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Governments have rarelybpaid down debt in absolute terms (there are exceptions eg Australia at one point). Generally it shrinks as a percentage if GDP at best.

Governments have rarelybpaid down debt in absolute terms (there are exceptions eg Australia at one point). Generally it shrinks as a percentage if GDP at best. If nominal GDP ever stops growing it will never be paid off. Hence 2% inflation targets...

seanmcdirmid 12y ago
Taking on debt is also necessary for a functioning financial system with the US gov playing an important role as global debtor of last resort. Money has no intrinsic value, and the only way to save it is for someone else to borrow and spend it! Inflation is basically a tax on savings, which is not that bad when you consider again that money has no value. A low inflation rate then creates subtle pressure for people to invest money productively (or just spend it) as they lose out if they just hide it under their mattress. A high inflationary rate is not good, of course, as you basically can't save at all, while deflation is also bad because it rewards saving and causes value to evaporate (since money has no intrinsic value, things produced have to be bought and used...).
- icelancer 12y ago
  This is a very Keynesian way to look at things that isn't necessarily absolutely true. There are a lot of times when this ideal of "slight inflation" is detrimental given the actual output of said policies.
  - seanmcdirmid 12y ago
    For example, when? There are very fundamental truths here; e.g. consumption has to match production with very few exceptions, no matter how much someone has to save (or can't spend according to what they are earning). You might be able to save for a rainy day (or retirement), but it is impossible for the world to do that (instead, they must invest for the future to prepare for that rainy day). I'm not sure you could find a single serious economist who would claim "slight inflation is bad;" i.e. would argue that 2-3% is worse than 0%. Maybe a libertarian, but there is a good reason we never vote them into power.
    - eru 12y ago
      From what I've heard, 0% inflation would be best, but that risks getting into deflation (eg -5% 'inflation'). So 2% inflation is worse than 0%, but better than risking deflation.
      - seanmcdirmid 12y ago
        0% risks stagnation, which means investment isn't envouraged or discouraged. Even 1% inflation slightly encourages investment, and really the scale only needs to be tipped a bit to keep the economy moving forward toward growth.
        deleted 12y ago
        [deleted]
        eru 12y ago
        I don't get that argument. Perhaps you want something like Demurrage (https://en.wikipedia.org/wiki/Demurrage_(currency) https://en.wikipedia.org/wiki/Demurrage_(currency)), which could give you that incentive without debasing the currency.
        Dylan16807 12y ago
        If you're talking about the natural costs of holding money, those are miniscule. If you're talking about a tax I don't see how it avoids debasing the currency, or is meaningfully different from inflation. It just makes things more complicated because people can attempt to avoid paying.
        icelancer 12y ago
        Inflation encourages "investment" which is another way of saying inflation encourages gambling.
      - Spooky23 12y ago
        The problem with 0% inflation is that people with money have no incentive to risk it. IMO you need a cycle of inflation between 2-7% to keep things healthy. Dollars stockpiled in some account are not doing anyone any good.
- CyberDildonics 12y ago
  This is one possible dynamic of a monetary system, but it is not how things must work by any stretch. Until the Bretton-Woods agreement gold was shipped from country to country to settle trade imbalances. Money was an IOU for gold and not a method of nullifying debt with currency.
deleted 12y ago
[deleted]
Retric 12y ago
The US has massively paid down debt at several points in history. And several countries have gone vary close to zero debt. The real issue is debt is like crack to elected officials as you get to seemingly spend money without apparently raising taxes.
- jacques_chester 12y ago
  Australia reached zero long term debt in the mid 2000s. The only debt that remained was a rolling short term bond intended to create a stable liquid asset for banks.
gamechangr 12y ago
"rarely paid down debt" --- agreed, but mostly because with inflation...it doesn't make good economic sense

seanmcdirmid 12y ago

Taking on debt is also necessary for a functioning financial system with the US gov playing an important role as global debtor of last resort. Money has no intrinsic value, and the only way to save it is for someone else to borrow and spend it! Inflation is basically a tax on savings, which is not that bad when you consider again that money has no value. A low inflation rate then creates subtle pressure for people to invest money productively (or just spend it) as they lose out if they just hide it under their mattress. A high inflationary rate is not good, of course, as you basically can't save at all, while deflation is also bad because it rewards saving and causes value to evaporate (since money has no intrinsic value, things produced have to be bought and used...).

icelancer 12y ago
This is a very Keynesian way to look at things that isn't necessarily absolutely true. There are a lot of times when this ideal of "slight inflation" is detrimental given the actual output of said policies.
- seanmcdirmid 12y ago
  For example, when? There are very fundamental truths here; e.g. consumption has to match production with very few exceptions, no matter how much someone has to save (or can't spend according to what they are earning). You might be able to save for a rainy day (or retirement), but it is impossible for the world to do that (instead, they must invest for the future to prepare for that rainy day). I'm not sure you could find a single serious economist who would claim "slight inflation is bad;" i.e. would argue that 2-3% is worse than 0%. Maybe a libertarian, but there is a good reason we never vote them into power.
  - eru 12y ago
    From what I've heard, 0% inflation would be best, but that risks getting into deflation (eg -5% 'inflation'). So 2% inflation is worse than 0%, but better than risking deflation.
    - seanmcdirmid 12y ago
      0% risks stagnation, which means investment isn't envouraged or discouraged. Even 1% inflation slightly encourages investment, and really the scale only needs to be tipped a bit to keep the economy moving forward toward growth.
      - deleted 12y ago
        [deleted]
      - eru 12y ago
        I don't get that argument. Perhaps you want something like Demurrage (https://en.wikipedia.org/wiki/Demurrage_(currency) https://en.wikipedia.org/wiki/Demurrage_(currency)), which could give you that incentive without debasing the currency.
        Dylan16807 12y ago
        If you're talking about the natural costs of holding money, those are miniscule. If you're talking about a tax I don't see how it avoids debasing the currency, or is meaningfully different from inflation. It just makes things more complicated because people can attempt to avoid paying.
      - icelancer 12y ago
        Inflation encourages "investment" which is another way of saying inflation encourages gambling.
    - Spooky23 12y ago
      The problem with 0% inflation is that people with money have no incentive to risk it. IMO you need a cycle of inflation between 2-7% to keep things healthy. Dollars stockpiled in some account are not doing anyone any good.
CyberDildonics 12y ago
This is one possible dynamic of a monetary system, but it is not how things must work by any stretch. Until the Bretton-Woods agreement gold was shipped from country to country to settle trade imbalances. Money was an IOU for gold and not a method of nullifying debt with currency.

deleted 12y ago

[deleted]

Retric 12y ago

The US has massively paid down debt at several points in history. And several countries have gone vary close to zero debt. The real issue is debt is like crack to elected officials as you get to seemingly spend money without apparently raising taxes.

jacques_chester 12y ago
Australia reached zero long term debt in the mid 2000s. The only debt that remained was a rolling short term bond intended to create a stable liquid asset for banks.

gamechangr 12y ago

"rarely paid down debt" --- agreed, but mostly because with inflation...it doesn't make good economic sense