[Fasces]

There seems to be universal agreement that a large national debt is a negative thing. To an extent, I suppose, interest payments on the debt do draw funds away from tax revenue. In large debt countries, such as the United States, around 9% of revenue is spent on interest alone (or so I heard.)

However, take a nation like Saudi Arabia. It has a mean budget surplus of $159.544 billion over the last 9 years, and has a public debt of $218 billion. Although some would say the sensible option would be to use the surplus to pay the debt, are interest payments in this case such an ordeal that money would not be better spent invested elsewhere - in diversification, perhaps?

At what point is paying off debt the wrong economic choice? I'd like an answer from someone actually studying economics, if possible, rather than the Paulite that seems to lurk this forum.

A more broad question: Interest payments aside, what is negative about accumulated debt?

[hannigaholic]

Well interest payments pretty much are the reason debt is bad, so looking for other reasons is missing the point. Being in debt is not a bad thing; it's servicing that debt that becomes the problem.

The US spent $249 billion on interest in 2008 (or at least that's what was budgeted), and had GDP of roughly $14 trillion. That's almost 2% of total GDP. For every hour you worked, a full minute was spent simply servicing the national debt. Compare that to 2.6 minutes for Defence, the same for welfare payments, almost a full 3 minutes for Medicare and Medicaid. For the average American (roughly $47,000 per capita), that 1 minute would have been an extra $800 in their pockets over the year, or employers being able to afford to get more people into work, or businesses not failing due to the tax burden.

Debt should always be a temporary thing; it lets you buy things in the short term, and sometimes that temporary boost is what you need to ensure long-term financial security, but will invariably cost you more in the long run if you make it a part of your everyday spending plans.

[Dr House]

There seems to be universal agreement that a large national debt is a negative thing. To an extent, I suppose, interest payments on the debt do draw funds away from tax revenue. In large debt countries, such as the United States, around 9% of revenue is spent on interest alone (or so I heard.)

That's pretty much it. The more debt the government accumulates, the more revenues it has to dedicate to debt servicing and the more it has to tax to pay for everything else. Personally I don't consider accumulated public debt a major problem though, unless the interest payments are very large (20% of the budget or more). However, the act itself of accumulating debt can be highly damaging to the economy.

A more broad question: Interest payments aside, what is negative about accumulated debt?

Deficit spending consumes savings, which causes the quantity of external capital available to businesses to shrink, and interest rates to rise as a result. It is the equivalent of the government running up a massive credit card. Thus, deficit spending is okay when it is spent on activities that will generate an economic return such as infrastructure investment, but not in activities that will not such as non-educational social programs or defense spending.

[DubiousDan]

Dr. House:

That's pretty much it. The more debt the government accumulates, the more revenues it has to dedicate to debt servicing and the more it has to tax to pay for everything else. Personally I don't consider accumulated public debt a major problem though, unless the interest payments are very large (20% of the budget or more). However, the act itself of accumulating debt can be highly damaging to the economy.

Me:
Never studied economics. Mostly questions. According to my calculations the interest on the US debt for 08 was 16.8 percent of revenues. Is that figure correct?
As far as interest as a percentage of the budget, if the budget greatly exceeds revenues, isn’t that figure pointless?
Since at the moment we are in a period of historically low interest rates, how much of a raise in interest rates would it take to make the debt servicing cost exceed 20% of revenues?

[Dr House]

According to my calculations the interest on the US debt for 08 was 16.8 percent of revenues. Is that figure correct?

Haven't done the math, but that sounds about right.

As far as interest as a percentage of the budget, if the budget greatly exceeds revenues, isn’t that figure pointless?

It has about the same relevance if the budget is in surplus or deficit, but if the budget is in deficit you have a whole 'nuther set of problems.

Since at the moment we are in a period of historically low interest rates, how much of a raise in interest rates would it take to make the debt servicing cost exceed 20% of revenues?

That's ultimately more related to how much debt the government has accumulated than the running interest rate.

[DubiousDan]

Dr. House:

It has about the same relevance if the budget is in surplus or deficit, but if the budget is in deficit you have a whole 'nuther set of problems.

Me:
Interesting, requires a lot of thought, but I can see how that may be true. Economics is a rather bizarre art. So what is the trigger point on ratio of income to expense? I realize that there is a difference between investment and maintenance, but there must be a limit, no matter how prudent the debt.
For example, income is 67% of budget in Obama’s Federal Budget projection for 2010. Anything worrisome there? Debt service should be still less than 20% of budget. That’s based on current projections.

Dr. House:

That's ultimately more related to how much debt the government has accumulated than the running interest rate.

Me:
Economics is not my thing. I would assume that if the effective interest rate doubles, then the interest would double assuming that debt remains constant. Of course, that was not a given, and right now, rate of increase in debt is the dominant factor.

[Dr House]

For example, income is 67% of budget in Obama’s Federal Budget projection for 2010. Anything worrisome there? Debt service should be still less than 20% of budget. That’s based on current projections.

That Obama's deficit is projected to be one third of the budget is a very big problem, and that would be true even if the US had no public debt. For the reasons why, see my first post on this thread.

Deficit spending consumes savings, which causes the quantity of external capital available to businesses to shrink, and interest rates to rise as a result. It is the equivalent of the government running up a massive credit card.

[DubiousDan]

Dr. House:

Deficit spending consumes savings, which causes the quantity of external capital available to businesses to shrink, and interest rates to rise as a result. It is the equivalent of the government running up a massive credit card. Thus, deficit spending is okay when it is spent on activities that will generate an economic return such as infrastructure investment, but not in activities that will not such as non-educational social programs or defense spending.

Me:
This is something that bothers me. Perhaps you can explain it. As I understand, thanks to government borrowing among other things, money is in tight supply. Yet the price of money is at all times lows. This seems to be inconsistent with free market theories.

[Wolfman]

The Feds are able to devalue currency. Thats one of the things they do.

[DubiousDan]

Me:
Price of money means the price to borrow it. I.E. interest rates.

[Jean-Philippe]

National debt is not, inherently a bad thing, it may however becomes one under certain circumstances.

But first, let's precise a few things, the national debt is not something that is going to be repaid ever within a capitalistic system. It is an investment, when an individual buys a bond of the national debt, he expects the value of the product underlying his investment to grow, in the case of a government bond, he expects the value of the national economy to grow. And, since growth is the cornerstone of a capitalistic economy (if growth stops, capitalism fails), and is believed to exist forever (via technological innovation), there is no reason to worry about a growing debt, this growth really follows the growth of the economy, the growth in percentage may even be said to follow the growth in productivity.

Now, sometimes, such as now, the debt grows importantly in order to boost the growth of the economy, such ruptures are necessary because the concurrent processus of growth of both the debt and the economy is not efficient, one doesn't entail the other automatically, there is therefore slippage and stretching between the two growth processus.

But then, a political problem may occur when the debt is owned and concentrated into the hand of people who may want to control an economy. There is therefore a strategical problem in having the debt owned by foreigners who may have a national agenda, not necessarily in agreement with the one of the debtor. For obvious reasons, a foreign creditor, owning enough of a national debt, can properly, destroys a national economy if he is ready to suffer the loss of the said debt (since a massive sellout of his bonds will destroy the national currency system).

Other than that, if the debt is owned by the people of the country (with no interest in destroying their own country's economy), the national debt is merely for them a way to invest on the future of their country, it is a kind of floating investment that the people grant to their government to help them providing the structures of economic growth.

[DubiousDan]

Jean-Philippe :

Other than that, if the debt is owned by the people of the country (with no interest in destroying their own country's economy), the national debt is merely for them a way to invest on the future of their country, it is a kind of floating investment that the people grant to their government to help them providing the structures of economic growth.

Me:
This makes no sense at all to me. Debt for the sake of debt seems pointless. A prudent man borrows for a reason. Debt has a price, interest. To spend one fifth of ones income on interest seems to me to be a waste of income. You need something to justify that.
A man buys a house when he can afford the payments, but it is a prudent purchase because a house increments in value over time. One must pay rent, so the rent saved compensates for the interest, and inflation takes care of the rest.
There are a few other cases where debt is really an investment. However, the prudent man saves for emergencies.
The Louisiana purchase by Jefferson was an example of prudent debt. It might be recalled that Jefferson opposed national debt. Yet, when the opportunity arose, he took advantage of it. He didn’t let ideology divert him from the national interest.
Debt in time of war, if war is justified, is another example of prudent debt. If the survival of the nation is in question, obviously debt is justified.
Debt to advance the interest of a faction within the nation at the expense of the national interest is really economic treason. It should be treated as such.
When a nation cannot save for emergencies without the savings being stolen by a faction within the state, then we have a failed state.
If an individual constantly lives beyond his means, we expect ruin. Yet, when a state does it, we see no harm in it. Obviously, this is propaganda induced reasoning.
Debt has a cost, at the present, our infrastructure is in ruins and our educational system is a jest in poor taste. The interest on our debt alone would easily correct that if the graft were kept to a minimum.
At the moment, we borrow to compensate for failed economic policies which were founded on debt. From Johnson onward, this nation has borrowed for reasons which were not in the national interest, but for the interests of a small faction within our country.
People who gained office promising sound fiscal polices turned to borrow and spend policies which advanced the interest of the few at the expense of the many as soon as they took office.
I have heard much talk of economic theory, but the economic theory seems to me to be merely excuses for practices that any prudent man would reject in his personal life.
The more complex the theory, the more perilous our situation. At the moment, our economy is hostage to the interest of other states. This seems to me not only imprudent but irrational. Any theory that justifies this seems more like the pitch of a con man than the advice of a sound financial advisor.

[Jean-Philippe]

DubiousDan,

A prudent man, as you put it, seldom "borrows from himself"(double-entry accounting is seldom practiced at an individual level), or if he does, and unless he suffers from a form of schizophrenia, he does not consider he's indebted in the sense of having a debt to another person.
When a government borrows from its own people, the people really lend money to themselves, at least on a theoretical point of view, what I mean is the relationship between a government and its own people, especially in the modern democracies we know, cannot be equated to one between two individual persons who have no reason to share any interest in common.
However, the confusion about the national debt, largely lies in such an equation, making no difference between the moral entity that is a government and an individual person.

As I tried to explain, the principal of the national debt is not made to be repaid ever, or in other terms, a capitalistic country is always going to have a national debt. Next time you go to your bank for a loan, if you explain to your banker you have no intention whatsoever to repay the principal of your loan (or only to repay it by taking another loan), I don't think he's going to lend you any money, however, this same banker is more than happy to buy government bonds, because by doing so, he knows he's going to gain a profit from the growth of his own country (or any other country if he wishes to invest in another country debt). And in the end, the government is going to buy back the particular debt but by subscribing another loan.
The fact that makes this scheme possible is growth.
The problem of this scheme is when it is applied to entities other than countries, and that is what happened in the recent crisis, where consumer loans got securitized and sold several times, just like government bonds, notes, bills,..., the problem is that nobody is going to make a loan to somebody to pay the principal of another loan, the scheme was working as long as the real estate bubble was building up, because then, anybody could make a profit by buying and selling a house, but without this growth, the scheme collapsed.
For government bonds, notes, bills,..., growth of the whole economy is also necessary, without it, a nation will go bankrupt, but growth is also a fundamental feature of capitalism, if one day, humanity reaches a level where growth does not appear possible anymore, capitalism will have to disappear and be replaced by something else, if it still is around.

As for your last remark, I think it has some ground, a large foreign ownership of the debt presents with a strategical risk, however if foreigners own a national debt, it is because they see some immediate advantage in owning it (i.e. they believe and promote the economic growth of another country, maybe because it is linked to theirs), beyond this strategical interest. I believe the situation of many western countries with regard to this problem needs monitoring, but it's not like USA is an hostage of China (making the opposite argument is actually very possible, because many investment in China directly comes from US companies), let's not fall into the simplistic conclusion of some conservative pundits that clearly have no understanding of these questions.

[Le Rouge]

There's a lot of reasons debt is problematic. Why it's 'bad' depends on your particular viewpont-- for instance, my main complaint is that it crowds out social expenditures.

[DubiousDan]

Jean-Philippe:

When a government borrows from its own people, the people really lend money to themselves, at least on a theoretical point of view, what I mean is the relationship between a government and its own people, especially in the modern democracies we know, cannot be equated to one between two individual persons who have no reason to share any interest in common.
However, the confusion about the national debt, largely lies in such an equation, making no difference between the moral entity that is a government and an individual person.

Me:
To begin with, why deal with imaginary situations which have nothing to do with reality? Economic treason is the only game in play. The large entities who buy our debt, even if they are American multinationals, have no interest in the well being of America. However, at the moment, while much of our debt is intergovernmental scams, the real debt which keeps our currency afloat is foreign. To speak as if this is a family affair is utter nonsense. Americans, ordinary rank and file Americans, are not savers. The people who own our debt outside of our government, have no interest in the well-being of America. Yes, pension funds and such have American interests, but they are just being set up to be looted anyway.
As for the expanding economy that capitalism demands, let’s keep theology out of the discussion. It either works or it doesn’t work, and to Hell with ideology. At the moment, it’s not working.

Jean-Philippe :

As for your last remark, I think it has some ground, a large foreign ownership of the debt presents with a strategical risk, however if foreigners own a national debt, it is because they see some immediate advantage in owning it (i.e. they believe and promote the economic growth of another country, maybe because it is linked to theirs), beyond this strategical interest. I believe the situation of many western countries with regard to this problem needs monitoring, but it's not like USA is an hostage of China (making the opposite argument is actually very possible, because many investment in China directly comes from US companies), let's not fall into the simplistic conclusion of some conservative pundits that clearly have no understanding of these questions.

Me:
What you are essentially saying is that it is in China’s interests to play ball with us. That’s true for the moment. What happens when it’s no longer in China’s interest to play ball with us? We have made our economy and our currency hostage to the interests of another nation. This is economic irresponsibility which could only be the result of economic treason. For the end game for this kind of nonsense, you might study the history of Argentina from 1985 to the present.
Our greatest strength in this regard is our greatest weakness. The Western capitalisms are tied to the dollar. Most of them are mired in debt. If the dollar collapses, the whole Western capitalistic structure will come down like a house of cards. If for some reason, China wants to destroy the West, we have given her the tool.
At the moment, China is an export driven economy, however, in less than a decade, China will have the largest market on Earth within her borders.

In would seem most likely that East Asia will be the dominant sector of the 21st Century. That’s probably where the producers and consumers will live. I doubt if gunboat diplomacy would be very wise in the future.

[Jean-Philippe]

To begin with, why deal with imaginary situations which have nothing to do with reality? Economic treason is the only game in play. The large entities who buy our debt, even if they are American multinationals, have no interest in the well being of America. However, at the moment, while much of our debt is intergovernmental scams, the real debt which keeps our currency afloat is foreign. To speak as if this is a family affair is utter nonsense. Americans, ordinary rank and file Americans, are not savers. The people who own our debt outside of our government, have no interest in the well-being of America. Yes, pension funds and such have American interests, but they are just being set up to be looted anyway.
As for the expanding economy that capitalism demands, let’s keep theology out of the discussion. It either works or it doesn’t work, and to Hell with ideology. At the moment, it’s not working.

American multinationals and any owners of the US debt clearly have an interest in the well-being of American economy, because, until now, the customers have been there, and there is nothing imaginary about it.
As for americans being savers, well, they used to be and they certainly can go back to being, it's anyway the direction they are taking these days.
And it's not about working or not working, it's about how it works, and reality is nowhere near binary, if you believe it is, that really is dealing with an imaginary world. Theology never had any place in what I wrote, I merely precised the fact that capitalism needs growth to work, and capitalism does work now, it works with crisis, because perfection does not exist, never exist, and will never exist. To believe that system are supposed to work perfectly, without incident, that is indeed living in an imaginary world.
As to speak of the public debt as a family affair, that is a caricature of what I wrote, and caricaturing other's point of view is not a great way to have a constructive debate. What I say, and I think it is pretty obvious, but you may disagree as long as you provide some counter-argument, is that the government cannot be considered as an actor as any other, and it is therefore fallacious to think of the public debt as a private debt between two entities that are otherwise unrelated, simply such an analogy is flawed.

What you are essentially saying is that it is in China’s interests to play ball with us. That’s true for the moment. What happens when it’s no longer in China’s interest to play ball with us? We have made our economy and our currency hostage to the interests of another nation. This is economic irresponsibility which could only be the result of economic treason. For the end game for this kind of nonsense, you might study the history of Argentina from 1985 to the present.
Our greatest strength in this regard is our greatest weakness. The Western capitalisms are tied to the dollar. Most of them are mired in debt. If the dollar collapses, the whole Western capitalistic structure will come down like a house of cards. If for some reason, China wants to destroy the West, we have given her the tool.
At the moment, China is an export driven economy, however, in less than a decade, China will have the largest market on Earth within her borders.

In would seem most likely that East Asia will be the dominant sector of the 21st Century. That’s probably where the producers and consumers will live. I doubt if gunboat diplomacy would be very wise in the future.

The problem of the world currency system is real, it is however not as dramatic as you expose it here. The reference to Argentina is pretty strange, especially just before saying that western capitalisms are tied to the dollar, actually it is world capitalism that are tied to the dollar, not only the western ones. And if the dollar collapses, it will again be the whole capitalist system that will collapse.
As for China, why would China would want to destroy the West? Chinese leaders are not bloodthirsty retards who wait in anguish for destroying the West, they perfectly know that it is western investment (made in dollars) that are the source of their development. By destroying the West, they would destroy themselves, and they can do that much more easily with a nuclear war.
And China might stay an export driven economy for a very long time, because indeed, chinese are savers, you won't find many chinese with thousands dollar credit card debt, and it may be instructive to look a bit at Japan, which after 50 years is still an export driven economy.
The less than a decade development of China that will assert itself as the world dominant power is a paranoid fairytale that a few TV pundits entertain to ensure their ratings, fear-mongers always had this populist appeal; but if you look a bit at the real situation of China, even at the one we know of and that is clearly advertised to look much better than it really is, you'll realize that China has problems of its own that are going to make its development very long and uncertain, from social upheavals to dramatic environment challenges.

Now to come back to the currency system, the main problem is not the public debts, or that China is going to destroy the West, its main issue lies in speculation that makes the market extremely unstable, and might indeed trigger a currency crisis whose consequences may be much worse than the current one.

[DubiousDan]

Jean-Philippe :

American multinationals and any owners of the US debt clearly have an interest in the well-being of American economy, because, until now, the customers have been there, and there is nothing imaginary about it.
As for americans being savers, well, they used to be and they certainly can go back to being, it's anyway the direction they are taking these days.
And it's not about working or not working, it's about how it works, and reality is nowhere near binary, if you believe it is, that really is dealing with an imaginary world. Theology never had any place in what I wrote, I merely precised the fact that capitalism needs growth to work, and capitalism does work now, it works with crisis, because perfection does not exist, never exist, and will never exist. To believe that system are supposed to work perfectly, without incident, that is indeed living in an imaginary world.
As to speak of the public debt as a family affair, that is a caricature of what I wrote, and caricaturing other's point of view is not a great way to have a constructive debate. What I say, and I think it is pretty obvious, but you may disagree as long as you provide some counter-argument, is that the government cannot be considered as an actor as any other, and it is therefore fallacious to think of the public debt as a private debt between two entities that are otherwise unrelated, simply such an analogy is flawed.

Me:
Yes, the multinationals are surely interested in the US Economy. Trillion dollar handouts tend to do that. What’s good for General Motors is good for China. GM is profitable in China, and they are pouring money into factories there, of which fifty percent will belong to China. In the meantime, GM will suck up all the swill we will slop them with.
The superrich go where the money is. It’s a global economy. That’s the song and dance we bought when we gave away our internal market.
The American customers have been there because of the inertia of the economy that we built in the forties, fifties and sixties. In the last two decades, one bubble after another has kept the game going. Everybody from the government to the factory worker has been living on credit. At the moment, no one claims that the economy can run on the level of deficit spending now in place. Supposedly this is just priming the pump. That’s fine unless the well is dry. If it is, then game over.
If this is your definition of working, fine, it’s not mine. The economy works in Mexico. Maybe that’s the definition you had in mind.
If your argument requires me to believe that Capitalism works, then it’s theology.
As far as offering a counter argument, I can’t, because your argument is incomprehensible to me.

Jean-Philippe :

The problem of the world currency system is real, it is however not as dramatic as you expose it here. The reference to Argentina is pretty strange, especially just before saying that western capitalisms are tied to the dollar, actually it is world capitalism that are tied to the dollar, not only the western ones. And if the dollar collapses, it will again be the whole capitalist system that will collapse.

Me:
Yes, I was using the old term of the West as in the Soviet versus West relationship. If you will check, you’ll find that both China and Russia are among the nations with the lightest debt load. In addition, both countries have experience as non-capitalist economies. It might make for political tension if the economies of both countries crashed while the West prospered. However, if the West tanked, then going back to the bad old ways wouldn’t be that hard. One of the things that made the Soviet Union look good in the Thirties was the Great Depression.
In addition, China has factories which would not automatically be shut down by the absence of capital.
Both China and Russia are really government managed economies. In addition, they have a citizenry that is used to submitting to government decrees. No, I doubt if either country would be as hard hit by a World wide economic collapse as would be the West. Of course, in neither country, would they have as far to fall.

Jean-Philippe :

As for China, why would China would want to destroy the West? Chinese leaders are not bloodthirsty retards who wait in anguish for destroying the West, they perfectly know that it is western investment (made in dollars) that are the source of their development. By destroying the West, they would destroy themselves, and they can do that much more easily with a nuclear war.
And China might stay an export driven economy for a very long time, because indeed, chinese are savers, you won't find many chinese with thousands dollar credit card debt, and it may be instructive to look a bit at Japan, which after 50 years is still an export driven economy.

Me:
I suspect that the Chinese leadership has a better understanding of Chinese History than you do. For example, they probably remember the Opium Wars. They are not plotting for world domination, however, they are working for world supremacy. They want a World were Chinese sovereignty will be respected. At the moment, we tell them they can’t take back Taiwan. As long as we can tell them that, they are not going to be happy. It would be as if Great Briton had told the United States to stop at the border of Texas at the end of the Civil War.
In order to achieve military parity with the United States, China must built her industrial base. Fortunately for her, we are helping her with that. Then if China wants to take Taiwan back, she will.
After that, if there are issues in conflict with the United States, the Chinese will address them as equals or perhaps better. It is nice of us to help her to that end.

China was America’s tool in our economic war with Japan. Japan lost because we used China as our workshop. However, who will we use against China?

Jean-Philippe :

The less than a decade development of China that will assert itself as the world dominant power is a paranoid fairytale that a few TV pundits entertain to ensure their ratings, fear-mongers always had this populist appeal; but if you look a bit at the real situation of China, even at the one we know of and that is clearly advertised to look much better than it really is, you'll realize that China has problems of its own that are going to make its development very long and uncertain, from social upheavals to dramatic environment challenges.

Me:
I do watch CNBC. Around nine years ago I had an e-mail exchange with Ron Insana in which I expressed my conviction that the Chinese would dominate world trade in the future. His reply indicated less than enthusiastic agreement. Actually, so far he has not been proven wrong, I believe Germany is still number one.
However, I wonder what qualifies you to be disdainful of the chaps on CNBC. So far you have demonstrated nothing to me that even qualifies you to be their equal, and there are many on CNBC whom I disagree with.
By the way, you misstated my position. I didn’t say that China would dominate the world, I said that her internal market would be the largest on Earth within a decade. Do you know of anyone of note other than yourself who disagrees with that position? I did say that in this century, East Asia would emerge as the economic center of the World, but that’s a far cry from a decade
Of course China has problems, enormous problems. However, so did we in the 19th Century. We solved them. China seems to be working on hers. We seem to have given up.

Jean-Philippe :

Now to come back to the currency system, the main problem is not the public debts, or that China is going to destroy the West, its main issue lies in speculation that makes the market extremely unstable, and might indeed trigger a currency crisis whose consequences may be much worse than the current one.

Me:
Well, time will tell. If the dollar was backed by a sound economy, then I suspect it would be more resilient to speculation. Of course, if we had bimetallism, then we wouldn’t have that problem. We would have other problems though. I believe that the main problem with the dollar is the competence of the United States. This is fiat money, and fiat money requires competence. There has never been a successful use over time of fiat money in the history of Mankind, so we are either going to plow fresh ground or simply prove a rule. I might point out that in the past, when economies using fiat money failed, they took their currency with them. Sometimes it was the currency that led the way and in other cases, it was the economy leading the way. However, in all cases, currency went south with the economies.
In most cases which did not involve war, if not all, it was unsustainable debt that triggered the collapse.

[Jean-Philippe]

...If this is your definition of working, fine, it’s not mine. The economy works in Mexico. Maybe that’s the definition you had in mind.
If your argument requires me to believe that Capitalism works, then it’s theology.
As far as offering a counter argument, I can’t, because your argument is incomprehensible to me.

I don't require you to believe in anything, I don't care what your ideology is, I require you to understand that Capitalism is not about stability and harmony, but about growth and therefore some level of instability. Managing a capitalistic economy successfully is all about controlling the level of instability and minimizing its destructive effects, and the national debt is a tool to do so.
The current crisis was created by a discrepancy between monetary growth and economic growth, it is this discrepancy that creates bubbles via speculation. Those crisis happens just like the human body every now and then get diseases, fortunately we seldom die at the first disease we get. Nonetheless, a disease can indeed kill us, and it's also possible for the capitalist economy.
I never said that public debt could grow infinitely, simply that current levels are not catastrophic, but in fact necessary to ensure the continued working of the economy in socially decent conditions. However, once this crisis is over, a tightening of the fiscal policy will be necessary to reinstate a check of the national debt.
If you see theology in there, it's because you want to see it, and are eager to bring the discussion on an ideological ground.

Yes, I was using the old term of the West as in the Soviet versus West relationship. If you will check, you’ll find that both China and Russia are among the nations with the lightest debt load. In addition, both countries have experience as non-capitalist economies. It might make for political tension if the economies of both countries crashed while the West prospered. However, if the West tanked, then going back to the bad old ways wouldn’t be that hard. One of the things that made the Soviet Union look good in the Thirties was the Great Depression.
In addition, China has factories which would not automatically be shut down by the absence of capital.
Both China and Russia are really government managed economies. In addition, they have a citizenry that is used to submitting to government decrees. No, I doubt if either country would be as hard hit by a World wide economic collapse as would be the West. Of course, in neither country, would they have as far to fall.

First, checking the debt load of China and Russia may not be as insightful as it is for countries with a democratic practice and relatively transparent accounting systems. An analyst like Gordon Chang, who may not work for CNBC but is still a believable analyst with regard to China estimated this debt at 81% of GDP in 2006. And before being taunted to refer to him, I hurry to precise I often am in disagreement with his views, but the one casting doubt at numbers directly coming from a one-party system well-known for a certain level of corruption seems reasonable to me.
As for the rest, you basically say that Russia and China will stand better the collapse of capitalism, possibly, I don't know, but I don't think it's an option any of this country does look at as a desirable one.

I suspect that the Chinese leadership has a better understanding of Chinese History than you do. For example, they probably remember the Opium Wars. They are not plotting for world domination, however, they are working for world supremacy. They want a World were Chinese sovereignty will be respected. At the moment, we tell them they can’t take back Taiwan. As long as we can tell them that, they are not going to be happy. It would be as if Great Briton had told the United States to stop at the border of Texas at the end of the Civil War.
In order to achieve military parity with the United States, China must built her industrial base. Fortunately for her, we are helping her with that. Then if China wants to take Taiwan back, she will.
After that, if there are issues in conflict with the United States, the Chinese will address them as equals or perhaps better. It is nice of us to help her to that end.

China was America’s tool in our economic war with Japan. Japan lost because we used China as our workshop. However, who will we use against China?

You're suspecting wrongly because I have the fortune of being born in a democracy which considers history as a science and endeavors to get an objective understanding of it by providing a multitude of contradicting points of view. On the contrary, chinese current leaders have been educated within a very strict ideology (they basically are the children of the cultural revolution), and are likely ignorant of whole parts of their own history (even the more recent ones, ask a chinese about what happened at Tian An Men in 89)
As for Taiwan, taking it by force would be the most unproductive thing to do for China, first because Taiwan would be destroyed, and second because their own coastal cities (Shanghai, Shenzen, Guangzhou, Hongkong) would be destroyed. Nobody forced China to keep Hongkong in the state they find it in 97, but they did, and today it's easier for me to go to HK than it is for a mainland chinese. The nationalistic stance against Taiwan is for internal purpose, because nationalism is the last thing that prevent a large proportion of Chinese to care too much about the social problems and to act violently about them (not that social uprisings are uncommon in today's China, but so far they've been contained at a local level).

I do watch CNBC. Around nine years ago I had an e-mail exchange with Ron Insana in which I expressed my conviction that the Chinese would dominate world trade in the future. His reply indicated less than enthusiastic agreement. Actually, so far he has not been proven wrong, I believe Germany is still number one.
However, I wonder what qualifies you to be disdainful of the chaps on CNBC. So far you have demonstrated nothing to me that even qualifies you to be their equal, and there are many on CNBC whom I disagree with.
By the way, you misstated my position. I didn’t say that China would dominate the world, I said that her internal market would be the largest on Earth within a decade. Do you know of anyone of note other than yourself who disagrees with that position? I did say that in this century, East Asia would emerge as the economic centre of the World, but that’s a far cry from a decade
Of course China has problems, enormous problems. However, so did we in the 19th Century. We solved them. China seems to be working on hers. We seem to have given up.

I haven't been disdainful of anybody. Besides, I don't have to be disdainful of somebody to disagree with them.
As for saying that China will have the largest internal market on Earth within a decade, I am not saying it won't be so, but I think it just is a belief not a certainty, you seem very fond of theology so maybe you need to hold such belief, I don't and I am happy to just acknowledge that there is a lot of uncertainties as to the future of China. I hope China will continue to develop, because I don't think a collapse would be a good thing for anybody, but I also hope that it will develop in a more harmonious manner, maybe a bit slower on an economic point of view but faster in terms of politics and on a social point of view, that it will also check its development with an ecological awareness. On this last point, I have some hope since Pan Yue happens to be a member of the current chinese government, and seems well-aware that the current economic growth cannot be sustained much longer :
http://www.worldchanging.com/archives/002312.html
http://www.businessweek.com/magazine/content/05_28/b3942403.htm

So I think Pan Yue may have an issue with your belief that China will become the largest market on Earth in the next decade, or maybe would he rephrase it slightly into China becoming the largest dumping ground on Earth.

[DubiousDan]

Jean-Philippe :

I don't require you to believe in anything, I don't care what your ideology is, I require you to understand that Capitalism is not about stability and harmony, but about growth and therefore some level of instability. Managing a capitalistic economy successfully is all about controlling the level of instability and minimizing its destructive effects, and the national debt is a tool to do so.
The current crisis was created by a discrepancy between monetary growth and economic growth, it is this discrepancy that creates bubbles via speculation. Those crisis happens just like the human body every now and then get diseases, fortunately we seldom die at the first disease we get. Nonetheless, a disease can indeed kill us, and it's also possible for the capitalist economy.
I never said that public debt could grow infinitely, simply that current levels are not catastrophic, but in fact necessary to ensure the continued working of the economy in socially decent conditions. However, once this crisis is over, a tightening of the fiscal policy will be necessary to reinstate a check of the national debt.
If you see theology in there, it's because you want to see it, and are eager to bring the discussion on an ideological ground.

Me:
You don’t require me to believe in Capitalism. You just require me to understand that Capitalism is blah, blah, blah. I don’t give a damn what Capitalism is about. It’s just a passing fad used to justify exploitation. So if you are going to debate this point, how about leaving Capitalism out of it?
We don’t have a Capitalistic system any way. If we did, interest rates would follow the demand for money. What you have with the Fed is anti-free markets. The free market people on this forum, of which I am not one, will be glad to inform you of that. So let’s deal with the issues at hand and leave Marx out of it.

You say that present debt is not only not a problem but part of the solution. Correct me if I’m in error. Your statement of how the present problem came about is meaningless to me. It seems to involve your Capitalistic theology. I say it came about because of scams manipulating the Fed and the regulatory system. It was made possible by the dismantling of Glass-Steagall by the Fed and finally the outright repealing of Glass-Steagall by Congress in 1999. Yes, and with a little legislation in 1984. For details see cites below. This is not some wild crackpot theory, there are Nobel Prize winners in economics on both sides of this issue.

http://www.pbs.org/wgbh/pages/frontline ... emise.html
http://www.huffingtonpost.com/2009/05/1 ... 01557.html
http://www.bloomberg.com/apps/news?pid= ... refer=home
http://en.wikipedia.org/wiki/Gramm%E2%8 ... Bliley_Act

I know there are some pro Gramm-Leach-Bliley cites out there, but I couldn’t easily find them, but with a little persistence you should be able to find some. Of course, hindsight does make smoke screens a little less opaque.

Your accusation of ideology is baseless and absurd. Which of my arguments have a bases in ideology? If you had spent more time on this Forum, you would be aware that I reject the ideological dichotomy. On the other hand, your arguments are based on Capitalistic ideology.

Jean-Philippe :

First, checking the debt load of China and Russia may not be as insightful as it is for countries with a democratic practice and relatively transparent accounting systems. An analyst like Gordon Chang, who may not work for CNBC but is still a believable analyst with regard to China estimated this debt at 81% of GDP in 2006. And before being taunted to refer to him, I hurry to precise I often am in disagreement with his views, but the one casting doubt at numbers directly coming from a one-party system well-known for a certain level of corruption seems reasonable to me.
As for the rest, you basically say that Russia and China will stand better the collapse of capitalism, possibly, I don't know, but I don't think it's an option any of this country does look at as a desirable one.

Me:
My opinion came from figures for public debt as listed in the CIA World Factbook. I didn’t say that it was a desirable course of action, I said that China would prefer it to Nuclear War. However, this is at the present time. What is desirable twenty years from now may be a little different.

Jean-Philippe :

You're suspecting wrongly because I have the fortune of being born in a democracy which considers history as a science and endeavors to get an objective understanding of it by providing a multitude of contradicting points of view. On the contrary, chinese current leaders have been educated within a very strict ideology (they basically are the children of the cultural revolution), and are likely ignorant of whole parts of their own history (even the more recent ones, ask a chinese about what happened at Tian An Men in 89)
As for Taiwan, taking it by force would be the most unproductive thing to do for China, first because Taiwan would be destroyed, and second because their own coastal cities (Shanghai, Shenzen, Guangzhou, Hongkong) would be destroyed. Nobody forced China to keep Hongkong in the state they find it in 97, but they did, and today it's easier for me to go to HK than it is for a mainland chinese. The nationalistic stance against Taiwan is for internal purpose, because nationalism is the last thing that prevent a large proportion of Chinese to care too much about the social problems and to act violently about them (not that social uprisings are uncommon in today's China, but so far they've been contained at a local level).

Me:

Yes, hundreds of millions of Americans have been born in our wonderful country with it’s wonderful educational system, and how many of them have even the vaguest idea of what the Opium Wars were, or what they were about?
I strongly suspect that the members of the Chinese Government know more about Chinese History than you do, but maybe not as much as you think you know.

If you take college level history courses in the United States for a degree in history, then you might get something besides propaganda, otherwise, you get propaganda. Only most Americans don’t realize that it’s propaganda.

Just recently most Americans believed that Iraq had been the party responsible for 9/11. I doubt if one person in a thousand realizes France’s role in out becoming a nation.

Your statement of the Chinese Taiwan conflict shows a total lack of historical perspective. At one time, we put our Seventh Fleet in the Taiwanese Straits. Yes, at the moment, it may be convenient for China for things to remain as they are in regards to Taiwan. However, when they felt otherwise, they weren’t allowed to exercise what they felt was their right. Americans tend to have a very short attention span, the Chinese perspective is a bit longer. Remember, China considers Taiwan as part of China. There are Chinese-Taiwanese who are fanatically anti-Communist. They are in the Taiwanese government. Again, you seem to feel that events are frozen in time. That the World will always be as it is today.

As far as your present war scenario is concerned, I wasn’t aware that Taiwan had nuclear weapons. Have I missed something here?
I made no argument that China was going to take Taiwan back at the present, nor even in the near future. I simply stated that when they were ready to, they would. I am assuming that they would then have the power to ignore any American objections on the issue. You seem to be arguing that China is deterred from taking Taiwan at the present for non-military reasons. I couldn’t agree more.

Hong Kong is totally different than Taiwan. However, China hasn’t forgotten how Hong Kong was acquired by Great Briton. Yes, the situation in Hong Kong is exactly what China wants. It’s only a matter of time before Hong Kong will merge with China. The Chinese economy will have to change a bit before that happens. However, change is something that the Chinese economy is doing quite well.

Jean-Philippe :

I haven't been disdainful of anybody. Besides, I don't have to be disdainful of somebody to disagree with them.
As for saying that China will have the largest internal market on Earth within a decade, I am not saying it won't be so, but I think it just is a belief not a certainty, you seem very fond of theology so maybe you need to hold such belief, I don't and I am happy to just acknowledge that there is a lot of uncertainties as to the future of China. I hope China will continue to develop, because I don't think a collapse would be a good thing for anybody, but I also hope that it will develop in a more harmonious manner, maybe a bit slower on an economic point of view but faster in terms of politics and on a social point of view, that it will also check its development with an ecological awareness. On this last point, I have some hope since Pan Yue happens to be a member of the current chinese government, and seems well-aware that the current economic growth cannot be sustained much longer :
So I think Pan Yue may have an issue with your belief that China will become the largest market on Earth in the next decade, or maybe would he rephrase it slightly into China becoming the largest dumping ground on Earth.

Me:
This hardly seems respectful.

Jean-Philippe :

The less than a decade development of China that will assert itself as the world dominant power is a paranoid fairytale that a few TV pundits entertain to ensure their ratings, fear-mongers always had this populist appeal;

Me:
Of course the above was a misstatement of my position, which seems to be one of your standard practices.
I fail to see where any of my positions require theology, perhaps you could give an example? If this projection is suppose to be a invalid, by all means show me something. Oh you did show me something.

Let me see, from Business Week Magazine 7/11/2005
“A Courageous Voice For A Greener China”
Just the ending.

Pan's may be a lone voice in the wilderness, but his message is one that other Chinese officials would do well to heed before it's too late.

Me:
Four years ago. Yes, China has a pollution problem. This is hardly news. Are they trying to do something about it? Yes. Will it drastically impact growth projections? I don’t know of anyone of note who thinks that they will. Mr. Pan has his office, and his perspective, but it is hardly the perspective of the Chinese Government.
If this is the best you can do to refute my projection, well, I will let those who want to believe, believe.
Actually, I accept one of your criticisms as valid. I should have said probably. I made it a flat statement of fact, which only proves that even someone as incomparably brilliant as myself can err.

I share your hope that China will change it’s priorities. I have in-laws who live in China, and right now it’s not a nice place to live. However, I understand some of the factors which drive China’s effort to industrialize. I’m not sure that they are justified, but their leadership is in a better position to judge priorities than I am.

In the context of an ideal World, I would totally oppose China’s present course. However, it’s not an ideal World. There are a lot of nasty countries in it, such as the United States of America, which will use force to advance their agenda if they can get away with it.
However, what is in China’s interest is not in America’s interest, and I believe that our present course of action is nothing less than economic treason. Actually, it seems to me to be advancing beyond the state of merely economic treason.

[Jean-Philippe]

DubiousDan,

If you don't give a damn about what Capitalism is about, then you don't give a damn about the dynamics at play in the national debt. Unfortunately, this thread happens to be about considering these dynamics, or so is my understanding of it.

As for purism in terms of Capitalism, I really don't care about that, I apply the term Capitalism to the system we have now (and that indeed differs from one country to the other) because it is usually done so, and it combines some level of free-enterprise, some level of free-market, some level of monetarism,...(complete the blanks at your convenience). If some people like to have a narrow understanding of True Capitalism, good for them, I don't have to adopt such a definition.
I thought I could assume some common principles and provide a tentative explanation of the dynamics at play in maintaining a national debt according to those, it seems you consider such an attempt unfounded or at least lacking of interest.

As for the rest, I am not american, and never got educated in USA, so I didn't really saw the relevance of your little speech about USA.
Finally, you seem unable to discuss civilly any of the issues we considered (and where disagreement of analysis may exist without necessarily be the outcome of complete ignorance) without personalizing the debate, and assuming far too many things about your interlocutor, it makes the reading of your prose extremely unpleasant, too much so for me to have any interest left in continuing these quibbles.
zai jiading wo bu zhidao zhongguo lishi, mei wenti, zai jian. (bu keyi yong Hanzi, duibuqi)