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Government spending, not taxes, are the proper measure of the burden of government. Ultimately, the debts will have to be paid whether that be outright, through

Government spending, not taxes, are the proper measure of the burden of government. Ultimately, the debts will have to be paid whether that be outright, through devaluation of the currency, or a combination of both.

User23 8y ago
No they don't. A monetarily sovereign government with a productive economy, such as the USA, can roll over its debt indefinitely. In fact, the global financial system relies on US debt. Foreign countries call it "reserves." Also, remember that the size of the public sector's balance sheet isn't what controls inflation, it's too much money chasing too few goods and services. Most money isn't even created by the government, it's created by banks with keystrokes.
- zacharytelschow 8y ago
  > A monetarily sovereign government with a productive economy There's a reason we have a massive trade imbalance - our number one export is debt. > Also, remember that the size of the public sector's balance sheet isn't what controls inflation, it's too much money chasing too few goods and services. I forget the percentage, but a meaningful amount of US treasuries have maturities of 2 years or less. The only thing that controls inflation is the willingness (foolhardiness?) of countries or people willing to buy our debt at very low interest rates. If that ever changes, we are in for a very rude awakening.
  - User23 8y ago
    Foreign countries have to buy our debt, because they want to run a current account surplus against us. The alternative is to just sit on the reserves they accumulate from that surplus, which pay no interest. Given the choice of 0% or 2% every sovereign is going to choose the latter. China isn't the USA's bank. The Federal Reserve is the USA's bank. China is just another depositor at the Fed. The Federal Reserve sets USD interest rates, not China or any other foreign sovereign.
    - zacharytelschow 8y ago
      > The Federal Reserve sets USD interest rates, not China or any other foreign sovereign. If the time ever comes where there's no market for our debt at 2%, we'll see who's actually in the driver's seat. No China itself is not, but the market generally is.
      - TheCoelacanth 8y ago
        As long as the Fed lets banks materialize money out of thin air for 2% to loan out to someone else, there will be someone willing to loan the US money for 2%+ε. The deciding factor is not whether or not the US can borrow money, it's whether you can buy anything outside of the country with that money.
      - User23 8y ago
        If that time ever comes, it will be because of a collapse in the US economy to such an extent that foreigners no longer want to hold claims against it. At that point it doesn’t matter what nominal interest rates are, because it simply won’t matter. Many get the causality backwards, thinking that inflation causes economic collapse, but the former is actually the consequence of the latter.
- cjlars 8y ago
  This idea that debts don't need to paid because they can be rolled over is pretty absurd. It's true that aggregate debt never need go to zero, but all debt has a carrying cost. Current debt expense is $310BN annually for the federal government [1], and likely going higher. A high amount of debt is very dangerous because the carrying costs could easily rise for reasons beyond our control. In fact carry costs were 4.7% merely ten years ago, vs 2.7% today. If high interest rates return, high debt countries are definitely facing a budget squeeze. [1] https://www.thebalance.com/interest-on-the-national-debt-4119024 https://www.thebalance.com/interest-on-the-national-debt-411...
  - User23 8y ago
    Interest on federal debt owned by the US private sector is fiscal stimulus, because it is net expansive for private balance sheets. Likewise, when the federal reserve holds treasuries and remits the interest back to the treasury it’s draining reserves from the economy. While out of control high interest rates have serious drawbacks, there are definitely solid arguments that rewarding savers with a higher safe return than the current 0.5-2% available now will benefit the people.
- SamReidHughes 8y ago
  Think of it as a percentage of the workforce. Whether they tax the money or borrow it, they're still consuming a certain portion of the nation's collective effort on whatever it pays for. That work could have been spent doing more useful or less useful nongovernmental stuff, or people could retire earlier.
  - User23 8y ago
    This is the key insight. The equation GDP = C + I + G + (X – M) makes it clear that as G grows relative to the other factors, the private sector has less control over the economy.

User23 8y ago

No they don't. A monetarily sovereign government with a productive economy, such as the USA, can roll over its debt indefinitely. In fact, the global financial system relies on US debt. Foreign countries call it "reserves." Also, remember that the size of the public sector's balance sheet isn't what controls inflation, it's too much money chasing too few goods and services. Most money isn't even created by the government, it's created by banks with keystrokes.

zacharytelschow 8y ago
> A monetarily sovereign government with a productive economy There's a reason we have a massive trade imbalance - our number one export is debt. > Also, remember that the size of the public sector's balance sheet isn't what controls inflation, it's too much money chasing too few goods and services. I forget the percentage, but a meaningful amount of US treasuries have maturities of 2 years or less. The only thing that controls inflation is the willingness (foolhardiness?) of countries or people willing to buy our debt at very low interest rates. If that ever changes, we are in for a very rude awakening.
- User23 8y ago
  Foreign countries have to buy our debt, because they want to run a current account surplus against us. The alternative is to just sit on the reserves they accumulate from that surplus, which pay no interest. Given the choice of 0% or 2% every sovereign is going to choose the latter. China isn't the USA's bank. The Federal Reserve is the USA's bank. China is just another depositor at the Fed. The Federal Reserve sets USD interest rates, not China or any other foreign sovereign.
  - zacharytelschow 8y ago
    > The Federal Reserve sets USD interest rates, not China or any other foreign sovereign. If the time ever comes where there's no market for our debt at 2%, we'll see who's actually in the driver's seat. No China itself is not, but the market generally is.
    - TheCoelacanth 8y ago
      As long as the Fed lets banks materialize money out of thin air for 2% to loan out to someone else, there will be someone willing to loan the US money for 2%+ε. The deciding factor is not whether or not the US can borrow money, it's whether you can buy anything outside of the country with that money.
    - User23 8y ago
      If that time ever comes, it will be because of a collapse in the US economy to such an extent that foreigners no longer want to hold claims against it. At that point it doesn’t matter what nominal interest rates are, because it simply won’t matter. Many get the causality backwards, thinking that inflation causes economic collapse, but the former is actually the consequence of the latter.
cjlars 8y ago
This idea that debts don't need to paid because they can be rolled over is pretty absurd. It's true that aggregate debt never need go to zero, but all debt has a carrying cost. Current debt expense is $310BN annually for the federal government [1], and likely going higher. A high amount of debt is very dangerous because the carrying costs could easily rise for reasons beyond our control. In fact carry costs were 4.7% merely ten years ago, vs 2.7% today. If high interest rates return, high debt countries are definitely facing a budget squeeze. [1] https://www.thebalance.com/interest-on-the-national-debt-4119024 https://www.thebalance.com/interest-on-the-national-debt-411...
- User23 8y ago
  Interest on federal debt owned by the US private sector is fiscal stimulus, because it is net expansive for private balance sheets. Likewise, when the federal reserve holds treasuries and remits the interest back to the treasury it’s draining reserves from the economy. While out of control high interest rates have serious drawbacks, there are definitely solid arguments that rewarding savers with a higher safe return than the current 0.5-2% available now will benefit the people.
SamReidHughes 8y ago
Think of it as a percentage of the workforce. Whether they tax the money or borrow it, they're still consuming a certain portion of the nation's collective effort on whatever it pays for. That work could have been spent doing more useful or less useful nongovernmental stuff, or people could retire earlier.
- User23 8y ago
  This is the key insight. The equation GDP = C + I + G + (X – M) makes it clear that as G grows relative to the other factors, the private sector has less control over the economy.