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I'm trying to reply to this in a way which doesn't turn this political. The national debt will not be brought under control until government spending policy ref

by jeromec 16y ago

I'm trying to reply to this in a way which doesn't turn this political. The national debt will not be brought under control until government spending policy reflects that. Putting that money on the national debt is like paying down the credit balance on a reckless spending teen card holder; it doesn't really help the overall situation. This money is free and clear profit, so it looks to me like it should go right back into the economy immediately where it can be beneficial immediately. A bird in the hand and all that...

gwright 16y ago
I'm not sure how you could ever manage to make $100 billion in government borrowing or spending not 'political'. If you reduce government borrowing by $100 billion that frees up $100 billion for use by the private sector. Quite a few people would argue that $100 billion in private investment via the free-market is a much better idea than $100 billion in dubious government projects selected via political horse trading.
- _delirium 16y ago
  That $100b doesn't get really "freed up", at least not entirely, and certainly doesn't go directly to the private sector. Part of it more or less gets destroyed: among large institutions, federal debt instruments, especially short-term, are treated as something close to cash. The government buying it back (by paying down the debt) takes that quasi-cash out of circulation, deflating the money supply. In effect, the government uses $100b of one kind of money to destroy $100b in quasi-money.
  - gwright 16y ago
    * The government buying it back (by paying down the debt) takes that quasi-cash out of circulation, deflating the money supply. * We aren't talking about paying down the debt. We are talking about borrowing less money this month than we did last month because we just sold our shares in Citibank and so we've got a few billion in cool cash lying around. The total debt continues to go up, just at a slower rate. From the credit market's point of view, the US govenment just sold a few billion less in bonds this month (as compared to last month) and so that means that the creditors have a few billion more to invest elsewhere.
- natrius 16y ago
  The private sector isn't actually putting money to use at the moment.
- jeromec 16y ago
  I'm not sure how you could ever manage to make $100 billion in government borrowing or spending not 'political'. Because this $100 billion is not being borrowed or spent. The borrowing has already occurred and has been spent (in this case invested). This $100 billion is a separate unaccounted for number -- one of profit. It's not inherently part of a partisan issue, like the expiring Bush tax cuts, for example. If you reduce government borrowing by $100 billion that frees up $100 billion for use by the private sector. No it doesn't. The private sector is free to borrow as much as it likes from banks at any time. The only impacting factor might be on interest rates and inflation, but those are reflective of other factors as well.
  - gwright 16y ago
    If private investors purchase $100 billion in US bonds, that is $100 billion in cash that is not available to be invested elsewhere (i.e. in the private sector). When government borrowing goes down the cash flows to other investments it doesn't just sit there waiting for Uncle Sam to change its mind. Nor is available cash created out of thin air just because the US government wants to sell more bonds. Obviously the size of the credit market changes over time but in the short term, public and private interests are competing for the same pool of available cash.
kelnos 16y ago
That's a very good point. And given that the US national debt is well in excess of $10 trillion, a $100 billion reduction won't do all that much, short term or long term. Sustainable fiscal policy is the only real solution.

by jeromec 16y ago

gwright 16y ago

I'm not sure how you could ever manage to make $100 billion in government borrowing or spending not 'political'. If you reduce government borrowing by $100 billion that frees up $100 billion for use by the private sector. Quite a few people would argue that $100 billion in private investment via the free-market is a much better idea than $100 billion in dubious government projects selected via political horse trading.

_delirium 16y ago
That $100b doesn't get really "freed up", at least not entirely, and certainly doesn't go directly to the private sector. Part of it more or less gets destroyed: among large institutions, federal debt instruments, especially short-term, are treated as something close to cash. The government buying it back (by paying down the debt) takes that quasi-cash out of circulation, deflating the money supply. In effect, the government uses $100b of one kind of money to destroy $100b in quasi-money.
- gwright 16y ago
  * The government buying it back (by paying down the debt) takes that quasi-cash out of circulation, deflating the money supply. * We aren't talking about paying down the debt. We are talking about borrowing less money this month than we did last month because we just sold our shares in Citibank and so we've got a few billion in cool cash lying around. The total debt continues to go up, just at a slower rate. From the credit market's point of view, the US govenment just sold a few billion less in bonds this month (as compared to last month) and so that means that the creditors have a few billion more to invest elsewhere.
natrius 16y ago
The private sector isn't actually putting money to use at the moment.
jeromec 16y ago
I'm not sure how you could ever manage to make $100 billion in government borrowing or spending not 'political'. Because this $100 billion is not being borrowed or spent. The borrowing has already occurred and has been spent (in this case invested). This $100 billion is a separate unaccounted for number -- one of profit. It's not inherently part of a partisan issue, like the expiring Bush tax cuts, for example. If you reduce government borrowing by $100 billion that frees up $100 billion for use by the private sector. No it doesn't. The private sector is free to borrow as much as it likes from banks at any time. The only impacting factor might be on interest rates and inflation, but those are reflective of other factors as well.
- gwright 16y ago
  If private investors purchase $100 billion in US bonds, that is $100 billion in cash that is not available to be invested elsewhere (i.e. in the private sector). When government borrowing goes down the cash flows to other investments it doesn't just sit there waiting for Uncle Sam to change its mind. Nor is available cash created out of thin air just because the US government wants to sell more bonds. Obviously the size of the credit market changes over time but in the short term, public and private interests are competing for the same pool of available cash.

kelnos 16y ago

That's a very good point. And given that the US national debt is well in excess of $10 trillion, a $100 billion reduction won't do all that much, short term or long term. Sustainable fiscal policy is the only real solution.