- 19 Sep 2021 03:10
Another thought that undermines the idea that your grandchildren will suffer because of the borrowing we do now.
. . . Forty years ago Reagan began the new normal where the US Gov. deficit spends like crazy. I can say this because it took from 1837 until 1981 (144 years) before the debt reached $1T. This is an average of $6.94 B/yr. Since 1981 the debt has been increased by about $650 B a year on average. This is $0.65 T/yr.. If I did the math right, this is a 9366% increase in the average yearly deficit, or the average debt increase after 1981 has bee 93.66 times more than before 1981.
. . . Therefore, there are some people now who have grandchildren who are having to "pay" on the debt incurred by Reagan in 1982. So, grandchildren are already "suffering" to make the payments on the debt.
Now, I ask you, do you seem to be suffering much while the payments are being made? I don't suffer at all, do you?
Well, I suppose that some can truly feel that because of the Senators like Manchin, who are afraid to increase the debt, the US Gov. is being kept from spending to help them. However, this is not necessary, Manchin is wrong to resist spending. And besides, he is likely just using that as an excuse to stop spending that he doesn't want for other reasons. And besides, it isn't that taxes are too high, it is that spending is too low.
So, I claim that right now the grandchildren are not suffering to make the payments on the debt.
Why is this? It is because the payments are made 100% with newly borrowed money.
Is it possible for the rich of the world** to not be willing to buy new bonds at a reasonable interest rate?
. . . Yes, it is. However, the damage to the US's and the world's economy from selling the bonds directly to the Fed. Res. is about 1/10 the damage that would occur if the US defaulted on the payments. So, IMO, the US will always just sell the bonds directly to the Fed. or just create dollars without selling the bonds at all, IF this becomes necessary.
. . . Is there damage to the economy from either of those 2 choices? It is possible, but not certain. There are just 3 possible effects or outcomes.
1] There is little or no effect. [In Japan now, over 46% of all Japanese bonds outstanding are held by the Bank of Japan. This seems to have no effect on Japan.]
2] There could be some inflation. To fight this the Gov. can cut spending or raise taxes. Now you may think either of these 2 things is going to make someone suffer. This not true, because think about this analogy.
. . . Your boss gives you a raise, you work there for 10 years and one day he calls you to the office and tells you he needs to cut your pay by 1/2 of what the raise was. Would you rather that he never gave you the raise? Or, would you rather he gave you the raise and had to take 1/2 of it back 10 years later. Truly, this is like the Gov. spending now that increases everyone's income for the next 10 years, and then having to reduce the spending to control inflation but not by that all much. You just need to make sure that you, personally, get your share of the increased incomes before the super rich suck the money into their bank accounts.
3] The dollar could loose value on the international money market. This would have 2 effects.
. . . a] It would increase exports because our stuff would be cheaper for the rest of the world. This would increase the incomes of some in the US.
. . . b] It would make the stuff you buy from the rest of the world cost you more. But again, you have been earning more for years before this happened (if it happens at all) so over all you are still better off. Also, the increased incomes of those in the exporting industries off-sets the increased costs for everyone to some extent. Frankly, I'm not expert enough to know how much. Is it a little, or is it a huge amount?
. . . However, the IMF and the World Bank call for 3rd world nations to export more than they import to payback their loans. How can it be terrible for the US to import less and export more?
My conclusion is that our grandchildren will *not* suffer to make payments on the debt, ever.
This means that a reasonable amount of deficit spending now will give the US benefits like improving the infrastructure and winning the fight on ACC, AND will increase the incomes of the working class as a whole, which, in tern, will let the rich sell them more stuff or services. It is a win-win-win.
. . . Note: I didn't say the US can deficit spend $10 T/yr. I said a reasonable amount of deficit spending is fine, even necessary to fight ACC.
. ** . Note: the US doesn't borrow from China. OK, how can I say this? Obviously, we are.
It is because you need to look at the entire transaction. The full transaction is ---
1] China makes a thing.
2] China exports it to the US and gets dollars for it.
3] Someone in the US looses dollars to buy the thing, the dollars went to China.
4] China uses the dollars to buy a US bond.
We don't need China to buy our bonds. We can let China do whatever it chooses to do with the dollars.
If the thing China does with its dollars is damaging to the US, this damage has nothing to do with the debt or bond sales. It is caused by the US giving dollars to China to buy its things. In fact, for China to buy our bonds keeps China from hurting the US with the dollars.
It is instructive to think about this. If dollars are replaced with gold then the transaction becomes --
1] China makes a thing.
2] China exports it to the US and gets gold for it.
3] Someone in the US looses gold to buy the thing, the gold went to China.
Now, I think that everyone can see that the US can't keep sending its gold to China to buy things.
Why does everyone think it is OK to keep sending dollars to China to buy things? Maybe because we can make more dollars quite easily, and can't make new gold at all.
How does the US make new dollars? It does it with deficit spending. This is why I keep claiming that the Gov. needs to deficit spend to replace dollars inside the US economy that are used to buy things from overseas.