Why the national debt of the USA grew - Politics Forum.org | PoFo

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#15008453
The national debt of the United States is growing like a snowball. For the first time, the debt of the US federal government to creditors exceeded $ 22 trillion. Thus, Trump's promises to stabilize the economic situation did not meet his expectations. During his presidency, the US national debt not only did not decrease, but, on the contrary, grew by more than $ 2 trillion. This, of course, is not a record increase (the US state debt reached a critical level during the eight years of Barack Obama’s rule, having increased from $ 10.63 trillion almost in two times), but even such growth may lead to the collapse of the American economy in the next five years.
The US national debt consists of domestic and public debt, constituting $ 5.9 trillion and $ 16.2 trillion, respectively.
Despite the fact that the yield of the US bonds is small - about 2.68% per annum, they represent a stable income without possible risks. That is why foreign countries willingly invest in valuable American securities. So, China owns $ 1,121 trillion in treasury securities.
But it seems that trade wars will soon put an end to foreign investment from the Middle Kingdom. In addition to the sanctions that were already imposed on China, Trump is going to impose duties on Chinese goods for another 325 billion dollars - in fact, we are talking about all exports from China to the United States. Beijing, in turn, can respond radically: reduce investment in US government debt, or even sell part of it. So it was in 2016, when the Celestial Empire sold bonds in the amount of 188 billion dollars. Over the past five years, Beijing has already reduced the portfolio of US government bonds by 13.8 percent.
The story with Huawei also does not improve the situation with public debt. Unsubstantiated accusations of a Chinese corporation in "activities contrary to US national security" could lead to serious sanctions against American business in the Chinese market.
The main reason for the growth of public debt is the constant growth of the budget deficit, which is covered by the issue of public debt. The budget deficit continues to grow. At the same time, payments on debt in the first quarter of 2019 amounted to $ 221 billion, which is 9% more than in the same period in 2018.
Moreover, the option of paying off debt by raising taxes or cutting costs is not even considered. On the contrary, in recent years, Trump has been pursuing a policy that supports raising public debt. For these purposes, the US president advocates the abolition of the procedure for consideration of this issue by the Congress (since only Congress can prohibit the federal government to take unlimited amounts of loan). So, in 2018, the parties reached an agreement according to which the government can increase federal loans without limit until March 1, 2019.
Thus, the US national debt has long been out of control of the federal government. According to the forecasts of American economists, payments to the United States on public debt in 2019 will amount to 600 billion dollars. This exceeds the entire budget deficit in 2014 (439 billion) and in 2015 (483 billion) years. By 2024, the US Treasury is predicting the US economy to pass through the so-called "point of no return" - the situations where every dollar borrowed by Washington will go to pay off previously taken loans. This will lead to the inevitable collapse of the US economic system in the near future.
#15047139
All of the above is based on the thinking and standard practice during the time of the gold standard. During that time all nations had to protect their gold supply. One way to do that was to borrow before they could deficit spend.
. . . The reason they had to do this was that gold does not grow on trees.

BTW, whenever a nation had a boom in gold and/or silver mining, that nation did great economically, because its money supply could grow. the one exception to this was Spain right after it began to loot the New World. The reason for this was that Spain didn't tax itself enough, had a bunch of wars, and so had to borrow to pay for the foreign made things it needed like cannons. Religious bigotry kept Spain from learning how to make its own cannons.

Anyway, back to my point.

In 1971 the world went off the gold standard. That was 48 years ago. while there might have been some problems at first, it is totally clear NOW that this was not the end of the world. It can be seen now that fiat currencies can work just fine. Today, even Japan, with its national debt at 236%of GDP is doing pretty much fine.

While gold does not grow on trees, this is not true for money. The double negative means that money does grow on trees, at least in the sense that paper money is made from trees, and money that resides in computer memories is made with keystrokes on a computer.
. . . So, claim that nations like the US & japan that have their own currencies and float it and never borrow in a foreign currency DO NOT have a NATIONAL DEBT. Instead they have 2 kinds of currency. One is the paper dollars which you earn no interest for holding. The other is the dollar denominated bonds which do pay interest. Both can be and are created with keystrokes.
. . . I claim that is is just silly to count the bond dollars as debt when the US Gov. can and has paid them off as they came due with newly created dollars. It is as silly as counting all the non-bond dollars as part of the debt also. [Again this was a distinction that was held over from gold standard thinking. It should not have been held over though.]

Now I'm not claiming that there is NO CONSTRAINT on what the US Gov. can spend. There definitely is a constraint. However, this constraint is related to the real resources, real things that have been made, and real hours that real live workers can work. It is not a constraint that is derived from any limit on the number of dollars the US Gov. can create and spend. For example, it is widely reported that in 2008 & 2009 the US Gov. and Fed. Res. Bank created and gave away to the world's banks, US banks, and to people over $27 trillion dollars. Can anyone explain where that money came from using gold standard thinking. It may or may not have been mostly paid back, but much it it is still in circulation. However, it is certain that there has been no large amount of inflation since 2008. Does mainstream economics have an explanation for why $27T didn't cause massive inflation? Or, does mainstream economics just ignore all requests for an explanation? Ill bet you-all there will be no reply to this challenge.

So, what is the national debt? OK here is the answer. All so called debts can be looked at from 2 opposite POV, the lender's and the borrower's. From the POV of the borrower it is a debt, but from the POV of the lender it is an asset. The dollars that are called the national debt {from the POV of the holders} is their asset. Those dollars {from the POV of the US Gov.} are not really a debt because the US Gov. can create new dollars and end the debt at any time. Economically it makes zero sense to tax those dollars away from the economy to be able to give them back to the economy. While it matters to the individuals who are taxed and those who are paid, the damage to the economy will be massive because the bond holders think they have dollars, taxing dollars away from others who do have actual dollars to give them to the bond holders reduces the total money supply. And there is no reason to do this. It would be far better to just create new dollars to retire the bonds over the next 10 to 20 years. This would not destroy the money supply and would not grow it either {if it is in any sense true that the US has 2 kinds of dollars, those that pay interest and those that don't}.

So, in conclusion, nations like the US, UK, NZ, Canada, Aust., & Japan, but not nations that use the euro, do not have a national debt.
The figure that is published for this is JUST the number of dollars that the US has deficit spent and has not taxed back, yet.

Economic theories that say otherwise are all just old gold standard thinking that has not been discarded yet. It should have been discarded soon after 1971. But, it serves the interest of the 1% and they have kept it as part of the mainstream theories because it serves their interest to do so, while it crushes everyone else economically.
#15048057
Govt debt is govt bonds.

Govt bonds are fixed interest (+/- yield jiggery pokery) savings accounts with the govt's central bank .

Private sector entities buy them voluntarily.

If some commercial bank attracted lots of savers to its fixed interest savings accounts, would we then say that said bank was in unsustainable debt and about to collapse..?

No, on the contrary.

That's approximately how stupid and misconceived the debt/deficit hysteria is.
#15048431
@SueDeNîmes,
I like my explanation much better.
Banks don't spend what their customers deposit into them.
The US Gov. does 'sort of' spend what it borrows.
I have to say "sort of" because MMT points out that the US Gov. can deficit spend without borrowing.
Someone who is stuck using gold standard thinking or framing will not buy your explanation. I wouldn't either. Your comparison is not apt.

What I said above is --- the US Gov. has no national debt. Instead it issues 2 kinds of dollars. It can create an infinite amount of either or both kinds. Creating too much of either kind is bad. One kind it pays interest on, it doesn't pay interest on the other kind.
The constraint on the Gov. creating too much money is the real resources and labor the US private sector can produce, buy, or find workers to do.
The constraint is not 'financial'.

Again, I need to say this over and over until it sinks into the minds of the people. What you-all think of as the US National debt are the assets that the non-government sector of the economy were paid to get them to sell some thing to the Gov. or to work for the Gov. civil service, etc.
To me it only makes sense to tax these assets away form their current holders [ONLY] if there is a compelling reason to do this.
Without a gold standard what is this compelling reason?
To me this can be seen more clearly if we eliminate the time between when the Boeing comp. was paid for the jet fighter and when the Gov. taxed the payment away. Why would Boeing sell jets to the Gov. if the Gov. just taxes the payment away from them the next day?

Also, - - it is only possible for most of the people to save dollars year after year {in aggregate} when the US Gov. spends more than it taxes back. And if there is a balance of payments deficit, then the total deficit must be total private savings plus the balance of payments deficit. If there is no deficit at all and there is a balance of payments deficit, then the people are having to draw down their savings or borrow newly created money from a bank. Borrowing to put money into a bank as savings is stupid for an individual. It only makes some sense when the borrower and the saver are different people. However, this is still damaging to the economy as we learned in 2008 with the GFC. And MMTers say they can see that this was true of every Bank Panic and the Great Depression before that. It was too much private debt that caused all of them.
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#15048503
Steve_American wrote:@SueDeNîmes,
I like my explanation much better.
Banks don't spend what their customers deposit into them.
The US Gov. does 'sort of' spend what it borrows.
I have to say "sort of" because MMT points out that the US Gov. can deficit spend without borrowing.
Someone who is stuck using gold standard thinking or framing will not buy your explanation. I wouldn't either. Your comparison is not apt.

Well it's true as a matter of fact (not a "comparison"), and for the same reason it's true to say that bonds (govt debt) are interest-bearing dollars, or that govt debt is thus a private sector asset swap. It clicked for me when I heard Warren Mosler explain it that way round.

What I said above is --- the US Gov. has no national debt. Instead it issues 2 kinds of dollars. It can create an infinite amount of either or both kinds. Creating too much of either kind is bad. One kind it pays interest on, it doesn't pay interest on the other kind.
The constraint on the Gov creating too much money is the real resources and labor the US private sector can produce, buy, or find workers to do.
The constraint is not 'financial'.

Again, I need to say this over and over until it sinks into the minds of the people. What you-all think of as the US National debt are the assets that the non-government sector of the economy were paid to get them to sell some thing to the Gov. or to work for the Gov. civil service, etc.
To me it only makes sense to tax these assets away form their current holders [ONLY] if there is a compelling reason to do this.
Without a gold standard what is this compelling reason?
To me this can be seen more clearly if we eliminate the time between when the Boeing comp. was paid for the jet fighter and when the Gov. taxed the payment away. Why would Boeing sell jets to the Gov. if the Gov. just taxes the payment away from them the next day?

Also, - - it is only possible for most of the people to save dollars year after year {in aggregate} when the US Gov. spends more than it taxes back. And if there is a balance of payments deficit, then the total deficit must be total private savings plus the balance of payments deficit. If there is no deficit at all and there is a balance of payments deficit, then the people are having to draw down their savings or borrow newly created money from a bank. Borrowing to put money into a bank as savings is stupid for an individual. It only makes some sense when the borrower and the saver are different people. However, this is still damaging to the economy as we learned in 2008 with the GFC. And MMTers say they can see that this was true of every Bank Panic and the Great Depression before that. It was too much private debt that caused all of them.
.

Oh, I don't disagree.

Rather, I'd say that people stuck in gold-standard mindset won't accept sectoral balances analysis etc until you establish the premise that govt debt is private sector assets. Neither will most folks who've no idea what the gold standard was. But they do understand the difference between their borrowing money they don't have from a bank and their putting money they do have in a fixed interest savings account.
#15048600
@SueDeNîmes,
Well, I'm pretty sure that everyone who doesn't know what the gold standard was should not be commenting on an economics thread. If they were not taught this is school then that alone proves the contention the neo-liberal forces in US & UK want to keep the people ignorant. They also removed all classes in college economics major requirements on "the history of economic thought in western civilization". They did this because Adam Smith didn't actually say what they claim he said, for example the 'invisible hand' and 'free market' meant different things in Smith's writings than what they mean in today's language.

The US Gov. is nothing like a household, or small or large comp.. They need to get $$ before they can spend $$, The US Gov. can and has many times {during the Civil War & WWII} spent money before it borrowed or collects it with taxes. No harm came to the economy in any of the cases.

Today, the world has been off the gold standard for 48 years. The world economy has not collapsed. Today all money is fiat money. No nation, incl. the EU, backs its money with gold. The economy keeps humming along.

The powers that be want the people to think that the Gov. is like a household. This is why the *lie* is repeated by everyone in the media. Only a few who understand MMT, etc., say otherwise. The experience of Japan over the last 25 - 30 years has proved that Japan can spend just like MMT says a nation with a fiat currency can spend. Its debt to GDP ration is 236% and of that debt about half is held by the BoJ {=Bank of japan}. Since the BoJ is an agency of the Japanese Gov. this is like a family counting money the husband owes to his wife as part of its total debt. Or, maybe better as an example, like a comp. counting money it owes to its parent comp. {that owns all of its stock, it's wholly owned by} as part of its debt. No entity should count money it owes to itself as part of its total debt, none. {Yes, I know that it is claimed that the US fed. Res. is independent from the US. It isn't because all its profits are paid to the US Gov., because all it directors are appointed by the US Gov., and because it was created by a law of the US Gov.}
#15049009
The last point of my last post was not clear.

Even though the BoJ holds half the bonds of Japan, it is also true that when the central bank is buying the nation's bonds it is just that same as the nation spending the money without selling any bonds to anyone. So, economists predicted that this {i.e. BoJ buying the bonds} would be hugely inflationary, Weimar Republic inflationary. Yet inflation in Japan is about 0%.
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