4 ms·

> why does a huge thing like a country need debt at all, shouldn't it (on average) be debt free? Axiomatically, if you sum up over all worldwide assets and lia

> why does a huge thing like a country need debt at all, shouldn't it (on average) be debt free? Axiomatically, if you sum up over all worldwide assets and liabilities, they sum to zero. That is a fact that simply follows from accounting. So the world as a whole is (net) debt free (until we start trading with extraterrestrials, then things might change). The US probably is roughly net debt free on average, summing over all domestic private and government assets and liabilities. I don't have time to run the numbers right now. Certainly, even if the US is not debt free on average, its net debt towards foreigners is much less than the government debt, and also less than the sum of government debt held by foreigners. If people just stopped looking only on one side of the coin, they would realize that and chill out over the government debt.

justincormack 15y ago
The fact that net debt is zero does not make people or countries creditworthy and able to pay.
stayjin 15y ago
It is not that simple. Have you ever wandered why counties do not have to issue balance sheets at the end of every fiscal year( or at least before every election) ? Do you understand how easy it would be to judge how a government performed by comparing two of these? And ask all the right questions, exactly as MS investors do with the "developers, developers, developers" CEO?
- justincormack 15y ago
  Thats just because they dont want to share the information transparently. New Zealand started issuing a real balance sheet quite some time back, and it is very interesting. It is hard to do as you need to estimate long term liabilities etc. Here is a summary position and you can find the rest on the site http://www.treasury.govt.nz/government/longterm/fiscalposition/2009/22.htm http://www.treasury.govt.nz/government/longterm/fiscalpositi... All governments should do this....
  - nodata 15y ago
    This is excellent. What prompted them to do this?
    - justincormack 15y ago
      I forget the original reasons, it was some time back. There is a statement here: http://www.treasury.govt.nz/budget/2010/is/04.htm http://www.treasury.govt.nz/budget/2010/is/04.htm I seem to remember it was partly prompted by a new government wanting to prove they were fiscally responsible, but also I think there has always been quite an awareness as there is a huge earthquake reconstruction fund (now entirely in external assets) in case of disaster, which would prompt some thinking about assets and liabilities.
      - stayjin 15y ago
        This is excellent indeed. Actually, it might come as a surprise but Greece seems to have a lot of public assets which would give it a much better clear position than many other countries in Europe if they were to be compared. However of course, it is no secret nowadays that even with a great clear position, if cash flow is not positive you may easily go under.
Andrew_Quentin 15y ago
Of course this government debt needs to be paid with interest. The ones who pay it are the taxpayers. So government debt is a way of taking from the poor, middle classes, the vast majority, and giving to the rich, or a tiny minority.
- nhaehnle 15y ago
  You are right that interest payment is typically a redistribution of wealth towards the rich. The interesting thing is that a monetarily sovereign government actually sets its own interest rate, via monetary policy: the interest paid on US treasuries is ultimately a function of the interest rate set by the central bank, i.e. it is a political choice. This is initially unintuitive, but it follows from developing an understanding of the system from first principles, as is done by Modern Monetary Theory. You can read about it under the heading "What role does the bond market play in all of this?" in this article I already linked to elsewhere: http://pragcap.com/resources/understanding-modern-monetary-system http://pragcap.com/resources/understanding-modern-monetary-s... and also in Randall Wray's book "Understanding Modern Money". Quite a number of economists in the MMT line of thought actually argue in favour of letting the interest rate drop to zero, and using fiscal policy instead of monetary policy for inflation targeting. In other words, government debt does not need to be a way of taking from the poor. It is that way as a result of political choice - though I do not think that it was a conscious choice, since people have not really internalised how our monetary system works these days.

justincormack 15y ago

The fact that net debt is zero does not make people or countries creditworthy and able to pay.

stayjin 15y ago

It is not that simple. Have you ever wandered why counties do not have to issue balance sheets at the end of every fiscal year( or at least before every election) ? Do you understand how easy it would be to judge how a government performed by comparing two of these? And ask all the right questions, exactly as MS investors do with the "developers, developers, developers" CEO?

justincormack 15y ago
Thats just because they dont want to share the information transparently. New Zealand started issuing a real balance sheet quite some time back, and it is very interesting. It is hard to do as you need to estimate long term liabilities etc. Here is a summary position and you can find the rest on the site http://www.treasury.govt.nz/government/longterm/fiscalposition/2009/22.htm http://www.treasury.govt.nz/government/longterm/fiscalpositi... All governments should do this....
- nodata 15y ago
  This is excellent. What prompted them to do this?
  - justincormack 15y ago
    I forget the original reasons, it was some time back. There is a statement here: http://www.treasury.govt.nz/budget/2010/is/04.htm http://www.treasury.govt.nz/budget/2010/is/04.htm I seem to remember it was partly prompted by a new government wanting to prove they were fiscally responsible, but also I think there has always been quite an awareness as there is a huge earthquake reconstruction fund (now entirely in external assets) in case of disaster, which would prompt some thinking about assets and liabilities.
    - stayjin 15y ago
      This is excellent indeed. Actually, it might come as a surprise but Greece seems to have a lot of public assets which would give it a much better clear position than many other countries in Europe if they were to be compared. However of course, it is no secret nowadays that even with a great clear position, if cash flow is not positive you may easily go under.

Andrew_Quentin 15y ago

Of course this government debt needs to be paid with interest. The ones who pay it are the taxpayers. So government debt is a way of taking from the poor, middle classes, the vast majority, and giving to the rich, or a tiny minority.

nhaehnle 15y ago
You are right that interest payment is typically a redistribution of wealth towards the rich. The interesting thing is that a monetarily sovereign government actually sets its own interest rate, via monetary policy: the interest paid on US treasuries is ultimately a function of the interest rate set by the central bank, i.e. it is a political choice. This is initially unintuitive, but it follows from developing an understanding of the system from first principles, as is done by Modern Monetary Theory. You can read about it under the heading "What role does the bond market play in all of this?" in this article I already linked to elsewhere: http://pragcap.com/resources/understanding-modern-monetary-system http://pragcap.com/resources/understanding-modern-monetary-s... and also in Randall Wray's book "Understanding Modern Money". Quite a number of economists in the MMT line of thought actually argue in favour of letting the interest rate drop to zero, and using fiscal policy instead of monetary policy for inflation targeting. In other words, government debt does not need to be a way of taking from the poor. It is that way as a result of political choice - though I do not think that it was a conscious choice, since people have not really internalised how our monetary system works these days.