waters; business and gvt have to draw the line themselves. Somebody running a business will naturally want to avoid a growing debt and prefers to move into profit and saving... for the market has little mercy. Gvt however does not "suffer" this pressure, rather they need votes from the electorate. In a democracy only voters punish or reward their behavior. This exacerbates the tendency of gvts to go into debt even further; promise people better lives, even if it means you have to go further down into debt because the pain of that debt will be felt by the electorate only after the election.

Given that gvt is thusly positioned and always at risk of serious overspending perhaps gvt should by constitution not be allowed to go into debt to begin with. That however is not in the short term interest of banks; the more people buy their product... debt... the more money comes in the banks bank account. This is therefor the most lethal alliance for any society: banks and government. This is also where and why the current crisis started in the USA clearly. Obama just continued this alliance.

To change the constitution saying that the gvt can simply never go into debt... is maybe the simplest and most effective long term solution. Step two is to regulate the market only where needed: in general for healthy competition where businesses can start on borrowed money but are "allowed" (read forced) to go bankrupt in time you need minimal regulation.

Banks however are not really a business in the classical sense IMO, they provide for a unique service of pumping around money and are very vulnerable to overspending just like gvt; difference being that they (bank managers) push others to borrow more than is good for them which will create a short term raise in profits for the bank allowing for x-tra nice bonuses for them managers.. the bad effect for the bank long term when too many business and gvts go bankrupt hits back only after those bonuses are already payed.

Bank managers relate to their banks (and their customers that fill their banks bank accounts) as politicians relate to their voters; if you give me candy now, you will get a tasty good lookin' but very toxic cake that will kill you later when the party is over. By then I'm on a holiday enjoying my private millions with family and friends on Ibiza.

Cheers.
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Re: On Government debt

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The problem is not so much public debt but the way democracy is understood and works. Parties in power use debt to bribe voters, creating an illusion of prosperity. Since every party in power does likewise, you end up with a staggering amount of debt. That's one reason why I propose global debt pardon. Fake assets would disappear, but real, productive assets would still be there, so that the debt pardon wouldn't impair the economy and the capacity to produce. Rentiers might be wiped out, but that's no problem...
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Re: On Government debt

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Endovelico wrote:The problem is not so much public debt but the way democracy is understood and works. Parties in power use debt to bribe voters, creating an illusion of prosperity. Since every party in power does likewise, you end up with a staggering amount of debt.
This is mostly right.
That's one reason why I propose global debt pardon. Fake assets would disappear, but real, productive assets would still be there, so that the debt pardon wouldn't impair the economy and the capacity to produce. Rentiers might be wiped out, but that's no problem...
This is mostly wrong.

Human beings are under the impression they are entitled to exist. Boy, they sure aren't. The conditions necessary for life are very delicate.
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Re: On Government debt

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Mr. Perfect wrote:Human beings are under the impression they are entitled to exist. Boy, they sure aren't. The conditions necessary for life are very delicate.
You ARE a social darwinist!...
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Re: On Government debt

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Endovelico wrote:The problem is not so much public debt but the way democracy is understood and works. Parties in power use debt to bribe voters, creating an illusion of prosperity. Since every party in power does likewise, you end up with a staggering amount of debt. That's one reason why I propose global debt pardon. Fake assets would disappear, but real, productive assets would still be there, so that the debt pardon wouldn't impair the economy and the capacity to produce. Rentiers might be wiped out, but that's no problem...
Been thinking about your proposal but can't see it through all the way down the road. As the economy is now financially configured.. a full debt whipe out.. which would mean, as I understand your proposal, to let a lot of pluses and minuses wipe each other out. This would then leave us with a less complicated and more transparent situation that represents real economical value better. But maybe too much would fall over on the floor, like a domino effect? Somebody long ago can't remember who, think it was on Tinkers forum, had some good arguments why your idea may not work out in practice. Would like to hear from somebody like Stiglitz comment on it.

Other point though is that I don't think democracy can solve this problem, if the result of the democratic process is not that somehow gvts don't go into debt anymore. If my analysis is at least correct in saying that gvt debt should be avoided at all cost... that could only happen if the electorate is convinced that that is indeed the case. As long as voters believe that going into debt is somehow OK for a gvt and the banking system not adequately re-regulated...even after a global debt pardon the problem will return again in no time.
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Re: On Government debt

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Endovelico wrote:
Mr. Perfect wrote:Human beings are under the impression they are entitled to exist. Boy, they sure aren't. The conditions necessary for life are very delicate.
You ARE a social darwinist!...
How is trying to help people live being a social darwinist.
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Re: On Government debt

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Also P we have such laws in teh US it's called the DEBT CEILING and the GOP is currently being eviscerated on all sides because they want to follow that law. I hope that is self explanatory.
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Re: On Government debt

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Mr. Perfect wrote:Also P we have such laws in teh US it's called the DEBT CEILING and the GOP is currently being eviscerated on all sides because they want to follow that law. I hope that is self explanatory.
The debt ceiling is not my thing. All it does it distracting from the fact that the nature of every gvt is to go into debt deeply. A debt ceiling only means that when it is too late people will bang their heads harder and harder into the ceiling until it gives way again. There is no safety in a debt ceiling. People should start worry about the floor they are standing on... Who or what keeps them from doing that? Why always looking in the wrong direction? Maybe one day a tooth fairy will sit in the window and show the way out..
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Re: On Government debt

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If debt ceiling laws don't work what laws do you think will work.
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Re: On Government debt

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Mr. Perfect wrote:If debt ceiling laws don't work what laws do you think will work.
Better laws, different laws. It's really simple, come on Mr. P. Speed limits. Debt limits. Some places you can drive safely 90 m/h, others 30 m/h, some other 15 m/h only. Sometimes no traffic is best, pedestrians only. Whats so complicated about that Jesus F*cking Christ? Say something meaningful.

I propose, made a case why perhaps gvts should not be allowed to go into any debt constitutionally. Go ahead without deviating to crap talk. You agree, disgree, why?
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Re: On Government debt

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In 1995 one of the first thing the newly elected GOP congress did was to vote on a Constitutional Amendment to balance the budget. All the Republicans voted for it, guess how many Democrats. As you might expect, it failed. Bill Clinton also opposed it. So where do you go from there.
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Re: On Government debt

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Mr. Perfect wrote:In 1995 one of the first thing the newly elected GOP congress did was to vote on a Constitutional Amendment to balance the budget. All the Republicans voted for it, guess how many Democrats. As you might expect, it failed. Bill Clinton also opposed it. So where do you go from there.
I have no problem believing you. Link?
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Re: On Government debt

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Re: On Government debt

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Keep in mind, what the GOP is doing right now is akin to a drug intervention, with a debt and gov't addicted country, and look at how the addicts howl. The GOP is 100% in the right and watch the addicts scream like banshees. We're past the point of no return there P.
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Re: On Government debt

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I can only hope the issue can be discussed in politics without (too much) mud fighting and blame games. But maybe it is indeed too late for repairs. That there is no way to crawl out of the debt pit in a controlled way. That things have to climax to their natural solution of a total breakdown and start again from scratch. What I find worrying though is that there is no consensus on how to proceed after that. That is nothing is learned from it. For now I will hope with you that dept is considered something too dangerous for gvts to carry on their shoulders and made unconstitutional. It's really a pity that 1995 bill didn't make it.
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Re: On Government debt

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No offense P but it was all over some time ago. The right wing has been on the anti debt campaign for my whole lifetime and it's been a thankless and now pointless task. The addicts want their drugs, we've shut the gov't down before and the addicts have spoken, they want their drugs unto overdose, and that's all that's left. There will be no resets, no starting from scratch, that's all a sort of sad fantasy of Endo's, all that is left is Mad Max meets the Mayas, death and end of civilization.

And you may not want to hear it but we warned you many, many, many times over.
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Re: On Government debt

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Parodite wrote:
Mr. Perfect wrote:In 1995 one of the first thing the newly elected GOP congress did was to vote on a Constitutional Amendment to balance the budget. All the Republicans voted for it, guess how many Democrats. As you might expect, it failed. Bill Clinton also opposed it. So where do you go from there.
I have no problem believing you. Link?
The problem is not believing Mr. Perfect, but the context that he leaves out. The actual story probably sounds more like: "After 12 years of Reagan and Bush, who had made no attempt to balance the budget whatsoever and who had pushed the deficits higher than Carter, the GOP congress finally got around to make an attempt... on Clinton's watch. Presumably in order to rein in Clinton's spending on his own programs (including pork and patronage) and thus destroy the popularity of the new president."

Also, Murray Rothbard:
The next, and admittedly the most embarrassing, failure of Reaganomic goals is the deficit. Jimmy Carter habitually ran deficits of $40-50 billion and, by the end, up to $74 billion; but by 1984, when Reagan had promised to achieve a balanced budget, the deficit had settled down comfortably to about $200 billion, a level that seems to be permanent, despite desperate attempts to cook the figures in one-shot reductions.

This is by far the largest budget deficit in American history. It is true that the $50 billion deficits in World War II were a much higher percentage of the GNP; but the point is that that was a temporary, one-shot situation, the product of war finance. But the war was over in a few years; and the current federal deficits now seem to be a recent, but still permanent part of the American heritage.

One of the most curious, and least edifying, sights in the Reagan era was to see the Reaganites completely change their tune of a lifetime. At the very beginning of the Reagan administration, the conservative Republicans in the House of Representatives, convinced that deficits would disappear immediately, received a terrific shock when they were asked by the Reagan administration to vote for the usual annual increase in the statutory debt limit. These Republicans, some literally with tears in their eyes, protested that never in their lives had they voted for an increase in the national debt limit, but they were doing it just this one time because they "trusted Ronald Reagan" to balance the budget from then on. The rest, alas, is history, and the conservative Republicans never saw fit to cry again. Instead, they found themselves adjusting rather easily to the new era of huge permanent deficits. The Gramm-Rudman law, allegedly designed to eradicate deficits in a few years, has now unsurprisingly bogged down in enduring confusion.

Even less edifying is the spectre of Reaganomists who had inveighed against deficits—that legacy of Keynesianism—for decades. Soon Reaganite economists, especially those staffing economic posts in the executive and legislative branches, found that deficits really weren't so bad after all. Ingenious models were devised claiming to prove that there really isn't any deficit. Bill Niskanen, of the Reagan Council of Economic Advisors, came up with perhaps the most ingenious discovery: that there is no reason to worry about government deficits, since they are balanced by the growth in value of government assets. Well, hooray, but it is rather strange to see economists whose alleged goal is a drastic reduction in the role of government cheering for ever greater growth in government assets. Moreover, the size of government assets is really beside the point. It would only be of interest if the federal government were just another private business firm, about to go into liquidation, and whose debtors could then be satisfied by a parceling out of its hefty assets. The federal government is not about to be liquidated; there is no chance, for example, of an institution ever going into bankruptcy or liquidation that has the legal right to print whatever money it needs to get itself—and anyone else it favors—out of any financial hole.

There has also been a fervent revival of the old left-Keynesian idea that "deficits don't matter, anyway." Deficits are stimulating, we can "grow ourselves out of deficits," etc. The most interesting, though predictable, twist was that of the supply-siders, who, led by Professor Arthur Laffer and his famous "curve," had promised that if income tax rates were cut, investment and production would be so stimulated that a fall in tax rates would increase tax revenue and balance the budget. When the budget was most emphatically not balanced, and deficits instead got worse, the supply-siders threw Laffer overboard as the scapegoat, claiming that Laffer was an extremist, and the only propounder of his famous curve. The supply-siders then retreated to their current, fall-back position, which is quite frankly Keynesian; namely deficits don't matter anyway, so let's have cheap money and deficits; relax and enjoy them. About the only Keynesian phrase we have not heard yet from Reaganomists is that the national debt "doesn't matter because we owe it to ourselves," and I am waiting for some supply-sider to adopt this famous 1930s phrase of Abba Lerner without, of course, bothering about attribution.

One way in which Ronald Reagan has tried to seize the moral high road on the deficit question is to divorce his rhetoric from reality even more sharply than usual. Thus, the proposer of the biggest deficits in American history has been calling vehemently for a Constitutional amendment to require a balanced budget. In that way, Reagan can lead the way toward permanent $200 billion deficits, while basking in the virtue of proposing a balanced budget amendment, and trying to make Congress the fall guy for our deficit economy.

Even in the unlikely event that the balanced budget amendment should ever pass, it would be ludicrous in its lack of effect. In the first place, Congress can override the amendment at any time by three-fifths vote. Secondly, Congress is not required to actually balance any budget; that is, its actual expenditures in any given year are not limited to the revenues taken in. Instead, Congress is only required to prepare an estimate of a balanced budget for a future year; and of course, government estimates, even of its own income or spending, are notoriously unreliable. And third, there is no enforcement clause; suppose Congress did violate even the requirement for an estimated balanced budget: What is going to happen to the legislators? Is the Supreme Court going to summon marshals and put the entire U.S. Congress in jail? And yet, not only has Reagan been pushing for such an absurd amendment, but so too have many helpful Reaganomists.
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Re: On Government debt

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Thanks, YMix. Yes there is always context missing when Mr.P. is on a roll with dem bashing. The Daltons of today wear many hats.
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Re: On Government debt

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YMix wrote:
The problem is not believing Mr. Perfect, but the context that he leaves out. The actual story probably sounds more like: "After 12 years of Reagan and Bush, who had made no attempt to balance the budget whatsoever and who had pushed the deficits higher than Carter, the GOP congress finally got around to make an attempt... on Clinton's watch. Presumably in order to rein in Clinton's spending on his own programs (including pork and patronage) and thus destroy the popularity of the new president."

Also, Murray Rothbard:
The problem with this is that it is of course anti-intellectual, innumerate and ignorant. The Reagan era debt was historically mild relative to GDP and at least we beat the Soviets and revived the economy and became the world's sole superpower. Historic bang for the buck I would say.

Image

Compared to Obama, who has us now more in debt than at the end of WWII as we plummet on the world stage and the economy tanks. Thanks Democrats. (BTW there are problems with this graph that favor the Democrats, things are worse than shown here.)
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Re: On Government debt

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Mr. Perfect wrote:The Reagan era debt was historically mild relative to GDP and at least we beat the Soviets and revived the economy and became the world's sole superpower. Historic bang for the buck I would say.
And once more you're trying to change the subject. The point was not the size of the Reagan era debt, but the fact that Reagan had promised to balance the budget, but didn't. And the GOP was fine with that.
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Re: On Government debt

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tbh I could not discern that from your post, even after you said that was the point. The subject is "government debt", and I did not change the subject.

But I wonder, I've never seen you hold a politician to their promises, what triggered you to do it now. Why does it sound like a Democrat talking point that I've heard for nearly 20 years. I have some ideas but you should go first.
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Re: On Government debt

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Mr. Perfect wrote:But I wonder, I've never seen you hold a politician to their promises, what triggered you to do it now.
Trying to get the conversation back to Obama?
Why does it sound like a Democrat talking point that I've heard for nearly 20 years. I have some ideas but you should go first.
Because everything outside your narrow views sounds to you like a Democrat talking point.
“There are a lot of killers. We’ve got a lot of killers. What, do you think our country’s so innocent? Take a look at what we’ve done, too.” - Donald J. Trump, President of the USA
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Re: On Government debt

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YMix wrote: Trying to get the conversation back to Obama?
Freud would have some interest in this. I mention promise breaking politicians and Obama is the first thing that comes to your mind. Very interesting.
Because everything outside your narrow views sounds to you like a Democrat talking point.
Or because it has been a Democrat talking point for 20 years and you had it preloaded and at the ready, speaking of narrow views.
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Re: On Government debt

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Mr. Perfect wrote:Freud would have some interest in this. I mention promise breaking politicians and Obama is the first thing that comes to your mind. Very interesting.
What can I say, I know your style.
“There are a lot of killers. We’ve got a lot of killers. What, do you think our country’s so innocent? Take a look at what we’ve done, too.” - Donald J. Trump, President of the USA
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Re: On Government debt

Post by noddy »

the dutchies had 2 destructive bubbles im aware of that are used as reference points in my country.

the first is the tulip bubble, a lovely example of irrational exuberance (or whatever they are calling it) on something that in hindsite seems absurd,... should the government go into debt to protect the people that blew their lifes work on flower bulbs ?

no, let em eat bulbs.

the second is the natural gas bubble in the 60's that is far more insidious and relevant to me and is were one single industry becomes such a massive source of easy money and employment that the rest of society is hollowed out and destroyed and even worse, the cost of living in housing and whatnot goes up because of that industries success.

my personal view is that government debt is a bad response to the above and tries to prop up an unrealistic and unsustainable costing structure - its far better to allow things to crash back down and get cheap so the rest of society can rebuild itself again than it is to just pile on the debt pretending its still boom time and maintaining the "hollow" economy.
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