- 08 Sep 2021 04:27
The title of this thread is ---
HOW WILL THE US PAY BACK ITS DEBT?
Note that is isn't HOW WILL THE US PAY *OFF* ITS DEBT?
The US has always paid back the money it borrowed with all the interest due.
From when it started a new national debt after it had paid off the debt (in about 1837) from the Rev. War, until 1913 when the Federal Reserve Bank was created and especially since 1971 when Nixon took the world off the gold standard; the US has mostly paid back its bonds with borrowed money . We can see this is true because the national debt kept growing.
Now that the US is fully off the gold standard and can't get back onto it, it is possible for it to pay the bonds as they come due by creating new dollars with computer key strokes. This is not a good idea, though. It is pretty much the same thing (paying with new dollars) when the Fed. buys US Gov. bonds indirectly or directly.
My main point is that the US has always paid back its debts. If this is the question, then the answer is, why ask(?), it always has paid them back.
Mostly, I took this thread to be about paying *off* the national debt.
To do this the US can't borrow to make the payments. It must have a surplus, or it must create new dollars, which is like printing dollars.
. . . The problem with a surplus is --- that this destroys the dollars that were created in the past when the Gov. had a deficit and borrowed to cover it.
. . . This destruction of dollars has the effect of reducing someone's income. This reduces spending. And, this starts a recession.
You need to understand that banks also create money with every loan they make. However, this adds zero the the net worth of the nation's people because there is a contract to pay back the loan that matches the increase in dollars with a negative amount. So, no net increase.
. . . So, in a boom, banks are creating dollars that are spent and so adding to someone's income, which adds to the GDP.
. . . Now, when the Gov. has a surplus and this reduces incomes, pretty soon people start to borrow less and banks want to lend less. Immediately, this reduces incomes. This then is added to the Gov. reducing incomes to increase the reduction of incomes and spending. Pretty soon, as the recession deepens, banks start getting more in payments than the total of new loans they are making. When this happens, both the Gov. surplus and the net for bank loans and repayments are destroying dollars. This then, is the cause of many recessions. In fact, MMTers point out that everyone of the 7 times the US Gov. has had a surplus for a few years, it has lead to (and MMTers say, see the above explanation) caused a recession.
Understand that, MS Econ. assumes *away* all this about the banks, when it assumes that banks lend their depositors' money, and so don't create new dollars.
So, the MS Econ. theory doesn't understand the cause of recessions at all.
Does MS Econ. understand that when the US Gov. has a surplus it is destroying dollars?
. . . How the Gov. destroying dollars with a surplus is --- before the transaction a person-A has dollars in cash (usually in a bank checking account) and another person-B has dollars of savings in the form of a bond that is about to come due. Now, the Gov. collects taxes from person A and pays them to person B to pay off the bond. So, after these 2 transactions, person A has less dollars, and person B has lost his dollars in his bond, but has received an equal amount of cash dollars instead. This has the net effect of reducing the total of dollars in cash and bonds by the amount of either the taxed amount or the equal bond amount.
. . . Now, this would have no bad effect on the nation's net incomes *IF* the bondholders spent all of the money they received when the Gov. paid off their bonds. However, the bond holders almost never do this. They had the money in savings and they still want to save that money. So, they don't spend it.
Worse than that, as the Gov. surplus continues and incomes drop, causing a slight recession; there is a *major reduction* in a desire to invest in new production. Investments during the boom (that has now ended) did add to incomes, but now savers don't want to invest because demand has been reduced as people stop spending because their income had been reduced. This means that as the Gov. continues its surplus, there is no desire to invest the money the bondholders have received for their bond that has just come due and was redeemed by the Gov. So, they save it or maybe invest it overseas (where it doesn't add to US incomes).
. . . Understand that dollars saved also reduce the income of someone. These dollars just sit there in a savings account.
The tendency of the rich and fairly well off to save is one reason that the Gov. needs to deficit spend in most years. If too many people save too much and the Gov. doesn't deficit spend, this can reduce incomes enough to cause a recession, because people spend less when their income is reduced. And this reduces the GDP.
Another, loss of dollars is the trade deficit. A person buys a chair made in China, so that money is now (really was already) sent to an account of someone in China. They can move it (or it has been moved) overseas, or buy a US bond, or (unlikely and this reduces the trade deficit) buy something in America.
IMO, the Gov. deficit needs to match the amount the people and corps. save, plus the amount of the trade deficit, plus some more to cause the desired 2% inflation. In any case, IMO, the Gov. should deficit spend *now* on ACC, etc., until we see inflation go over 2% averaged over 2 years (2 years, because of the deflation in 2020). Right now we are having by some reports inflation of 5%, but we had deflation of about 4 to 7% last year so the average is -2% to 1% inflation for the 2 years or -1% to 1% per year, as the average over 2 years.