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And the kids will pay of course And that's the big problem here. The policy of "run large deficits funded by residents buying government bonds" effects a larg

And the kids will pay of course And that's the big problem here. The policy of "run large deficits funded by residents buying government bonds" effects a large wealth transfer from millennials and post-millennials to baby boomers.

AmericanChopper 7y ago
That’s really not how it works at all. Total dollar value of debt is irrelevant, only thing that matters is ratio to GDP. It will also never (and should never) be paid down. Because growing the GDP is the same thing as paying down debt. The GDP will continue to grow, so even if its 50T by the time kids today are grown up, that’s fine as long as the GDP has kept up. Unlike people, governments don’t have a fixed lifespan, so it’s not like the current generation is going to be on the hook for it when they’re older. It would be a problem if debt was $0, because that would mean the government had paid an enormous opportunity cost at the expense of growing the economy.
- AnthonyMouse 7y ago
  > Total dollar value of debt is irrelevant, only thing that matters is ratio to GDP. The debt to GDP ratio has also been increasing since the end of the Cold War. > Unlike people, governments don’t have a fixed lifespan, so it’s not like the current generation is going to be on the hook for it when they’re older. Never paying down the principal doesn't get you out of paying the interest for your whole life. Recapitalizing the interest doesn't do that either, because that's an opportunity cost which could otherwise have allowed for spending or tax relief at the same level of outstanding debt.
  - josho 7y ago
    > The debt to GDP ratio has also been increasing since the end of the Cold War. Think about how crazy that is. We were in a multi decade arms race with a super power and after ‘winning’ we never bothered to slow down our military spending.
  - AmericanChopper 7y ago
    > The debt to GDP ratio has also been increasing since the end of the Cold War. And if government spending was perfectly optimal, it will continue to increase to the most productive level possible. > The debt to GDP ratio has also been increasing since the end of the Cold War. The principal and the interest are continually repaid and reissued. Every dollar of public debt is immediately put to use in the economy. Public debt is also incredibly cheap to service. Ideally public debt would always be as high as you could possibly make it, and would be put to the most productive (growth stimulating) use possible. It’s very easy for the government to spend money in a way that offsets the cost of its debt. Now, you could debate how good the government actually is at spending money, but that’s a seperate argument to the economic utility of public debt.
pytester 7y ago
Except those large deficits are largely funded by baby boomers buying bonds, not millenials. And the interest is by and large around the level inflation is at (sometimes lower, sometimes higher). And those yield bearing instruments are then left to the boomers' children when they die. Moreover, if that national debt is being used to pay for national assets like infrastructure, the younger generation get to benefit from that. If you want to look for intergenerational wealth transfers this isn't the place to look.
- AnthonyMouse 7y ago
  > Except those large deficits are largely funded by baby boomers buying bonds, not millenials. Lending someone money doesn't cost you money, it earns you interest. They still have all of that money and generally expect to get it back (to spend it down during their retirement) before they die. > And the interest is by and large around the level inflation is at (sometimes lower, sometimes higher). That may be true, but the interest payments are still flowing in a specific direction. One side has a risk-free place to park their money until they want to spend it while not having it eroded by inflation, the other side has to pay the inflation. > And those yield bearing instruments are then left to the boomers' children when they die. That is increasingly not happening because people are living longer and consequently having less left over in the end. There has also been an increase in predatory financial instruments like reverse mortgages that prevent that from happening in practice. > Moreover, if that national debt is being used to pay for national assets like infrastructure, the younger generation get to benefit from that. Which would be true if it was mostly being used to pay for national assets like infrastructure, but it's mostly being used to expand social security and medicare.
  - pytester 7y ago
    >Lending someone money doesn't cost you money, it earns you interest. In the case of government bonds, barely. >That may be true, but the interest payments are still flowing in a specific direction. Sub-inflation interest payments mean that wealth flows in the opposite direction. >That is increasingly not happening because people are living longer Life expectancy has dropped for the 3rd year in a row. >Which would be true if it was mostly being used to pay for national assets like infrastructure, but it's mostly being used to expand social security and medicare. I think you misspelled pointless wars, but yes, it would be better if it was spent on infrastructure instead...
skybrian 7y ago
Oddly, it's the bondholders' money that's funding government spending as they buy bonds. But treasuries are so close to cash that they're almost considered equivalent, so they get to keep the money too. Apparently, increases in government debt effectively create new money, plus an income stream paying very low interest. So you might say any inflationary pressure from increasing the money supply should have already happened? The question is whether to reduce the money supply and income stream by paying off the bonds, keep it going by rolling them over, or remove the interest payment stream while keeping the money supply almost the same by monetizing the debt.

AmericanChopper 7y ago

That’s really not how it works at all. Total dollar value of debt is irrelevant, only thing that matters is ratio to GDP. It will also never (and should never) be paid down. Because growing the GDP is the same thing as paying down debt. The GDP will continue to grow, so even if its 50T by the time kids today are grown up, that’s fine as long as the GDP has kept up. Unlike people, governments don’t have a fixed lifespan, so it’s not like the current generation is going to be on the hook for it when they’re older. It would be a problem if debt was $0, because that would mean the government had paid an enormous opportunity cost at the expense of growing the economy.

AnthonyMouse 7y ago
> Total dollar value of debt is irrelevant, only thing that matters is ratio to GDP. The debt to GDP ratio has also been increasing since the end of the Cold War. > Unlike people, governments don’t have a fixed lifespan, so it’s not like the current generation is going to be on the hook for it when they’re older. Never paying down the principal doesn't get you out of paying the interest for your whole life. Recapitalizing the interest doesn't do that either, because that's an opportunity cost which could otherwise have allowed for spending or tax relief at the same level of outstanding debt.
- josho 7y ago
  > The debt to GDP ratio has also been increasing since the end of the Cold War. Think about how crazy that is. We were in a multi decade arms race with a super power and after ‘winning’ we never bothered to slow down our military spending.
- AmericanChopper 7y ago
  > The debt to GDP ratio has also been increasing since the end of the Cold War. And if government spending was perfectly optimal, it will continue to increase to the most productive level possible. > The debt to GDP ratio has also been increasing since the end of the Cold War. The principal and the interest are continually repaid and reissued. Every dollar of public debt is immediately put to use in the economy. Public debt is also incredibly cheap to service. Ideally public debt would always be as high as you could possibly make it, and would be put to the most productive (growth stimulating) use possible. It’s very easy for the government to spend money in a way that offsets the cost of its debt. Now, you could debate how good the government actually is at spending money, but that’s a seperate argument to the economic utility of public debt.

pytester 7y ago

Except those large deficits are largely funded by baby boomers buying bonds, not millenials. And the interest is by and large around the level inflation is at (sometimes lower, sometimes higher). And those yield bearing instruments are then left to the boomers' children when they die. Moreover, if that national debt is being used to pay for national assets like infrastructure, the younger generation get to benefit from that. If you want to look for intergenerational wealth transfers this isn't the place to look.

AnthonyMouse 7y ago
> Except those large deficits are largely funded by baby boomers buying bonds, not millenials. Lending someone money doesn't cost you money, it earns you interest. They still have all of that money and generally expect to get it back (to spend it down during their retirement) before they die. > And the interest is by and large around the level inflation is at (sometimes lower, sometimes higher). That may be true, but the interest payments are still flowing in a specific direction. One side has a risk-free place to park their money until they want to spend it while not having it eroded by inflation, the other side has to pay the inflation. > And those yield bearing instruments are then left to the boomers' children when they die. That is increasingly not happening because people are living longer and consequently having less left over in the end. There has also been an increase in predatory financial instruments like reverse mortgages that prevent that from happening in practice. > Moreover, if that national debt is being used to pay for national assets like infrastructure, the younger generation get to benefit from that. Which would be true if it was mostly being used to pay for national assets like infrastructure, but it's mostly being used to expand social security and medicare.
- pytester 7y ago
  >Lending someone money doesn't cost you money, it earns you interest. In the case of government bonds, barely. >That may be true, but the interest payments are still flowing in a specific direction. Sub-inflation interest payments mean that wealth flows in the opposite direction. >That is increasingly not happening because people are living longer Life expectancy has dropped for the 3rd year in a row. >Which would be true if it was mostly being used to pay for national assets like infrastructure, but it's mostly being used to expand social security and medicare. I think you misspelled pointless wars, but yes, it would be better if it was spent on infrastructure instead...

skybrian 7y ago

Oddly, it's the bondholders' money that's funding government spending as they buy bonds. But treasuries are so close to cash that they're almost considered equivalent, so they get to keep the money too. Apparently, increases in government debt effectively create new money, plus an income stream paying very low interest. So you might say any inflationary pressure from increasing the money supply should have already happened? The question is whether to reduce the money supply and income stream by paying off the bonds, keep it going by rolling them over, or remove the interest payment stream while keeping the money supply almost the same by monetizing the debt.