If we run deficits now, it means cuts in the future - Politics Forum.org | PoFo

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#15172547
If you spend now more than you take in in taxes, it means spending cuts in the future.
You'd have to be brain dead not to realize this.

Nevertheless many in Greece were surprised and outraged when their government had to start making cuts to pay back years of budget deficits. The anger boiled over into riots.

Well, what did these people think would happen?

I've encountered a lot of people here who seem to think running up debt is a free source of money, and aren't the slightest bit concerned about budget deficits. "Free money", seems this is the same type of mindset that has caused many governments to go into hyperinflation.

The two are linked. If you spend money now, it's going to mean not spending that money in the future. If you don't pay for it now, you're going to pay for it in the future, plus interest.
That's going to mean cuts to areas of government spending.

And if you don't pay it back, it's going to ruin the country's credit rating, and that will mean very high interest rates if the government borrows money. (It will also make it very difficult to be able to borrow money if there's ever an emergency)


Some conservatives have justified tax cuts (paid for by deficit spending) by claiming that a lower tax rate will help economic growth and have a multiplier effect. Well, if that's the case, there's a flipside to the coin they don't mention. If for some reason things don't go as planned, when that debt has to be paid back it's going to stifle economic growth.

And we might not have so much control over when we pay it back. If there are rising interest rates, there's going to be a lot of pressure to start trying to pay down that debt as fast as possible. You see, once these debts reach their maturity date they have to be renewed, you have to find some other investor to lend the money to pay back the first. If you don't pay off that debt with tax revenue you're going to be stuck with higher interest rates, and it could be hard to find enough investors willing to lend the money.

If the country's central bank is used as the lender of last resort, that is essentially the same as paying the interest on the loan with inflation. (It's a little too complicated to explain the reasoning and math for that here)
In the end it mostly just cuts into the spending power of the government's tax revenue, and you don't really achieve anything.

This was the very problem the Greek government faced in the Greek Debt Crisis, only they couldn't inflate their way out of the debt because the other countries in the Eurozone didn't want the burden of inflation shifted on them.
#15172563
Puffer Fish wrote:If you spend now more than you take in in taxes, it means spending cuts in the future.
You'd have to be brain dead not to realize this.

Nevertheless many in Greece were surprised and outraged when their government had to start making cuts to pay back years of budget deficits. The anger boiled over into riots.

Well, what did these people think would happen?

I've encountered a lot of people here who seem to think running up debt is a free source of money, and aren't the slightest bit concerned about budget deficits. "Free money", seems this is the same type of mindset that has caused many governments to go into hyperinflation.

The two are linked. If you spend money now, it's going to mean not spending that money in the future. If you don't pay for it now, you're going to pay for it in the future, plus interest.
That's going to mean cuts to areas of government spending.

And if you don't pay it back, it's going to ruin the country's credit rating, and that will mean very high interest rates if the government borrows money. (It will also make it very difficult to be able to borrow money if there's ever an emergency)


Some conservatives have justified tax cuts (paid for by deficit spending) by claiming that a lower tax rate will help economic growth and have a multiplier effect. Well, if that's the case, there's a flipside to the coin they don't mention. If for some reason things don't go as planned, when that debt has to be paid back it's going to stifle economic growth.

And we might not have so much control over when we pay it back. If there are rising interest rates, there's going to be a lot of pressure to start trying to pay down that debt as fast as possible. You see, once these debts reach their maturity date they have to be renewed, you have to find some other investor to lend the money to pay back the first. If you don't pay off that debt with tax revenue you're going to be stuck with higher interest rates, and it could be hard to find enough investors willing to lend the money.

If the country's central bank is used as the lender of last resort, that is essentially the same as paying the interest on the loan with inflation. (It's a little too complicated to explain the reasoning and math for that here)
In the end it mostly just cuts into the spending power of the government's tax revenue, and you don't really achieve anything.

This was the very problem the Greek government faced in the Greek Debt Crisis, only they couldn't inflate their way out of the debt because the other countries in the Eurozone didn't want the burden of inflation shifted on them.


OK, sir, I am one whoyou taking about.
Some points are=>
1] Greece and the US are totally different. This is because Greece uses the euro and the US issues the dollar. Greece is like a corp.and must get euros to spend somehow, usually taxes, fees, and borrowing.
2] OTOH, the US can and does spend bfeore it borrows. It can issue dollars to redeem all the bonds that mature on any day. It can borrow to redeem those bonds instead. It can and does borrow to make the interest payments too.
3] Sir, why do you not grok this key ifference? Why do you keep talking as if the problems of Greece are the same as the US's problems?
4] The US can never be forced to go bankrupt, so its bonds are 100.000% as safe as the currency dollars of those who hold those currencydollars. There is zero risk of default. Why? Because it would be the American rich who would suffer the biggest loss if all US bonds were assignied a zero value.
4] The worst 2 things that can happen are => Hyperinflation and/or the dollar loses its value compared to other currencies. I would suffer if the dollar lost value compared to international currencies. I don't think the rich want to see hyperinflation, so I expect the Gov. to do what is necessary to stop hyperinflation.

Like you said, taxing the poor is not going to pay down the national debt. Taxing the rich is also a problem because they (or corps they own) hold most of the debt. The rich would not want to see higher taxes on themselves to pay down the debt (that they are holding) unless there is a crisis that makes it unavoidable. MMT claims no such crisis is possible. That the rich and everyone else would rather solve the crisis in any other way.
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#15172592
Steve_American wrote:1] Greece and the US are totally different. This is because Greece uses the euro and the US issues the dollar. Greece is like a corp.and must get euros to spend somehow, usually taxes, fees, and borrowing.

That may be true, but I've covered in other threads how inflation cannot really be used to get out of debt. (The lenders start demanding higher interest rates in response to the expected inflation)

For those of you who don't know, this poster (Steve American) believes in the theory called "MMT" that believes government can print lots more money without causing inflation.
I'll leave it at that...
#15172595
late wrote:Nope.

All you just said is that you don't know what you're talking about.

And that's exactly why I believe people like you can't be trusted to run government spending policy.

And there are PLENTY of others who think like you do.


When the damage is done, your type will never admit then that you were wrong. You'll just blame something else, like "the rich", or "big corporations". Or you'll blame the response that is used to react to the problem, blaming the government for not just borrowing more and more money when things start falling apart.

We've seen all this play out before in other countries like Greece.
#15172596
Puffer Fish wrote:
And that's exactly why I believe people like you can't be trusted to run government spending policy.

And there are PLENTY of others who think like you do.



Sigh.

To quote one of my favorite economists: "When has the government ever listened to economists?" Brad Delong

My fave is Stiglitz.

"We are all Keynesians now" Milt Friedman

You're thinking is stuck in the 1800s...
#15172597
Steve_American wrote:4] The US can never be forced to go bankrupt, so its bonds are 100.000% as safe as the currency dollars of those who hold those currencydollars. There is zero risk of default. Why? Because it would be the American rich who would suffer the biggest loss if all US bonds were assignied a zero value.

That would still ruin the country's credit rating, the same as if it just defaulted.

Why would anyone want to lend money again when they know the government may likely just inflate the money down again in the future, like it did in the past?
#15172599
Puffer Fish wrote:
That would still ruin the country's credit rating, the same as if it just defaulted.

Why would anyone want to lend money again when they know the government may likely just inflate the money down again in the future, like it did in the past?



You are such a babe in the woods.

Most of this is the government borrowing from itself. It will never stop lending.

This is a long term problem, but it's not the way you think about it. If things get so bad the dollar loses reserve currency status, that will be a very bad day.
#15172606
Puffer Fish wrote:You keep pushing that day closer and closer, printing more money and getting the country into ever more massive amounts of debt.

At this rate we may get into hyperinflation mode. The Democrats and Republicans are idiots. Our only hope is a strong Libertarian movement.
#15172620
Julian658 wrote:Our only hope is a strong Libertarian movement.


Meh, libertarians are idealists. They don't understand how capitalism and the real world works.

The debt doesn't matter so long as the economy is strong, the GDP grows, people's well being is improved, and nations that challenge the west like China/Russia remain authoritarian shitholes (which makes the west safe).
#15172625
MMTers often say that Public Debt = Private Wealth. If the government ran a balanced budget, that would mean that no new money is created and that, therefore, the private sector turns into a zero-sum game. Which would mean that no matter how productive people in the private sector are, some of them must lose money so that others can make it. It's obvious why this would be a huge problem.

The government must run large deficits at all times in order for its fiat currency to accurately represent what is going on in the private sector.
#15172628
Saeko wrote:MMTers often say that Public Debt = Private Wealth. If the government ran a balanced budget, that would mean that no new money is created and that, therefore, the private sector turns into a zero-sum game. Which would mean that no matter how productive people in the private sector are, some of them must lose money so that others can make it. It's obvious why this would be a huge problem.

The government must run large deficits at all times in order for its fiat currency to accurately represent what is going on in the private sector.


Indeed. Not expanding the money supply results in wealth being hoarded. Adding in money basically helps in taking value away from those wealth hoarders and letting it distribute amongst those that are not wealthy.

This is why I think Bitcoin is bullshit and not good for society.
#15172693
Saeko wrote:MMTers often say that Public Debt = Private Wealth. If the government ran a balanced budget, that would mean that no new money is created and that, therefore, the private sector turns into a zero-sum game. Which would mean that no matter how productive people in the private sector are, some of them must lose money so that others can make it. It's obvious why this would be a huge problem.

The government must run large deficits at all times in order for its fiat currency to accurately represent what is going on in the private sector.


It is actually more complicated than that. When it comes to Euro and Dollar than both currencies must always be printed and be in deficit budgeted of sorts because they are the worlds de facto reserve currency with no other currency being even close. Basically if Euro and Dollar are not constantly being traded away then the world will have nothing to trade with.
#15172712
Puffer Fish wrote:That may be true, but I've covered in other threads how inflation cannot really be used to get out of debt. (The lenders start demanding higher interest rates in response to the expected inflation)

For those of you who don't know, this poster (Steve American) believes in the theory called "MMT" that believes government can print lots more money without causing inflation.
I'll leave it at that...


PF, I said that Greece and the US are totally different. It sounds like you don't accept that. You are still comparing the US to Greece.

MMTers have been pointing at the situstion in Japan for over 20 years. MS Economsts and people like PF have been predicting inflation in Japan for 30 years. So far, there has been less than 1%/year on average.
. . . In this thread PF just said that printing money always leads to high inflation. [And anyone who disagrees must be brain dead.] When MMTers point out Japan, PF just ignores the problem in his theory and doubles down. Maybe he'll add a, "Just wait a little longer."
. . . I think that younger Americans (those under 45) are sick of waiting and are beginning to understand that it is time to try the MMT experiment and see if MS economists are wrong and MMTers are right.

I know that PF is unlikely to learn these things. I wite in respoonce to him in hopes that I can teach the lurkers and stop them from believing PF and MS econ.
.
#15172728
Rancid wrote:Meh, libertarians are idealists. They don't understand how capitalism and the real world works.


I tend to agree, but there is a libertarian side that preaches austerity and individualism.

The debt doesn't matter so long as the economy is strong, the GDP grows, people's well being is improved, and nations that challenge the west like China/Russia remain authoritarian shitholes (which makes the west safe).


America will be destroyed from within. I give it 100 years.
I can see Americans migrating to México or other Latin nations and setting up capitalistic settlements.
#15172737
Saeko wrote:MMTers often say that Public Debt = Private Wealth. If the government ran a balanced budget, that would mean that no new money is created and that, therefore, the private sector turns into a zero-sum game. Which would mean that no matter how productive people in the private sector are, some of them must lose money so that others can make it. It's obvious why this would be a huge problem.

The government must run large deficits at all times in order for its fiat currency to accurately represent what is going on in the private sector.


Saeko, it is actually far worse than that.
Because the US has a trade deficit and also may have money leaving to invest overseas, there is less money left in the US economy at the end of each year, than there was at the start of the year. So, without large Gov. deficit spending the US economy would be a 'less than zero sum game'.
.
#15172745
Puffer Fish wrote:Some conservatives have justified tax cuts (paid for by deficit spending) by claiming that a lower tax rate will help economic growth and have a multiplier effect. Well, if that's the case, there's a flipside to the coin they don't mention. If for some reason things don't go as planned, when that debt has to be paid back it's going to stifle economic growth.

Unfortunately, GDP is calculated as Government Spending + Consumption + Gross Investments + Net Exports. So Government Spending naturally increases GDP even if it's totally ineffective, counterproductive, fraudulent or wasteful. Politicians do not seem to care. They are trying to pass an infrastructure bill which has little to do with infrastructure, whilst we've had a near bridge collapse and a pipeline shutdown disrupting markets. Government spending could be cut in half and we could do more, but we must first get the grifters out of the system; and, there seems to be no political will for that. So hyperinflation and stagnation are the future right now.

Puffer Fish wrote:And we might not have so much control over when we pay it back. If there are rising interest rates, there's going to be a lot of pressure to start trying to pay down that debt as fast as possible. You see, once these debts reach their maturity date they have to be renewed, you have to find some other investor to lend the money to pay back the first.

Fractional reserve banks can lend money into circulation. It's fucked if your a Southern European country stuck in the Eurozone, but it's fine if you're the US, Canada, Japan, Australia, with your own currency and central bank.

Puffer Fish wrote:This was the very problem the Greek government faced in the Greek Debt Crisis, only they couldn't inflate their way out of the debt because the other countries in the Eurozone didn't want the burden of inflation shifted on them.

The US is the global reserve currency, so everyone has to take a bite of the shit sandwich.

Puffer Fish wrote:That may be true, but I've covered in other threads how inflation cannot really be used to get out of debt.

You pay the debt off with inflated dollars. It makes the debt worthless. Buy hard assets that increase in value. Buy houses, etc. if you know what's good for you.

Puffer Fish wrote:For those of you who don't know, this poster (Steve American) believes in the theory called "MMT" that believes government can print lots more money without causing inflation.

It's a bit of bunk. Basically, look at Japan. Their economy is deflationary despite a loose monetary policy, because their population is aging and facing decline. So there is no cost push or demand pull inflation in the consumer market. That's hitting China and Europe too.

Puffer Fish wrote:Why would anyone want to lend money again when they know the government may likely just inflate the money down again in the future, like it did in the past?

Access to the largest consumer economy in the world...
#15172830
Saeko wrote:MMTers often say that Public Debt = Private Wealth. If the government ran a balanced budget, that would mean that no new money is created and that, therefore, the private sector turns into a zero-sum game. Which would mean that no matter how productive people in the private sector are, some of them must lose money so that others can make it. It's obvious why this would be a huge problem.

The government must run large deficits at all times in order for its fiat currency to accurately represent what is going on in the private sector.


That's the crucial bit - well put - which people need to get:

Why the Government Must Keep Running Deficits. Forever.

which isn't theory, but readily observable in national accounting aggregates:

Image

That observation predates MMT. Wynne Godley, Hyman Minsky, JK Galbraith and, arguably, Keynes pointed it out.
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