11 ms·

When it comes to comparing the amounts of US gov spending to US household spending (not that I could propose a better mechanism, meaning I understand the value

When it comes to comparing the amounts of US gov spending to US household spending (not that I could propose a better mechanism, meaning I understand the value of framing things in such a way, and fully admit I can't think of a more salient way to do it) I'm just not a fan of comparing state level spending to household or personal finance. It leads to other examples being used that just are not true. Like: "It is similar to a person using his or her credit card for a purchase (rather than cash, check, or a debit card) and not paying the full credit card balance each month". I cannot sell access to my debt to pay for past debts, which is how the government has paid it's debts since 1837 (probably so long ago because that the last time we sought to destroy debt and not pay for things by monetizing debt, it caused the longest depression in American history due to Jackson's monetary policy in 1835). Nor can I create credit out of thin air, by buying treasuries my member banks. Also, I most definitely do not owe 50% of my non-intergovernmental debt to my own central bank and state and local governments and their pensions. Much less, all the while operating with a currency I control. So yeah, I don't love it, but I get it.

phkahler 5y ago
The analogies are good to help people see that government debt is bad. When a person is in over their head, they can possibly file for bankruptcy. When a government gets in over their head bad things happen too, up to and including wars. Comparing government debt to personal debt is just a way to make it more comprehensible how bad the situation is.
- SubiculumCode 5y ago
  Government debt is not bad. Government debt is a net private surplus.
  - jkhdigital 5y ago
    Government debt does not exist in a vacuum: it comes into existence because the government spent more money than it took in. What did it spend that money on? Ask the lobbyists.
    - dragonwriter 5y ago
      > Government debt does not exist in a vacuum: it comes into existence because the government spent more money than it took in. No, it exists because government issued commitments to pay people money in the future. A government that creates its own currency has no need to do this to spend more than it takes in in revenue, and even a government that doesn't create its own currency is free to issue such commitments without a deficit.
      - jkhdigital 5y ago
        This makes no sense. The government doesn’t issue debt and then just sit on the cash. The debt ceiling is constantly being raised here in the US because every cent is spent. The two events (1) Congress deciding to spend money (in excess of receipts), and (2) the Treasury issuing debt, are directly causally related. If event (1) doesn’t happen, then event (2) won’t happen. In theory it could, but in reality it does not, period.
        dragonwriter 5y ago
        The US Congress chooses to behave (approximately) as if it had a commodity rather than self-issued fiat currency, but this is a choice, not some kind of necessity.
        SubiculumCode 5y ago
        Exactly. Just because we have a debt-guided mechanism does not make the currency not fiat. Those self-constraints can be changed or removed at any time.
  - refurb 5y ago
    Government debt competes with private debt.
    - dlp211 5y ago
      The demand for debt is higher than the private sector can supply.
      - refurb 5y ago
        No, when a private company looks to sell debt, it's competing with the gov't for those same dollars.
- donavanm 5y ago
  > When a government gets in over their head bad things happen too, up to and including wars. Do they? I havent looked in a while but my recollection (of south america in particular) is that the impact of government bond default is actually pretty low. A couple years without good international bond market access, higher premiums for a few years, maybe some wrangling with the IMF and surface level "restructuring." But sooner rather than later its back to issuance on the open market with willing buyers after those premiums.
  - lend000 5y ago
    I suspect some Argentinians and Venezuelans would disagree with you about the degree of consequence. Argentina: decades of inflation and economic stagnation. Venezuela: societal collapse. With game theory, you can see how a certain amount of debt, especially when borrowed from foreign lenders, can be the optimal choice for long term relative national growth. That's pretty much what the US did for most of its history up to ~2001. But unsustainable, growing debt, certainly has consequences.
    - donavanm 5y ago
      So the original comment was that When a person is in over their head, they can possibly file for bankruptcy. When a government gets in over their head bad things happen too, up to and including wars. For a government default is *very* similar to the US personal & commercial bankruptcy process. Its generally structured, governed by contracts, creditors take a negotiated "haircut", payments are deferred or restructured, etc. In light of this yes, Argentina is a great example of teh real effects. This quick hit from WSJ[1] highlights argentina issuing a new 100-year bond in 2017, with massive subsciption, 3 years after a default and 3 years before the next. Looking at the articles infographic[2] the timeline actually includes two different defaults, 2001 & 2014. There are 4 lean years of little to no issuance in 02-05, and a tiny hit in the number of issuance in 14-15. My recollection is that larger studies across time and geography actually show minimal impact to yields ~7 years after default. So yes, governments absolutely have access to mechanisms similar to bankruptcy. And no, default is absolutely not catastrophic to future funding, debt management, or spending. And yes again, the people of places like argentina & venezuela have suffered greatly for generations but that seems to be a different proposition than "governments cant manage huge and/or unsustainable debts without drastic outcomes." [1] https://www.wsj.com/articles/argentina-sells-2-75-billion-of-100-year-bonds-1497905921 https://www.wsj.com/articles/argentina-sells-2-75-billion-of... [2] https://si.wsj.net/public/resources/images/BF-AR635_ARGENT_16U_20170619185419.jpg https://si.wsj.net/public/resources/images/BF-AR635_ARGENT_1...
- Gabriel_Martin 5y ago
  These are the exact sentiments I believe personal/household finance analogies evoke, and basically why I oppose their use. It evokes comparisons to some kind of possibility of something happening analogous to bankruptcy when in fact: "The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default." Alan Greenspan So yeah, it's just my opinion but to me the mechanics and context of the US's federal debt is so departed from that of household finance, that it's more detrimental than beneficial to even use them in the first place. But again, I understand the desire to anchor it to something people recognize.
  - darawk 5y ago
    > "The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default." Alan Greenspan While this is partially true: 1. Sovereign nations absolutely can and do default. See, Russia in the 1990s and the LTCM fiasco. 2. Even though they do not have to default and can always print money to pay their debts, doing so causes inflation. How much inflation it causes is proportional to how much money is printed. Now, the dynamics of inflation are pretty complicated, so in certain circumstances you can get away with it for a while. But it is not the case that the government can print money indefinitely with zero consequences.
    - jkhdigital 5y ago
      And the line between “acceptable consequences” and “catastrophic consequences” is basically unknowable, so it’s not a bad idea to err on the side of caution.
      - throwaway34241 5y ago
        > so it’s not a bad idea to err on the side of caution Over time it's gotten harder for me to figure out what the side of caution even is. If they are too aggressive in stimulating the economy, they risk inflation. If they are not aggressive enough they risk a persistently weak economy, escalating political dysfunction, and (if history is a guide) eventual collapse of the status quo and usually even-more-inflationary policies. It doesn't seem like there is a safe path anywhere - errors on either side seem like they could be potentially catastrophic.
jkhdigital 5y ago
The problem with unconstrained government deficit finance is not inflation, it is cronyism and corruption. When 638 individuals decide how $3 trillion gets spent, almost any amount of lobbying expense will yield a positive NPV.
- adventured 5y ago
  > When 638 individuals decide how $3 trillion gets spent Just a small correction. Federal Government spending was $4.4 trillion in 2019. It was $6.6t for 2020 [2], with $4.6t of that being mandatory spending; tax revenue was $3.4t for 2020 by comparison. We wish outlays were only $3t, we'd have a nice budget surplus right now. [1] https://www.cbo.gov/publication/56324 https://www.cbo.gov/publication/56324 [2] https://www.cbo.gov/publication/57170 https://www.cbo.gov/publication/57170
  - Proven 5y ago
    It's clear he was talking about the latest stimulus proposal ($3.5 tn) pushed by the socialists

phkahler 5y ago

The analogies are good to help people see that government debt is bad. When a person is in over their head, they can possibly file for bankruptcy. When a government gets in over their head bad things happen too, up to and including wars. Comparing government debt to personal debt is just a way to make it more comprehensible how bad the situation is.

SubiculumCode 5y ago
Government debt is not bad. Government debt is a net private surplus.
- jkhdigital 5y ago
  Government debt does not exist in a vacuum: it comes into existence because the government spent more money than it took in. What did it spend that money on? Ask the lobbyists.
  - dragonwriter 5y ago
    > Government debt does not exist in a vacuum: it comes into existence because the government spent more money than it took in. No, it exists because government issued commitments to pay people money in the future. A government that creates its own currency has no need to do this to spend more than it takes in in revenue, and even a government that doesn't create its own currency is free to issue such commitments without a deficit.
    - jkhdigital 5y ago
      This makes no sense. The government doesn’t issue debt and then just sit on the cash. The debt ceiling is constantly being raised here in the US because every cent is spent. The two events (1) Congress deciding to spend money (in excess of receipts), and (2) the Treasury issuing debt, are directly causally related. If event (1) doesn’t happen, then event (2) won’t happen. In theory it could, but in reality it does not, period.
      - dragonwriter 5y ago
        The US Congress chooses to behave (approximately) as if it had a commodity rather than self-issued fiat currency, but this is a choice, not some kind of necessity.
        SubiculumCode 5y ago
        Exactly. Just because we have a debt-guided mechanism does not make the currency not fiat. Those self-constraints can be changed or removed at any time.
- refurb 5y ago
  Government debt competes with private debt.
  - dlp211 5y ago
    The demand for debt is higher than the private sector can supply.
    - refurb 5y ago
      No, when a private company looks to sell debt, it's competing with the gov't for those same dollars.
donavanm 5y ago
> When a government gets in over their head bad things happen too, up to and including wars. Do they? I havent looked in a while but my recollection (of south america in particular) is that the impact of government bond default is actually pretty low. A couple years without good international bond market access, higher premiums for a few years, maybe some wrangling with the IMF and surface level "restructuring." But sooner rather than later its back to issuance on the open market with willing buyers after those premiums.
- lend000 5y ago
  I suspect some Argentinians and Venezuelans would disagree with you about the degree of consequence. Argentina: decades of inflation and economic stagnation. Venezuela: societal collapse. With game theory, you can see how a certain amount of debt, especially when borrowed from foreign lenders, can be the optimal choice for long term relative national growth. That's pretty much what the US did for most of its history up to ~2001. But unsustainable, growing debt, certainly has consequences.
  - donavanm 5y ago
    So the original comment was that When a person is in over their head, they can possibly file for bankruptcy. When a government gets in over their head bad things happen too, up to and including wars. For a government default is *very* similar to the US personal & commercial bankruptcy process. Its generally structured, governed by contracts, creditors take a negotiated "haircut", payments are deferred or restructured, etc. In light of this yes, Argentina is a great example of teh real effects. This quick hit from WSJ[1] highlights argentina issuing a new 100-year bond in 2017, with massive subsciption, 3 years after a default and 3 years before the next. Looking at the articles infographic[2] the timeline actually includes two different defaults, 2001 & 2014. There are 4 lean years of little to no issuance in 02-05, and a tiny hit in the number of issuance in 14-15. My recollection is that larger studies across time and geography actually show minimal impact to yields ~7 years after default. So yes, governments absolutely have access to mechanisms similar to bankruptcy. And no, default is absolutely not catastrophic to future funding, debt management, or spending. And yes again, the people of places like argentina & venezuela have suffered greatly for generations but that seems to be a different proposition than "governments cant manage huge and/or unsustainable debts without drastic outcomes." [1] https://www.wsj.com/articles/argentina-sells-2-75-billion-of-100-year-bonds-1497905921 https://www.wsj.com/articles/argentina-sells-2-75-billion-of... [2] https://si.wsj.net/public/resources/images/BF-AR635_ARGENT_16U_20170619185419.jpg https://si.wsj.net/public/resources/images/BF-AR635_ARGENT_1...
Gabriel_Martin 5y ago
These are the exact sentiments I believe personal/household finance analogies evoke, and basically why I oppose their use. It evokes comparisons to some kind of possibility of something happening analogous to bankruptcy when in fact: "The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default." Alan Greenspan So yeah, it's just my opinion but to me the mechanics and context of the US's federal debt is so departed from that of household finance, that it's more detrimental than beneficial to even use them in the first place. But again, I understand the desire to anchor it to something people recognize.
- darawk 5y ago
  > "The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default." Alan Greenspan While this is partially true: 1. Sovereign nations absolutely can and do default. See, Russia in the 1990s and the LTCM fiasco. 2. Even though they do not have to default and can always print money to pay their debts, doing so causes inflation. How much inflation it causes is proportional to how much money is printed. Now, the dynamics of inflation are pretty complicated, so in certain circumstances you can get away with it for a while. But it is not the case that the government can print money indefinitely with zero consequences.
  - jkhdigital 5y ago
    And the line between “acceptable consequences” and “catastrophic consequences” is basically unknowable, so it’s not a bad idea to err on the side of caution.
    - throwaway34241 5y ago
      > so it’s not a bad idea to err on the side of caution Over time it's gotten harder for me to figure out what the side of caution even is. If they are too aggressive in stimulating the economy, they risk inflation. If they are not aggressive enough they risk a persistently weak economy, escalating political dysfunction, and (if history is a guide) eventual collapse of the status quo and usually even-more-inflationary policies. It doesn't seem like there is a safe path anywhere - errors on either side seem like they could be potentially catastrophic.

jkhdigital 5y ago

The problem with unconstrained government deficit finance is not inflation, it is cronyism and corruption. When 638 individuals decide how $3 trillion gets spent, almost any amount of lobbying expense will yield a positive NPV.

adventured 5y ago
> When 638 individuals decide how $3 trillion gets spent Just a small correction. Federal Government spending was $4.4 trillion in 2019. It was $6.6t for 2020 [2], with $4.6t of that being mandatory spending; tax revenue was $3.4t for 2020 by comparison. We wish outlays were only $3t, we'd have a nice budget surplus right now. [1] https://www.cbo.gov/publication/56324 https://www.cbo.gov/publication/56324 [2] https://www.cbo.gov/publication/57170 https://www.cbo.gov/publication/57170
- Proven 5y ago
  It's clear he was talking about the latest stimulus proposal ($3.5 tn) pushed by the socialists