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Does anyone actually believe that this debt will at some point be payed off? It would be nice if we had different words for debts that actually might someday be

Does anyone actually believe that this debt will at some point be payed off? It would be nice if we had different words for debts that actually might someday be resolved and those that clearly never will be.

quadrangle 9y ago
Apparently, near-100% of politicians and voters believe that "National Debt" is actually something like personal debt and actually can or should be paid off… https://modernmoneybasics.com/ https://modernmoneybasics.com/ (simplistic but largely accurate intro)
- wu-ikkyu 9y ago
  Perhaps I misunderstand but are you implying governments being in perpetual debt is a good thing?
  - quadrangle 9y ago
    You're misunderstanding. The "National Debt" (this only applies at federal level for currency-issuing governments, not state, local etc) is the effective form of the currency itself. Eliminating the "debt" that a currency-issuing government has in its own currency is the same thing as eliminating the currency. The U.S. federal government "owes" dollars to creditors kind of like the way the the score-keeper in a game "owes" points to a basketball team.
    - cwkoss 9y ago
      Currency doesn't have to be backed by debt. Debt-backed currency has the fundamental flaw that, because debts charge interest, the total amount of debt will always exceed the money supply. Our currency is structured so that there are never enough dollars to pay off all debts at any given time. Fundamentally, a portion of all debts MUST default, creating a net effect where those who have enough capital to lend will, over time, acquire more and more real property. Our currency is built to transfer wealth from the have-nots to the haves.
      - quadrangle 9y ago
        You're conflating things here. Our overall financial system as a whole is as you describe: set up to enrich the powerful and exploit others. But that is not an issue with the nature of the currency. The way we use "debt" in terms of Federal government "National Debt" is related to the currency and not related to the credit market which is the usurious bulk of our money. Most money flowing around the economy is based in bank-credit and has all the issues you describe. Currency is different. Of course, the particular policies that we enact around the currency (i.e. how we use it) are often about enriching the powerful etc. although some things are at least mixed in that respect. Do check out https://modernmoneybasics.com/ https://modernmoneybasics.com/ (I'm guessing you have not because the distinctions that matter here are clarified there in the intro video and in the follow-up links)
    - candiodari 9y ago
      I love how leftist put this forward. It sounds so incredibly believable. And, the way it is put, the statements aren't even false. Of course, we're talking about 2 different things. Believe it or not, but economists have in fact split up the "currency creating" debt (balance sheet of the FED, in the US), and "government debt" (issues by the treasury). This got all confused because of one of the QEs, where the FED created a LOT of currency and funded the government deficit with it, but it is still very different. One of the BIG lesson from the 1930s, of course, taught to every economist in the 101 class, was to never let the government finance itself with "currency creating" debt, but ... This $233T does not include the currency generating debt, nor the double bookings on the banks' balance sheet. None of the debt you're talking about is included in that figure. That's a different figure, generally found under something like "central bank balance sheet". So congratulations ! You should be in politics. Your comment is entirely accurate, and yet so incredibly misleading, so easily, so effortlessly guiding people to a terribly wrong conclusion. And yet it is trivial to point out a major inconsistency. If what you say is true, then why would there be any limits on government spending at all ? More currency created by government demand, which we all know is good for the economy ! And yet intuitively ... alarm bells go off. I can clearly see that there are upper limits to government spending where "somehow" this breaks down. There's the extreme examples like Zimbabwe and Venezuela, where inflation destroys the economy itself and it's blatantly obvious the root cause is government overspending. Wouldn't this mean they simply have more economy ? Clearly it doesn't (Assuming you don't follow the lunatic left viewpoint that these are the result of conspiracies). Then there's the cases where government overspending has lead to the currency not being accepted anymore, like Somalia, and to a less extreme extent, Cyprus, Greece, parts of Austria, ... Now of course in those cases it is in fact a conspiracy (by most of the population, central banks, normal banks, ...), and yet they too insist it is because of government overspending. How can this possibly happen ? And intuitively I have seen what happens with government overspending. It is very visible in European capitals, in some areas where governments or very large companies control all spending and layout of particular areas of the city, in an otherwise capitalist economy. And what you see is always the same : empty, dead "public" spaces that aren't very public at all. Nobody goes there because there is no economy there. There are no cafes, no food, no games, no cinemas, no access to transport, no ... nothing. Nobody goes there (unless the government departments are open, of course). But the fallacy is mostly in what do we really care about. "Debt" is too abstract. I agree. A name with a big number next to it. Big deal. The distance to proxima centauri is also a name with a disappointingly big number next to it, and yet, I don't see it affecting me. Ah ! That's a good idea. Big numbers that affect me. Okay, so let's see if this big number would affect the average American ... Do governments owe interest on government debt ? Yes. Do these interest payments come out of the same pool of money that is used for everything else, say social security or pensions ? Yes. When interest rates go up, does that mean interest payments go up ? Yes. Will that compete/endanger social security spending ? Yes. Will the government switch to printing money (and therefore "implicitly" and rather massively increase effective tax) to prevent this debt from actually coming due ? (In other words, will there be a point where this debt comes out of YOUR paycheck, whether through continuous interest payments paid through tax, canceled debt, inflation or whatever) ... Yes. (claiming anything else is equivalent to "this time it's different") So is this government debt a big number that affects me ? Without a doubt, YES IT IS. But I must say: well put. Incredible rhetoric. Simple, short, technically true and yet nothing short of a complete lie. Maybe you're just repeating the lie, of course, because it is so convincing.
  - nwah1 9y ago
    There's an analytical and prescriptive component to "Modern Monetary Theory." People like Cullen Roche have argued that the analytical side is correct, but don't share the prescriptive views. He calls that Monetary Realism. Whether the debt is a "good thing" or not must be separated from whether the analysis is true. Furthermore, it is possible for the government to simply print money without debt. It is also possible for the federal government to acquire zero-interest loans, given that everyone knows it has the magic printing press, so long as everyone is convinced that it will honor the bonds. That is why it is able to force bond yields to extremely low levels, even during a major recession.
    - quadrangle 9y ago
      FWIW, the vast majority of all the MMT stuff I've seen ends with stating that because the facts are what they are, the questions about what to do are all policy questions. It then does not go on to prescribe what policies to pursue, aside from the fact that the authors of the MMT stuff may themselves have political views expressed elsewhere. I think MMT is best considered to not have any prescriptive component. I see the idea of one more often from critics of MMT looking for something to attack than from MMT itself. That said, I'm just one reader with a limited scope of experience… but my view is that there ought not be prescriptions within MMT, and I'm happy I don't generally see any.
      - nwah1 9y ago
        I respectfully disagree. There are a lot of statements like "deficits are good" and "we need to raise aggregate demand" and "there should be a Job Guarantee." There are strong prescriptive and value-laden keynesian overtones. I don't want to name names, but just search for the "Job Guarantee," for instance, and you'll see lots of writing about it.
        quadrangle 9y ago
        No MMT reasonable person ever says "deficits are good" are some prescriptive statement. The point is that deficits can be good, are often good, and are normal. The message is that having deficits or not should never be considered in itself good or bad, it's only in context that we can make such a judgment. I do recall seeing MMT folks describe "full employment" as a policy goal that the government should have, so you're right there. I think that ought to be left out from MMT. Whether or not that is a good goal is independent from the facts of how fiat currency works. Incidentally, I happen to believe that tying distribution of basic necessities to employment is unethical and economically destructive (it promotes make-work and even destructive broken-window-fallacy type crap).
  - cam_l 9y ago
    another word for debt is credit. credit is literally trust. so, the question could reasonably be reframed as whether perpetual trust is a good thing..
    - candiodari 9y ago
      Credit comes with interest. So I feel like that reframing should include whether having the government perpetually pay a few lucky people and companies a systematically increasing proportion of taxes is a good thing.
      - cam_l 9y ago
        yeah sure, i wonder though if interest is a necessary feature of credit. the interest is charged to cover the demand, the risk, and inflation. with government, the risk is low. inflation is by and large the government's alternative to borrowing. and demand i guess is mostly when the borrower needs the credit more than the lender needs to park the cash. but in the case of government, I guess the demand is weighted against the lender.
        candiodari 9y ago
        In the case of government, everything is weighted against the lender. For instance, what the US government did in 1971 ? Government: "We are going to pay X in gold for every one of Y you have", Investors: "Okay, pay up", Government: "We were going to pay but instead confiscate all of it" ... That's supposed to be the most reliable government on the planet (and it wasn't the first time it did that, and it won't be the last). The sad truth is that when you calculate things out, bonds by large corporations (average of S&P500) are in fact more reliable than bonds by the US government, and whilst I haven't checked, I strongly suspect bonds by every other government. Mostly because corporations can't just choose to cancel contracts and bonds, and therefore don't. So they're mispriced. In reality the risk of the US government is, given the published default risk, A2 or A3 rating at best, and should therefore carry interest rates lower-bounded by that grade, or about 4%. And of course the "risk-free" interest rate should be added to that, to make something like 5.5% or so. That is, of course, only for Federal bonds. Actual interest rates are something like 1%, mostly because the "independent" government agency called the FED "chose" to buy government bonds at that rate. So you see, the government has already done a great deal of what you're saying, and lowered the interest rate it's paying a great deal, in a very unfair way. Essentially, in the long term, and assuming the previous century will be similar to the next, you should expect to lose something like 40-60% of the money you lend the US government (because of the next default). And if you reinvest dividends, or keep the proceeds in dollars, of course, 100%. The issue is that if you don't give people any incentive to be economically productive (because that's exactly what interest rates at 0% do) then ... they won't be.

quadrangle 9y ago

Apparently, near-100% of politicians and voters believe that "National Debt" is actually something like personal debt and actually can or should be paid off… https://modernmoneybasics.com/ https://modernmoneybasics.com/ (simplistic but largely accurate intro)

wu-ikkyu 9y ago
Perhaps I misunderstand but are you implying governments being in perpetual debt is a good thing?
- quadrangle 9y ago
  You're misunderstanding. The "National Debt" (this only applies at federal level for currency-issuing governments, not state, local etc) is the effective form of the currency itself. Eliminating the "debt" that a currency-issuing government has in its own currency is the same thing as eliminating the currency. The U.S. federal government "owes" dollars to creditors kind of like the way the the score-keeper in a game "owes" points to a basketball team.
  - cwkoss 9y ago
    Currency doesn't have to be backed by debt. Debt-backed currency has the fundamental flaw that, because debts charge interest, the total amount of debt will always exceed the money supply. Our currency is structured so that there are never enough dollars to pay off all debts at any given time. Fundamentally, a portion of all debts MUST default, creating a net effect where those who have enough capital to lend will, over time, acquire more and more real property. Our currency is built to transfer wealth from the have-nots to the haves.
    - quadrangle 9y ago
      You're conflating things here. Our overall financial system as a whole is as you describe: set up to enrich the powerful and exploit others. But that is not an issue with the nature of the currency. The way we use "debt" in terms of Federal government "National Debt" is related to the currency and not related to the credit market which is the usurious bulk of our money. Most money flowing around the economy is based in bank-credit and has all the issues you describe. Currency is different. Of course, the particular policies that we enact around the currency (i.e. how we use it) are often about enriching the powerful etc. although some things are at least mixed in that respect. Do check out https://modernmoneybasics.com/ https://modernmoneybasics.com/ (I'm guessing you have not because the distinctions that matter here are clarified there in the intro video and in the follow-up links)
  - candiodari 9y ago
    I love how leftist put this forward. It sounds so incredibly believable. And, the way it is put, the statements aren't even false. Of course, we're talking about 2 different things. Believe it or not, but economists have in fact split up the "currency creating" debt (balance sheet of the FED, in the US), and "government debt" (issues by the treasury). This got all confused because of one of the QEs, where the FED created a LOT of currency and funded the government deficit with it, but it is still very different. One of the BIG lesson from the 1930s, of course, taught to every economist in the 101 class, was to never let the government finance itself with "currency creating" debt, but ... This $233T does not include the currency generating debt, nor the double bookings on the banks' balance sheet. None of the debt you're talking about is included in that figure. That's a different figure, generally found under something like "central bank balance sheet". So congratulations ! You should be in politics. Your comment is entirely accurate, and yet so incredibly misleading, so easily, so effortlessly guiding people to a terribly wrong conclusion. And yet it is trivial to point out a major inconsistency. If what you say is true, then why would there be any limits on government spending at all ? More currency created by government demand, which we all know is good for the economy ! And yet intuitively ... alarm bells go off. I can clearly see that there are upper limits to government spending where "somehow" this breaks down. There's the extreme examples like Zimbabwe and Venezuela, where inflation destroys the economy itself and it's blatantly obvious the root cause is government overspending. Wouldn't this mean they simply have more economy ? Clearly it doesn't (Assuming you don't follow the lunatic left viewpoint that these are the result of conspiracies). Then there's the cases where government overspending has lead to the currency not being accepted anymore, like Somalia, and to a less extreme extent, Cyprus, Greece, parts of Austria, ... Now of course in those cases it is in fact a conspiracy (by most of the population, central banks, normal banks, ...), and yet they too insist it is because of government overspending. How can this possibly happen ? And intuitively I have seen what happens with government overspending. It is very visible in European capitals, in some areas where governments or very large companies control all spending and layout of particular areas of the city, in an otherwise capitalist economy. And what you see is always the same : empty, dead "public" spaces that aren't very public at all. Nobody goes there because there is no economy there. There are no cafes, no food, no games, no cinemas, no access to transport, no ... nothing. Nobody goes there (unless the government departments are open, of course). But the fallacy is mostly in what do we really care about. "Debt" is too abstract. I agree. A name with a big number next to it. Big deal. The distance to proxima centauri is also a name with a disappointingly big number next to it, and yet, I don't see it affecting me. Ah ! That's a good idea. Big numbers that affect me. Okay, so let's see if this big number would affect the average American ... Do governments owe interest on government debt ? Yes. Do these interest payments come out of the same pool of money that is used for everything else, say social security or pensions ? Yes. When interest rates go up, does that mean interest payments go up ? Yes. Will that compete/endanger social security spending ? Yes. Will the government switch to printing money (and therefore "implicitly" and rather massively increase effective tax) to prevent this debt from actually coming due ? (In other words, will there be a point where this debt comes out of YOUR paycheck, whether through continuous interest payments paid through tax, canceled debt, inflation or whatever) ... Yes. (claiming anything else is equivalent to "this time it's different") So is this government debt a big number that affects me ? Without a doubt, YES IT IS. But I must say: well put. Incredible rhetoric. Simple, short, technically true and yet nothing short of a complete lie. Maybe you're just repeating the lie, of course, because it is so convincing.
- nwah1 9y ago
  There's an analytical and prescriptive component to "Modern Monetary Theory." People like Cullen Roche have argued that the analytical side is correct, but don't share the prescriptive views. He calls that Monetary Realism. Whether the debt is a "good thing" or not must be separated from whether the analysis is true. Furthermore, it is possible for the government to simply print money without debt. It is also possible for the federal government to acquire zero-interest loans, given that everyone knows it has the magic printing press, so long as everyone is convinced that it will honor the bonds. That is why it is able to force bond yields to extremely low levels, even during a major recession.
  - quadrangle 9y ago
    FWIW, the vast majority of all the MMT stuff I've seen ends with stating that because the facts are what they are, the questions about what to do are all policy questions. It then does not go on to prescribe what policies to pursue, aside from the fact that the authors of the MMT stuff may themselves have political views expressed elsewhere. I think MMT is best considered to not have any prescriptive component. I see the idea of one more often from critics of MMT looking for something to attack than from MMT itself. That said, I'm just one reader with a limited scope of experience… but my view is that there ought not be prescriptions within MMT, and I'm happy I don't generally see any.
    - nwah1 9y ago
      I respectfully disagree. There are a lot of statements like "deficits are good" and "we need to raise aggregate demand" and "there should be a Job Guarantee." There are strong prescriptive and value-laden keynesian overtones. I don't want to name names, but just search for the "Job Guarantee," for instance, and you'll see lots of writing about it.
      - quadrangle 9y ago
        No MMT reasonable person ever says "deficits are good" are some prescriptive statement. The point is that deficits can be good, are often good, and are normal. The message is that having deficits or not should never be considered in itself good or bad, it's only in context that we can make such a judgment. I do recall seeing MMT folks describe "full employment" as a policy goal that the government should have, so you're right there. I think that ought to be left out from MMT. Whether or not that is a good goal is independent from the facts of how fiat currency works. Incidentally, I happen to believe that tying distribution of basic necessities to employment is unethical and economically destructive (it promotes make-work and even destructive broken-window-fallacy type crap).
- cam_l 9y ago
  another word for debt is credit. credit is literally trust. so, the question could reasonably be reframed as whether perpetual trust is a good thing..
  - candiodari 9y ago
    Credit comes with interest. So I feel like that reframing should include whether having the government perpetually pay a few lucky people and companies a systematically increasing proportion of taxes is a good thing.
    - cam_l 9y ago
      yeah sure, i wonder though if interest is a necessary feature of credit. the interest is charged to cover the demand, the risk, and inflation. with government, the risk is low. inflation is by and large the government's alternative to borrowing. and demand i guess is mostly when the borrower needs the credit more than the lender needs to park the cash. but in the case of government, I guess the demand is weighted against the lender.
      - candiodari 9y ago
        In the case of government, everything is weighted against the lender. For instance, what the US government did in 1971 ? Government: "We are going to pay X in gold for every one of Y you have", Investors: "Okay, pay up", Government: "We were going to pay but instead confiscate all of it" ... That's supposed to be the most reliable government on the planet (and it wasn't the first time it did that, and it won't be the last). The sad truth is that when you calculate things out, bonds by large corporations (average of S&P500) are in fact more reliable than bonds by the US government, and whilst I haven't checked, I strongly suspect bonds by every other government. Mostly because corporations can't just choose to cancel contracts and bonds, and therefore don't. So they're mispriced. In reality the risk of the US government is, given the published default risk, A2 or A3 rating at best, and should therefore carry interest rates lower-bounded by that grade, or about 4%. And of course the "risk-free" interest rate should be added to that, to make something like 5.5% or so. That is, of course, only for Federal bonds. Actual interest rates are something like 1%, mostly because the "independent" government agency called the FED "chose" to buy government bonds at that rate. So you see, the government has already done a great deal of what you're saying, and lowered the interest rate it's paying a great deal, in a very unfair way. Essentially, in the long term, and assuming the previous century will be similar to the next, you should expect to lose something like 40-60% of the money you lend the US government (because of the next default). And if you reinvest dividends, or keep the proceeds in dollars, of course, 100%. The issue is that if you don't give people any incentive to be economically productive (because that's exactly what interest rates at 0% do) then ... they won't be.