National Debt
Lantern
charge on the national debt has stayed the same for years.... 7% of
our national outlays. If we can carry the debt..why is it a problem?
(Ref. pie chart in your IRS 1040 Instruction Booklet, page 83). The
carrying charge for the national debt in the past several years has
been: 7%,7%, 8%, 10% and 11%...in fact the cost of the national debt
has been going down....down I tell you! Borrow, spend...be happy!
Steve Campbell
The Fed needs some national debt to conduct open market operations
with bonds that are its primary tool for regulating the economy with
the money supply and, thereby, controlling inflation. Some criticism
of a very large national debt follows:
1. If the debt grows so large that it cannot be financed primarily by
the American public and foreign nationals hold too large a proportion
of the debt but decide to cash in all at once, the Fed might
experience both a financial crisis and an international crisis.
2. A run on the Fed might result in the immediate need to collect
funds through additional taxes which could cripple the economy.
3. If the Fed fails to pay bondholders, then future issues of bonds
become impossible to sell.
4. If investors become reluctant to purchase Treasury bonds, the
interest rates might have to soar to attract new buyers. That would
drive up interest rates across the economy.
5. The compulsory sale of bonds by the Fed to finance the debt reduces
the money supply and increases the value of the dollar against foreign
currencies.
Dan in Philly
> The Fed needs some national debt to conduct open market operations
> with bonds that are its primary tool for regulating the economy with
> the money supply and, thereby, controlling inflation. Some criticism
> of a very large national debt follows:
>
> 2. ...
> 3. ...
> 4. ...
These responses might have been a little too clear & logical for many
sci.econ participants.
> 5. The compulsory sale of bonds by the Fed to finance the debt reduces
> the money supply and increases the value of the dollar against foreign
> currencies.
That's why the Fed is a net *buyer* of bonds. The *Treasury* sells bonds to
finance the debt.
Dan in Philly
Lantern
> "Steve Campbell" <SteveCampb...@avicorcho.com> wrote in message ...
What about the notion that if you can carry the debt, the debt is no
problem.
The Trucker
news:1178814910.8...@h2g2000hsg.googlegroups.com...
For years I have been trying to explain this stuff in a way that even the
minimally aware can understand it. Perhaps the best way to look at it
is to (in you mind) coalesce the Fed and the Treasury into a single
harmonious group. That is the reality anyway. These two institutions
work hand in hand to do the job of government finance and monetary
control.
Money (dollars in bank accounts of the Treasury) is CREATED when
the government spends money into existence. The Treasury accounts
in the central bank (spelled Fed) are NEVER overdrawn or insufficient.
The problem then becomes the control of all this money that has been
created and thrown into the helicopter blades of government to come
to rest we know not where. If the money is allowed to slosh around
in the economy for too long then the amount of actual dollars
will grow too large and the value of the dollars will erode. That is
why we have taxes and the sales of various types of "interest"
bearing mattresses called government bonds. What else will the
rich people who already have all the money they could ever use
do with this extra money but to put it into bonds?
That is what keeps dollars scarce and keeps them worth something;
this sale of bonds and this taxation. If interest rates on the bonds
are very low and there is inadequate tax revenue then the amount
of real live spendable money increases and the currency is devalued.
That is what has been happening since 2000. And if short term
rates are kept l,ow and government borrows on the sort term
(lots of 6 month bonds) then both money and bonds continue
to lose value. Over time this _SHOULD_ attend to trade
imbalances.
The time of reckoning is put off by the current bond holders. If
they refuse to buy more bonds at low interest rates then the value
of the bonds they already own at low interest rates will
deteriorate even more than that value has currently deteriorated.
You must always remember that the only thing you can get for
a bond is money. And if the value of the money has eroded then
so too has the value of the bond.
I keep using the word "value" and it is time to address what it
means. Value is measured in ones control of labor and natural
resources. Money buys both land and resources. As these
prices rise we are actually witnessing the decline of the value
of the dollar. The apparent stock market rise is also a part
of that.
--
"I know no safe depository of the ultimate powers
of society but the people themselves; and
if we think them not enlightened enough to
exercise their control with a wholesome
discretion, the remedy is not to take it from
them, but to inform their discretion by
education." - Thomas Jefferson
http://GreaterVoice.org
Lantern
stuff...."
I know it must be trying for you but please be patient. For this
particular go around maybe it would help to address the question
directly. The question is: "If the U.S. can carry the debt, what's the
problem with some amount of national debt?" I know too much debt is
bad. But how about a reasonable amount of debt. Reasonable being that
which we can carry.
ro...@telus.net
Why would we want to carry parasites rather than be free of their
drain on our energies and lives?
It is self-evident and indisputable that those who lend money to
government have nothing better to do with it than let the government
spend it. So why not just tax it from them? The money would be used
for the same purposes, but would not then need to be repaid, let alone
with interest. Why is it that when working people give money to the
government, they don't get it back; but when the rich and their banks
give money to the government, they get it all back, with _interest_?
Help me out, here.
-- Roy L
jerryams
> I know it must be trying for you but please be patient. For this
> particular go around maybe it would help to address the question
> directly. The question is: "If the U.S. can carry the debt, what's the
> problem with some amount of national debt?" I know too much debt is
> bad. But how about a reasonable amount of debt. Reasonable being that
> which we can carry.
The key is that the national debt must be kept under control to
avoid consequences. I posted an article regarding this issue called
"The collateral damage of national debt" a few months ago. Here it is:
_____________
Some people believe that the national debt is not necessarily a bad
thing to a nation -- the debt can be rolled over forever.
But the real damage is often not the debt itself, but the side
effect (the collateral damage). In 9/18/2006's Newsweek, Allan Sloan
wrote an article titled "D.C.'s Deficit Math Doesn't Add Up." He
stated that the official US deficit for 2006 is $260 billion, but the
actual
debt is $558 billion. Where is the $298 billion coming from? Uncle Sam
"borrowed" $177 billion from Social Security, and $121 billion from
"other government accounts" such as federal-employee pension funds.
In other words, consistent budget deficit year in and year out
changes the government's behavior and forces them to do things in
ordinary sense will be called "stealing." Uncle Sam borrows money from
funds such as social security without any plan to pay it back. Then
they claim that the social security will go bankrupt in 30 years. How
convenient!
If the government did not get into such heavy debt, it wouldn't
have to do things this way. There is no money to repair the
infrastructures, no money for the retirement, in the mean time, they
claim that the debt can be rolled over forever. One thing I know for
sure, without these
debts, they won't have to steal from the people's retirement funds.
National debt does no harm to a nation? Think again.
The Trucker
The "interest" paid on the national debt is, at best, a "necessary" part of
a monetary system that gives the Fed some SHORT RUN control over
the system. Consider that the "interest" paid is less than the inflation
rate (or dollar devaluation rate). The bond holder does not actually
realize any benefit from holding the bonds, yet the bonds offer a vehicle
for savings. In that system (and it is the one an honest Fed would like),
people are able to save but encouraged to invest, i.e. you can't make
money via bonds but you don't lose a bunch either. Reasonableness
is measured in the amount that will provide enough control by the Fed
to regulate the money supply so as to deal with short term happenstance
such as seasonal demands for money. If there is a way to actually get
ahead by owning bonds then there is too much debt. I have just
given you my opinion on what is a proper amount of debt that should
be "carried". The _real_ interest on the debt should never exceed the
inflation rate. When it does, the real economy goes in the crapper.
It is important to understand that inflation and recession are caused by
the elected government and not by the Fed so long as the Fed does
its actual job in a non partisan way. The seemingly ridiculous price of
gasoline is due to 6 years of deficit spending. The price of oil is
about what it was in 2000 when measured in gold. The Fed does not
create the debt. Republicans do.
w_b_...@yahoo.com
is CREATED when the government spends money
into existence."
-------------------------------------------
Money is created when any transactor deficit spends
with bank credit. The theorem is that loans create
deposits; the repayment of loans cancel deposits.
This theorem is very significant in an economy
where most transactions are conducted by the
transfer of bank deposits.
This is true whether the transactors are private or
governmental institutions or individuals.
If you'll look at the diagram archived at
http://www.geocities.com/new_economics/conrad-borrowing-2005.gif
from my good friend, Bud Conrad, you'll see that
the largest amount of bank credit is represented by
consumer debt, the second largest is federal
government debt, the third largest is business debt,
and the smallest is state and local government debt.
The theory that you outline is very close to the State
Theory of Money concept that has recently been
revived by the multi-millionaire Warren Mosler.
The term was originated by the German economist
Georg Friedrich Knapp, a favorite of the Nazi's,
who experimentally tested the theory at
Theresienstadt, in prototype of their plans to control
conquered peoples and races.
In point of fact, the Fed holds only a relatively
small percentage of federal government securities.
The large majority are held by domestic and foreign
commercial banking institutions.
-
kept low and government borrows on the sort term
(lots of 6 month bonds) then both money and bonds
continue to lose value. Over time this _SHOULD_
attend to trade imbalances.
The time of reckoning is put off by the current bond
holders. If they refuse to buy more bonds at low
interest rates then the value of the bonds they
already own at low interest rates will deteriorate
even more than that value has currently
deteriorated. You must always remember that the
only thing you can get for a bond is money. And if
the value of the money has eroded then so too has
the value of the bond.
I keep using the word "value" and it is time to
address what it means. Value is measured in one's
w_b_...@yahoo.com
<SteveCampb...@avicorcho.com> wrote:
"The Fed needs some national debt to conduct open
market operations with bonds that are its primary
tool for regulating the economy with the money
supply and, thereby, controlling inflation."
----------------------------------------------
-----------------------------------------------
In point of fact, and it is a little known fact, the
primary tool for inserting or extracting reserves in
the attempt to control inflation by the central banks
is through the purchase and sale of "repos," which
are securities created by the member banks
themselves.
The Bank of Canada is quite open about this at their
Website:
http://www.bankofcanada.ca/en/glossary/glossopen.html
"open market operation opération d'open market
"Discretionary Bank of Canada intervention in the
domestic securities market.
"NOTE: Since 1995, such transactions have
involved mostly special purchase and resale
agreements and sale and repurchase agreements."
Since 1995 in Canada, probably since 1975 in the
United States.
Lantern
summary of postings to date. :)
I made this post thinking it was pretty straightforward. The
presumption was that the main thing about debt is the cost of carrying
the debt. However, after reviewing the splendid responses from this
learned body, I conclude......There is nothing straightforward in the
topic of economics. Too much debt is bad, I think we all agree. Not
enough debt is open to discussion. Does the U.S. have too much debt
and how much is too much remains a mystery. In summary, I think I will
post some more, this is fascinating to me. I also think deep-down that
there is a better way. Thanks to all for your input.
The Trucker
I wonder what your point was supposed to be? I've looked at this
post several times. The closing remark has little to do with the
rest of your post and absolutely nothing to do with my post below.
--
*Anarcissie*
> "Money (dollars in bank accounts of the Treasury)
> is CREATED when the government spends money
> into existence."
> ------------------------------------------
> -------------------------------------------
>
> Money is created when any transactor deficit spends
> with bank credit. The theorem is that loans create
> deposits; the repayment of loans cancel deposits.
> This theorem is very significant in an economy
> where most transactions are conducted by the
> transfer of bank deposits.
>
> This is true whether the transactors are private or
> governmental institutions or individuals.
>
It seems obvious that there is a lot of inflation
taking place, while the government's institutions
and spokesmen pretend that there is not. However,
the inflation has not been evenly distributed --
most of it has occurred in the stock market, real
estate, and collectibles. We might call these the
upper realm of the economy. The money hasn't
yet flowed to the lower realm, where people
labor for cash and spend it on commodities.
In thinking about the denouement of this
obviously unstable situation, I am wondering
to what extent contemporary money is real. For
the moment I am considering commodities and
claims on commodities to be real. But what I
am wondering is whether a large part of the
current monetary gas keeping the inflation of
the stock and real estate markets going could
just disappear overnight.
Mark M.
Money in our present systems represents prior production, claims on future
production, and exchange price of land. Dollars can move between these three
categories. Dollars representing a stack of cut firewood can be spent to buy land.
Money from the sale of land can be used to buy cut firewood. Money that
represents not the sale of land but the asset value of land can be used to buy
asphalt shingles (home equity loan).
A general inflation of land prices (real estate bubble) need not affect prices of
goods and services. Conversely, the dollars in assets that don't represent prior
labor could in theory be deleted without affecting at all the value of existing
goods. For example, a high tax on land rent would have the indirect effect of
virtually destroying the selling price of land.
Bankers get rich on real estate bubbles. Unlike landlords, bankers don't need to
first buy land in order to collect the rent. Because they know that nearly all the
dollars they lend for buying land go back into purchasing land, Bankers can lend
money that does not represent prior production. They in essence create money by
lending for land. The mortgage payments are made by workers' production. This is
the "real" money that bankers and their shareholders spend.
Mark M.
*Anarcissie*
After I posted my query, I came across http://wfhummel.cnchost.com/
(due to the mention of seigniorage; it's one of the sites you get if
you
Google that term). I have begun to read it, but as yet I would
hesitate
to attempt to summarize. I'd like your (and anyone elses's) opinion
as
to its validity, interest, etc.
As to whether the upper realm of real estate and stocks, and the lower
one of labor and consumer goods, can be kept separate forever, there
are certain points of contact which make me doubt that they can.
For instance, there is the relation between housing rent, real estate
prices, interest and taxes that seems inescapable. Should the real
estate, stock and collectibles market appear to be overpriced, I
would think that money would tend to run towards commodities
and hard goods, which are also bought by people living in the
lower realm and will therefore cause inflation there. It seems
also likely that people in the upper realm may begin spending
money in the lower realm -- the trickle-down effect -- causing
inflation there for the services and goods available (e.g. illegal
drugs).
Of course, a lot depends on what money _is_ these days. If it
is something created privately by belief, then a lot of it could
disappear very quickly. That is something I am trying to
figure out.
Mark M.
Hummel has been here and we've debated his stuff. Although he understands very
well the way the present system works, he tends to use circular reasoning to
explain why it ought to be this way; i.e. the banking system must work efficiently
because that's the way it works.
>
> As to whether the upper realm of real estate and stocks, and the lower
> one of labor and consumer goods, can be kept separate forever, there
> are certain points of contact which make me doubt that they can.
> For instance, there is the relation between housing rent, real estate
> prices, interest and taxes that seems inescapable.
Right. Mortgage lenders are after rack-rent (the most the market will bear rent).
Prices for real estate are adjusted to accommodate rack-rent payments. As
interest rates fall, land price increase.
Taxes on land are always deducted from rack-rent available for either landlord
payments or mortgage payments. This means that increases in land value taxes
reduce land price.
Should the real
> estate, stock and collectibles market appear to be overpriced, I
> would think that money would tend to run towards commodities
> and hard goods, which are also bought by people living in the
> lower realm and will therefore cause inflation there.
Overpriced is relative. What brings investors to the land market is rate of price
appreciation. As long as price are going up, they will continue to go up. As soon
as land price appreciation stalls, it must go down. Land prices cannot level off.
This is because of the speculative premium that is rolled in land prices.
It seems
> also likely that people in the upper realm may begin spending
> money in the lower realm -- the trickle-down effect -- causing
> inflation there for the services and goods available (e.g. illegal
> drugs).
When land price decreases, land is not dumped for better investment. OTC, land is
held tight for the time in the future when the price will again rise. After all,
land requires no maintenance, and we all need it to live and work on.
>
> Of course, a lot depends on what money _is_ these days. If it
> is something created privately by belief, then a lot of it could
> disappear very quickly. That is something I am trying to
> figure out.
A worthy subject of study. Let us know what you discover.
Mark M.
The Trucker
I think that is a fair assessment of Hummel, but the guy knows his stuff
about how the system works. I argued with him for months on end and came
to the same conclusion about his ardent support of the cureent system.
But I learned a hellova lot while debating with him.
>>
>> As to whether the upper realm of real estate and stocks, and the lower
>> one of labor and consumer goods, can be kept separate forever, there
>> are certain points of contact which make me doubt that they can.
>> For instance, there is the relation between housing rent, real estate
>> prices, interest and taxes that seems inescapable.
>
> Right. Mortgage lenders are after rack-rent (the most the market will bear rent).
> Prices for real estate are adjusted to accommodate rack-rent payments. As
> interest rates fall, land price increase.
Homes sell on "How much will it cost per month to be buying the house?",
and "How much can I make on resale?". The banks do not lose so long as
people keep moving or refinancing. As the rates go down the amounts go
up.
> Taxes on land are always deducted from rack-rent available for either landlord
> payments or mortgage payments. This means that increases in land value taxes
> reduce land price.
So the way to do it is to move the taxes off the structure and on to land.
That way the tax to the "owners" is NOT increased and the bubble does not
pop. The time to increase the tax (once it is on land) is AS THE LAND
PRICES ARE RISING. That PREVENTS the rise and stabalizes the prices. No
more bubbles. Unfortunately, if there was a move to tax land at the
federal level, land prices would plummet at this point. I recommended
doing the tax deal 15 years ago. That was the right time.
> Should the real
>> estate, stock and collectibles market appear to be overpriced, I
>> would think that money would tend to run towards commodities
>> and hard goods, which are also bought by people living in the
>> lower realm and will therefore cause inflation there.
>
> Overpriced is relative. What brings investors to the land market is rate of price
> appreciation. As long as price are going up, they will continue to go up. As soon
> as land price appreciation stalls, it must go down. Land prices cannot level off.
> This is because of the speculative premium that is rolled in land prices.
The way to stabalize land prices is with a TAX (or look at it as gummint
rent collection). As the average price of an acre of land in the
sovereignty attempted to rise (or as it does rise slowly) the tax on land
will be slowly increased as a percantage (tax rate increase). As the price
falls, tax rate would be decreased. This is a MONETARY function and would
serve very well to limit all sorts of bubbles and depressions.
> It seems
>> also likely that people in the upper realm may begin spending
>> money in the lower realm -- the trickle-down effect -- causing
>> inflation there for the services and goods available (e.g. illegal
>> drugs).
>
> When land price decreases, land is not dumped for better investment. OTC, land is
> held tight for the time in the future when the price will again rise. After all,
> land requires no maintenance, and we all need it to live and work on.
The tax on land is the "maintenance". It is the only maintenance.
>>
>> Of course, a lot depends on what money _is_ these days. If it
>> is something created privately by belief, then a lot of it could
>> disappear very quickly. That is something I am trying to
>> figure out.
>
> A worthy subject of study. Let us know what you discover.
>
Money has 2 forms: One is simply credit issued by banks. The other is
fiat money issued by government. These monies trade on par but have
completely different controls.
*Anarcissie*
> On Sat, 23 Jun 2007 22:36:50 -0500, Mark M. wrote:
> > *Anarcissie* wrote:
> >> Of course, a lot depends on what money _is_ these days. If it
> >> is something created privately by belief, then a lot of it could
> >> disappear very quickly. That is something I am trying to
> >> figure out.
>
> > A worthy subject of study. Let us know what you discover.
>
> Money has 2 forms: One is simply credit issued by banks. The other is
> fiat money issued by government. These monies trade on par but have
> completely different controls.
If I am reading Hummel correctly we are now in a
state of affairs where most money is created privately
and we don't know how much of it there is. I am
interested in this not because I am trying to create
policy -- I don't think anything I think, say or do
will change any government's or bank's monetary
policies -- but I am interested in trying to figure out
what's going to happen next. I think that depends
on what money is. If presently existing money is
mostly created by belief, it can disappear, leading
to very rapid deflation (for example). This sort
of outcome would be much less likely if most
money had a physical form.
A message or two back I said something about
how, if people started distrusting the value of
stocks or real estate, they might move their
money into commodities, leading to sharp
rises in commodity prices that had little to do
with supply and demand for the actual
commodity. But if money is just made up it
doesn't necessarily have to move from one
place to another -- instead, it may wink in and
out of existence, like virtual particles in
Quantum Mechanics. In that case a different
arithmetic is required -- a much trickier sort
of arithmetic than subtracting x here and
adding it there, I would think.