When Having the US Debt Paid Off Was a Problem 633
Hugh Pickens writes "NPR reports that not so long ago, the prospect of a debt-free U.S. was seen as a real possibility with the potential to upset the global financial system. As recently as 2000, the U.S. was running a budget surplus, taking in more than it was spending every year — and economists were projecting that the entire national debt could be paid off by 2012. So the government commissioned a secret report outlining the possible harmful consequences of retiring the debt completely. For one thing, paying off the national debt would mean the end of Treasury bonds, a pillar of the global economy. Treasury securities are crucially important to the world financial system in a number of ways: banks buy them as low-risk assets, the Fed uses them for executing monetary policy, and mortgage interest rates vary based on Treasury rates. 'It was a huge issue ... for not just the U.S. economy, but the global economy,' says Diane Lim Rogers, an economist in the Clinton administration. In the end, Jason Seligman, the economist who wrote most of the report titled 'Life After Debt (PDF),' concluded it was a good idea to pay down the debt — but not to pay it off entirely. 'There's such a thing as too much debt,' says Seligman. 'But also such a thing, perhaps, as too little.'"
Yes, because debt IS money (Score:2, Interesting)
Money is borrowed into existence. Paying off debt causes the destruction of money.
Right now there is about 9.5 trillion in money, 50 trillion in debt, of which 14 is public.
If the government pays off it's debt it would cause a massive depression because all the money would disappear.
This is why you have exponentially growing debt.
http://media.chrismartenson.com/images/credit-market-doublings.jpg [chrismartenson.com]
Basically the monetary system is totally messed up and has been since 1971. What's required is monetary reform.
Re:The Myth of the Clinton Surplus (Score:4, Interesting)
http://www.craigsteiner.us/articles/16 [craigsteiner.us]
You can verify it here (U.S. Treasury site):
http://www.treasurydirect.gov/NP/NPGateway [treasurydirect.gov]
Enter 09/30/1997 through 10/01/2001 for range and look at 9/30 for each year.
Re:Yes, because debt IS money (Score:2, Interesting)
Just make up more shit about money and increase the value.
Re:1% (Score:4, Interesting)
Re:Yes, because debt IS money (Score:5, Interesting)
Yes, that is the Federal Reserve's notion of money and the one they prefer because they control that money. That's why keeping the US Dollar as the unit of international exchange is so important. Prior to this, the notion of wealth was collecting and maintaining what ultimately traces back to physical resources.
So now, "money" is generated by having someone "owe" you something. This is in a very literal sense a means by which the entire world is enslaved.... to the 0.0001%. I know it sounds all conspiracy theorist-like, but think on it.
The stuff you earn and save is actually a form of debt and its ultimate value is determined by the central party who owns the debt. If the Federal Reserve were to blink out of existence, ALL of my money becomes worthless and my savings becomes zero.
Re:Money as Debt (Score:5, Interesting)
Sorry, here is where you can watch it online, now, free:
http://www.youtube.com/watch?v=Dc3sKwwAaCU [youtube.com]
or
http://video.google.com/videoplay?docid=-2550156453790090544 [google.com]
He also released a followup video a few years later:
http://www.youtube.com/watch?v=rCu3fpg83TY [youtube.com]
Re:Yes, because debt IS money (Score:4, Interesting)
Those economists are idiots. The only reason that's at all a risk is because the Federal Reserve has allowed the wealth to accumulate in the hands of a small group of people. Basically, robbing the poor to pay the rich by keeping treasury yields low. And they keep the yields low by issuing additional bonds.
The problem is that it has the effect of discouraging the poor from saving any money and gaining the advantage of savings while artificially increasing the numbers in the bank accounts of the rich.
So, in a sense it could cause a deflationary spiral, but only if there's criminal negligence on the part of the Fed as it would require a prolonged period of significant debt retirement rather than a smoother more predictable payment plan.
Republicans always lie about Clinton. (Score:5, Interesting)
http://en.wikipedia.org/wiki/National_debt_by_U.S._presidential_terms [wikipedia.org]
Let's look at one figure, the percentage change in the national debt. Take the two terms (Regan, Bush) before Clinton, and the two terms after him (Bush). Negative numbers are decreases, positive increases.
The last time a Republican president decreased the National debt was Richard Nixon in his first term in 1973, +3.0%. This was over 9 presidential terms ago, over 36 years.
So when Republicans try and trash Clinton's economic record, they always quote misleading figures. Also known as lying.
Re:1% (Score:4, Interesting)
Re:No, IT IS NOT MESED UP (Score:5, Interesting)
That analogy itself is messed up. You made an assumption that money was based purely on work. But if you want to follow the history of money that way, you have to realize that at one point money was traded for commodity.
Let's imagine that money is a measurement of favor. I lug you some rocks, then I will be entitled to some kind of favor from you tomorrow. Maybe you'd give me a feast with a whole chicken. But I wasn't in the mood for a chicken that time, so I decided to put off receiving favor from you. After two years, I expect to still be entitled to that feast of whole chicken. But with inflation, for some reason you'd only give me half of the chicken, because you claim that my favor has devalued over time. What gives?
Re:Yes, because debt IS money (Score:5, Interesting)
Very well written.
Most people think the way a bank works is they take money from depositors and lend it out and make money on the difference. Even if that were true it would be creating money because if the person saves money in a demand account (savings or checking) where they have access to it any time they want and the bank lends it out they have created money. Say I put $1000 in savings. My account shows I have $1000. Say the bank lends out $900 of it (Assuming there is a 10% reserve requirement which isn't even true anymore). There is now $1900 in the economy. It gets worse because when that person pays someone that $900 it goes into their bank and that bank can create $810. Now there is $2710 in the economy. This keeps going until there is $10,000. So the banks create $9,000 of money from that first $1000.
The key to this whole thing is letting banks lend out demand money. If we made this illegal the whole situation would change. Banks would only be allowed to lend out time deposits which are things like CD's where you give up access to the money for a certain time. This would prevent the bank from creating money because they could only lend out money that you don't have access to.
This could be accomplished without causing massive deflation by slowly raising reserve requirements.
The main reason deflation is bad is because today people have adjusted their lives based on debt and inflation. With deflation your wage goes down and you have problems paying off debts. But once transitioned to system where debt isn't money people do much better. You don't have to put your money at risk because you can just save it in a vault and it won't lose value. This I believe is why we have the current system. The powerful bankers and politicians like inflation because it allows them to spend money they don't have to tax to get. Also inflation forces you into the financial system so that your savings have a hope of maintaining purchasing power.
To think about deflation you have to look at the technology industry. This industry is growing so fast in productivity that it is still deflationary. Do people ever rush out to by a TV because they think it will be more expensive next year? Some people like the latest and greatest but most people wait for products to drop until they are in their price range. This is deflation. I bought an Apple II GS in 1998 with monitor and printer for somethings like $1500. This is like $3000 today. My kids have toys that are about $20 that are as powerful as it. I just bought a printer, copier, scanner, fax for $40. This is massive price deflation and it benefits the consumer.
Re:1% (Score:3, Interesting)
Based on historical facts, your implication that it was all the Republicans would be false [wikipedia.org]. That graph shows that it was both the Democrats and the Republicans, and that the greatest year over year increases occurred while the Democrats were in control.
Re:1% (Score:4, Interesting)
If the U.S. fails to make payments on its debt, then those debts will be in default. The value of treasury bond holdings would collapse in a mass selloff. This would affect every financial institution in the United States, including those fuzzy little Credit Unions. Many, many institutions would require FDIC/NCUA intervention, and the funds aren't really large enough to deal with a problem on that scale. The U.S. would have to either print money (thus devaluing the dollar on the world market, leading to shortages), or let the banks and credit unions fail, leading to many people losing their savings.
So, instead the government *must* make its debt payments. We've got long-term unemployment right now. That means there are a lot of people who aren't paying taxes, and probably won't be in the near future. In fact, even when they do find a job they're likely to be less productive than they were for many years. Unemployment and underemployment also strains the social safety net, the government must pay more to maintain a basic standard of living and keep crime in check. Taxes can't be raised quickly without impacting production, and in fact cutting taxes is basically the government's only tool to increase production. At the same time, if the government can't balance the budget interest rates on U.S. debt will slowly increase. We typically will borrow for 1-5 years, and when the bond comes due we'll pay some portion of the bond with cash and take out another bond on the rest, sort of like having multiple 5-year mortgages. This means that an increase in interest rates actually affects the existing debt, not just new debt, so interest payments would increase quickly. Eventually, we won't be able to afford market rates and we'll have to find a lender willing to let us borrow at a more reasonable rate. In exchange for the loan they'll demand we make certain changes (similar to a bankruptcy court ordering your possessions be sold). These changes will be painful, but not as painful as those required to immediately balance the budget and pay off bonds as they come due. That's what's happening in Greece right now.
TL;DR - Tell Greece that borrowing doesn't come with additional obligations.
Re:They don't know (Score:2, Interesting)
It would accumulate again, and much to the same people except the "old moneyed" who never really learned anything. Most of the poor would still be poor, either due to bad education or bad habits. The people who worked their ass off would still get rich. The people who were at or near retirement would be screwed out of everything they worked for. Just look how it panned out in Russia since the fall of communism, where a bunch of workers got equal shares in the companies they worked for. Look at Zimbabwe after they kicked all the white farmers out and redistributed. What used to be the bread bowl of Africa is now the dust bowl, requiring food imports.
Wealth has never been nor will ever be created by redistribution. It has never improved a situation unless you're moving from true feudalism to freeing the serfs. And I'm not talking about fixing that label to people unhappy they can't afford to upgrade their TVs to a 60" LEDTV. Free markets help create wealth. The government should not be in the process of seizing assets and redistributing them. The government should protect indivudal rights and equalizing opportunities instead.
Re:1% (Score:0, Interesting)
Well, the problems we currently face are mostly caused by US policies of the last 10 years which are better described by "organize nothing...
Actually, I think there has been a game plan all along.
Since the collapse of the USSR, there has been a persistent attack on the greenback because it represented the weakest point of the last remaining superpower (USA). Ultimately, the euro had clawed far enough up the totem pole, that it was staged to supplant the greenback for a meaningful amount of global trade - the greenback had lost the high ground.
Both the USA and China recognized how poorly a dominating euro would fare for them, and have actively pursued a course to undermine it; a cooperative effort guided by a common, undesirable competitor (anti-Americans, say what you will about American imperialism; based on past exploitation, just you wait and see what organized Europe can do if they gain the upper hand in global trade). It is important to frame the outcome of this economic turmoil in a manner that has one (or more likely, two) big player(s) coming out on top, once the dust settles. This kind of economic manipulation doesn't just happen, it is all quite strategic and purposeful.
Unfortunately, there are consequences for having allowed the Europeans to gain so much currency control. The greenback, obviously, is not going to continue being the de facto medium of international trade...
I think :
- The constituents of the EU & BRICS trading zones will entrench with their own currencies, those affiliated with USA will continue with greenbacks.
- The USA market will be forced to evolve into a more actively managed market; it's just a natural evolution of long-standing market. It will remain open where the open market is working, but there will be much more government involvement to keep people busy.
- The Chinese will remove the temporary reprieve of pseudo-capitalism & revert back to full-on communism, once the euro has been sufficiently displaced. It is important to regard their body of wealth, associated with the global economy, as a tool. They don't give a fuck about the global economy, because communist economics is self-perpetuating - whether they participate globally or not makes no difference, as they'll just keep chugging along under centrally managed social organization. A sacrifice of that bubble of money means diddly-squat; it was built to be burst from the onset.
- Between the Chinese appropriation of invested personal/corporate wealth, and the American government's response of debt absolution, the greenback will be re-invigorated, the government will have control of personal debt, the Chinese will have the industrial capacity to build a modern military, and the euro will no longer be a threat to either the Chinese or the Americans (and those affiliated with the two).
So, yes, there is organization and thought behind all this. I'm betting (and I've adjusted my investments to reflect it) that the USA & Chinese agreed to a transfer of wealth & assets which allowed China to industrialize, beat back the euro, and places the government of the USA in a position where it can wrest control of the economy back from the anti-competitive multinational corporate owners.
At this point, we are all simply waiting for Greece et al to hump the euro hard. Lot's of interesting stuff going on, unfortunately for little guys like you and I, it sure looks like a whole lot of control and rules for the middle/lower classes.