[Steve_American]

It's been a year since the last reply. I'd like to have another go at this topic.

1] Why does anyone think the a large modern nation would ever need to pay off its debt?
. . a] Such nations intend to go on forever. This is more like corps than people.
. . b] How often has anyone asked when a large corp is going to pay off its debts? I have never heard this question asked. Have you?
. . c] If you have never heard this question about corps, that are more likely to fail than large modern nations are, can you explain why this is asked about nations?
. . d] IMHO, this is asked about nations for political reasons, not economic ones.
. . e] The UK, aka England, has had a national debt in every year since 1694, so for 329 years. It has rerely paid it down much in any year for 329 years. And during those years it lost its Empire, and at that time the gold standard was functionally still in place. The gold staandard was ended in 1971 when Nixon took the US off it. Now, all nation have a fiat currency. Those in the EU and EZ are special cases and have put themselves back onto a modified gold standard. So, don't compare the US to Greece, ever!

2] OK, how is a modern large nation supposed to pay off its national debt?
. . a] One way would be to print a lot of currency and pay all the bond holders with that.
. . b] This not the way that everyone means when they ask the question of 'How can the US pay off its debt?'
. . c] Everyone intends for the US to increase its taxes and reduce its spending so that it has a surplus, and use those surplus dollars to pay off the debt.
. . d] OK, who's taxes will be used to generate that surplus? The poor can't pay more, they are living paycheck to paycheck, now. Only the super rich, the merely rich, and the middle class can survive if their taxes are raised.
. . e] OK, who's beneefits cn be cut to reduce spending if taxes can't be raised much? Again the poor don't get much in the way of benefits, so we are back to the ,iddle class and rich to see their benefits or free money reduced.

3] OK, now I ask you is it fair to take $31 trillion from the people and corps of America to pay off the debt? With a $500 billion a year surplus this would take over 65 years.

4] OK, even is it is 'fair', is it possible? What will happen to the US economy if it ran a $500B surplus year afer year? Every economist would predict that it would cause a recession and then a depression. They saw this from 1930 to 1933, when Hoover tried to cut spending as tax revenue fell after the 1929 stock market crash. It didn't stop the recession, it make it into the Great Depression.

So, the conclusions to reach are =>
. . 1] There is no need to ever pay off the US national debt.
. . 2] That the idea that it will be necessary someday is disingenuous.
. . 3] That it unfair to tax the wealth away from the super rich to do it. Also, the merely rach, and especially from the middle class. And impossible from the poor.
. . 4] That running a $500B surplus for 65 years would be impossible because the economy would crash.

BTW --- This question is close to the current crisis about reducing the deficit or have the US default on its debt for a few weeks.
. . . Reducing the deficit by spending cuts would also crash the US economy. Not as fast as a $500B surplus would, but just as surely.

OTOH, raising taxes on the rich corps and the super rich is possible and will also reduce the deficit. This will not likely crash the economy.
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[Steve_American]

I hope most of you understand the "paradox of thrift", if you don't google it. It asserts that if everyone starts saving some (more than tiny) part of their income, that this is very bad for the economy. That it will cause a recession. So, what is good for each individual is bad for all individuals as a group.
In other words, each individual must have a "surplus" to be able to save. Income minus spending (+ taxes, etc.) = surplus that can be saved.

The Gov. is so large that acts in the economy that its actions have the same power as "everyone". All by itself it can do what it takes "everyone" to do.

Therefore, an assertion that it is best for a Gov. to pay off its debt runs into the paradox of thrift problem. Like I have asserted. In order to pay down (or pay off) its debt, it must run a surplus (= revenue minus spending), unless it can take from some foreign nation, like Spain did when it looted the gold and silver of "Latin America" from 1522 to 1600.**

This is the reason that no one cat list the nations that have paid off their debts. Only the US has ever been able to do this. [This fact should convince you that this is not a good plan and the opposite of "the best plan".

Further, some economists and people just assume that using gold as money is the best system. They don't seem to care about the clear problems that this system imposed on every nation that used gold. They seem to focus on the lack of inflation as great, and ignore the problems that came from using the gold standard.
The main problem was the need to protect the nation's supply of gold. They had to avoid a long-lasting trade deficit, or all the gold would be sucked out of the nation. The nations also had to avoid issuing too much paper money, because the citizens could use the paper bills to drain all the gold out of the nation's gold vault. This would (it was thought) make all the rest of the paper bills without any value. One solution was to sell bonds which could not be used to demand gold, but the total bonds still needed to be controlled.

Now, the world has been using fully fiat currencies for over 50 years, and so far, there has not been a disaster.

So, now nations don't have that reason (i.e., protecting the gold supply) to sell bonds. They can just spend electronic cash into the economy, as long as it is in moderation. Or, sell bonds direct to the central bank. Or, sell them indirectly to the central bank.

Yes, right after Nixon ended the gold standard there was a lot of inflation. This can be seen as growing pains as everyone got used to the lack of any backing for the money. It can also be seen as the response to OPEC raising the price of oil a lot, at least twice. When OPEC stopped raising the oil price, the inflation soon stopped. What the Fed did may not have been necessary, or good. It may have caused an increase in inflation in a vicious spiral up. This is what MMTers assert. [MMT = Modern Monetary Theory]

Now, many who object to MMT still have not grasped my assertion that MMT says that there is a limit on deficit spending. Assuming that the nation's economy is not dominated by large players with monopoly pricing power, inflation will start only when the Gov. spending is forcing the use of more real labor and resources than the nation can get its hands on. Until then, competition will cause corps to increase production to sell more to get more of the demand being created by the Gov's deficit spending.

Of course, IMHO, we need to forget the market because of ACC, aka GW. The market got us into this mess and it is not letting us deal with the mess. So, we need to go to a non-market system. I have proposed a rationing system to only let everyone use just their fair share of what the natural world will let us use. By fair I mean to let the rich individuals use up to 4 times more than the poor individuals, but no more than that unless they can buy more ration "coupons" from someone who will not be using them.


Notes
. . ** . The US learned this lesson in some sense between 1840 and 1860. It stopped selling land to the rich who then sold it to the settlers with the Homestead Act passed during the Civil War. Instead, it charged a $10 filing fee to get 160 acres. This was just 6.25 cents per acre. So, instead of sucking dollars out of the economy to pay off the bonds, it almost gave the land away for free. And, all of those $10 payments were spent back into the economy as the wages of those administrating the sales. So, this cause of future Bank Panics was eliminated. Trying to pay off the debt again, now, would amount to unlearning that lesson that Pres. Lincoln had learned.

[Steve_American]

The minimum take away from the above claim that no national Gov. should ever pay off its debts, is that national Govs. are not *at all* like a person or corp. That this analogy if totally without value to guide the policies of the Gov. This is especially true for Gov. that that have their own fiat currency, float that currency, and never borrow any other currency.

A 2nd take away is that no Gov. should ever borrow in any currency except its own.

Also, google MMT and Kelton to learn more. Other names to google are Warren Mosler, Steve Keen, Randal Wray and Mark Blyth.
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[Steve_American]

MMTers assert other things than that national Govs. are not in any way like a household or even corp.

They also assert that in a boom period, banks are making a lot of loans and in a recession, banks make few loans.
Banks make few loans in a recession because few people think that now is a good time to borrow and at the same time bankers think that even these few people will be unable to repay the loan. In recessions few corps borrow because they don't see a need to increase production to meet a demand that isn't currently there, and banks also don't choose to make loans to corps to fund increases in production. Banks make many loans in the booms because of the opposite.

Why am I explaining that to you?
Because of the effects that these facts have when combined with the fact that banks don't lend their depositors' money, and people and corps repaying loans to the bank, actually destroy the money that was created when the loan was made.

So, in a boom, banks are making a lot of loans, these create new dollars, the dollars are deposited in the borrower's bank acc., the borrower soon spends the dollars which moves the dollars to another bank in most cases and increases someone's income, so banks are increasing incomes by creating new dollars with their loans during booms, and these increasing incomes support the boom for a time.

So, later as a recession starts, the opposite happens. People and corps have to continue making payments on the loans they have, but banks are not making anywhere near as many new loans, so now more dollars are being destroyed when repayments are made than dollars are being created with new loans. So, total income falls, because the dollars are used to make repayments and not used to buy stuff. The banks must write off the dollars and can't treat them as income because they match them to an asset on their books and the 2 cancel out. This then spirals down as the recession deepens, which just keeps getting worse as repayments continue to destroy more dollars.

Between the boom and the recession what happens? OK, eventually people can't see how they can borrow more because their income is all being spent already and so they have to stop borrowing. This happens slowly as it starts with a few and the number keeps growing, until banks see this happening and start making fewer loans, which starts the recession.

Can you see from this that the reason that recessions are ended best by the Gov. increasing its deficit spending to replace the dollars (and so incomes) being destroyed by the repayments to the banks? This realization can only be made if you 1st agree that the national Gov. is not like a corp or person. What corp can deficit spend in a recession? What person can spend dollars they don't have and can't borrow because no bank will lend to them. And what bank will make loans during a recession to people or corps who can't make the 1st repayment.

So, this shows you clearly how the Gov. not being like a person or corp works to end recsssions and even in normal times helps increase incomes to support the economy.

MMTers saw in the late 90s that the treaties that formed the EU and EZ were deeply flawed. They all predicted that things would be fine for a while, BUT as soon as a recession started no Gov. would be allowed to increase its deficit spending to fight the recession. EU Neo-liberal economists had a theory about how austerity would stimulate the economy. Later the economists admitted that they had been wrong.
This is why all MMTers still think that the EU's system is deeply flawed and the only solution is to end it and start over. MMTers also insist that all EU nations can never be compared to non-EU nations.

MMTers assert that all nations should, ideally, have their own fiat currency, should float that currency on the international market, and should never borrow in any other currency. So, the IMF and World Bank should not be making dollar denominated loans to nations. Maybe they should instead be buying their bonds or something.
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