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For adults only: can you find a flaw in this logic?
Rules of the debate: To win the debate, you must disprove at least one of the claims made in my argument by quoting the claim(s) fully and showing the error exactly. To accept these claims and simply deny the logical conclusion is to be a child declaring victory after losing the game. Adults only!
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Q1: For taxpayers, is our “national debt” really a burden? Must it really be repaid?
A1: No. For taxpayers, it lacks the qualities of a real debt. It’s a “Debt In Name Only”, a “DINO”-*
1. THE DINO IS NOT NOW AND NEVER WILL BE A BURDEN FOR TAXPAYERS.
It is not the taxpayers but rather the buyers of newly-issued treasuries who, in a virtual bond rollover, pay for redemption of mature treasuries. In every auction, more bonds are demanded than are available. Auction winners get the safest, most liquid US dollar instruments; the losers are stuck with bank risk. If it were ever necessary, the Fed, with cost-free keystrokes, could increase the demand for treasuries by buying large quantities in the open market. Where is the “unsustainable” burden for taxpayers?
While a bank holding too many bad loans can certainly hold too many maturing CDs, our non-lending Treasury cannot hold too many maturing bonds unless its deficit spending causes harmful inflation. And that happens ONLY in a war or emergency requiring rationing. It NEVER happens during a recession. During prosperity, banks are ALWAYS the main cause of inflation, creating over $6 of credit for every $1 of deficit spending. To curb inflation, regulate the banks before stopping work on infrastructure projects!
2. THE DINO WILL NEVER BE REPAID AND SHOULD NEVER BE REPAID.
Only a budget surplus can reduce the DINO. Since Truman, no President has reduced the DINO and no annual budget surplus is now in sight. To supply enough treasuries, the ONLY risk-free securities used for trade collateral, insurance, pensions, bank reserves, etc., the DINO MUST GROW with the economy!
Every federal dollar spent and not taxed is saved by the private sector. Yes! DEFICITS = SAVINGS! The Treasury has a “national debt” and the private sector has a “national asset”! The bad “Debt Clock” is also the good “Asset Clock”. Since, with our trade deficit, we can’t import money, deficit spending is our economy’s SOLE source of savings! In fact, unless large budget deficits replace the exported cash, deflation will soon freeze our economy. Who would spend a dollar today if it would buy more tomorrow?
Our (DINO + total bank deposits) / GDP ratio is less than half of China’s comparable figure. Our M2 (money supply) / GDP ratio is half of Switzerland’s ratio and one fourth of Hong Kong’s ratio. To become and stay prosperous, we need to DOUBLE the DINO / GDP ratio to return it to the World War II level that was followed by 35 years of prosperity without harmful inflation. Ask Grandma about the good old days!
Q2: Won’t the annual debt interest expense explode the budget?
A2: Bond-holders’ taxes return about 20% of their interest income. New bond issues finance the rest. As no physical resources are consumed and the money supply does not change, there is no inflationary effect. About 80% of the interest is added to the DINO, which is good. For those reasons, CBO budget economists deal only with the “primary” budget, which excludes the annual debt interest expense. If necessary, the Fed can practically eliminate the cost of interest. During World War II, the Treasury issued debt at near-zero interest cost. Purchasers were assured that bonds would sell near face value.
Q3: Could savers make a “run” on US Treasury bonds?
A3: Only when savers can get risk-free returns from the Wall Street casino or from GM bonds, Illinois bonds, or Detroit bonds. Safety is not everything. Safety is the ONLY thing! That’s why the whole world relies on US bonds.
Q4. Could savers stop buying US Treasury bonds?
A4. Only when nobody needs risk-free interest for trade collateral, insurance, pensions, bank reserves, etc., etc.
Q5: Could savers prefer foreign sovereign bonds?
A5: Yes, indeed! Now, almost two thirds of the world’s reserve currencies are in US dollars and about half of all US Treasury bonds are held by foreigners. But if China’s infrastructure and productivity become better than ours, its sovereign bonds could become safer than ours. But that could happen only if US voters let their DINO concerns stop the renewal of falling bridges, failing schools, leaking sewers, creaking railroads, aging power grids, etc. Money can be printed, but infrastructure has to be built with real resources over time, which has no substitute.
Q6: Won’t we need higher tax rates to pay for infrastructure?
A6: Taxation is not for spending but rather to prevent inflation and moderate inequality of wealth. Congress NEVER asks the Treasury if can pass a spending bill. Effectively, it writes a check that the Treasury NEVER bounces. To finance a deficit, the Treasury auctions new bonds created out of thin air with keystrokes, like banks make loans.
The ONLY rational reason to restrict deficit spending is the onset of harmful inflation. Until then, Congress can finance both the DINO’s annual interest payment and our much-needed infrastructure. Every day, you fill your sink with water AND you prevent it from overflowing. Why can’t Congress fill our economy with money by building infrastructure AND prevent harmful inflation? China builds 24/7 without harmful inflation. Why can’t we do that?
Q7: How much should Congress tax and spend?
A7: Ideally, Congress should tax just enough to prevent harmful inflation and should spend almost enough to cause full employment (and harmful inflation). Result: low unemployment and low inflation.
Instead, bribed by Wall Street, Congress taxes as little as possible, enriching the rich, and spends as little as possible, impoverishing the rest of us by restricting deficits / savings. Just as quacks killed George Washington by bleeding his “bad blood”, Congress is destroying our younger generations by reducing (possibly to zero!) our annual budget deficits / private sector savings increase / consumer demand. And, by bribing Congress to pass austerity budgets, the Wall Street charlatans are deliberately nursing a huge army of unemployed labor to suppress the wages and working conditions of the shrinking middle class.
Q8: How should one vote?
A8: Vote only for someone who NEVER EVER worries about the DINO and who ALWAYS worries about Americans looking for work and reluctantly drawing benefits forever instead of building infrastructure.
Unfortunately, too many voters attribute their own budget constraints to Congress’ fiat currency regime.
Q9: “I have to balance my budget. Why doesn’t Congress balance its budget?”
A9: If you could legally print money in your attic, why would you balance your budget? Congress only needs to balance full employment against harmful inflation. Why is something so simple so hard to see?
To stay ahead of China, please help me convince voters that deficit spending on infrastructure is limited ONLY by harmful inflation (nowhere in sight). Please copy and distribute this message where possible.
I am hoping to get a few adults. They are as rare as hen's teeth.
Maxwell: Read A2
Maxwell 2: If you read A2, you know interest is not a burden.
Greece does not have fiat currency. Lear the difference.
Here is a list of books you can read:
Frank N. Newman, former Deputy Secretary of the US Treasury, recipient of the Treasury’s annual “Alexander Hamilton” award, author of “Freedom from National Debt” (Two Harbors Press)
Francis X. Cavanaugh, US Treasury economist for over 30 years, author of “The Truth about the National Debt”: Five Myths and One Reality” (Harvard Business School Press)
Warren Mosler, economist, author of “Seven Deadly Frauds of Economic Policy” (Oxford U. Press)
Marc Blyth, Brown U. professor of political economics and author of “Austerity” (Oxford U. Press)
And an internet blog:
Dr. Stephanie Kelton, Chair of the UMKC Economics Department, at NewEconomicPerspectives.org
Maxwell 3: A1 and A2, A6, A9 al dealt wilth devaluation/ inflation. If you disagree with A1, A2, A6,A9 quote the sentence and explain your disagreement. Be an adult!
Claudia G: All your arguments were answered in my essay. If you find a statement in A1-A9 with which you disagree, quote the statement and give your reason for disagreeing. Be an adult!
Maxwell 4: Re A4. The reality is that people need risk-free interest for the reasons given. They cannot do without them. A5 says plainly that the only reason to worry is that China's bonds could get safer. You are not dealing with my arguments. Quote a sentence and disagree with it. Be an adult!
If China has a trade surplus, China can only choose between our bonds or our dollars or some other nation's instruments. If they sell our bonds for euros, the Europeans will hold our bonds.
Your remark about A5 is incoherent. "locally"??
Maxwell 5: You ask me why I keep coming on with the same question. It is to refine my argument after failing to get through to guys like you. Here, I modify A4 to clarify the logic. After that I deal with your remarks (in quotes). My answers come after the quotes or in brackets:
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Q4. Could savers stop buying US Treasury bonds?
A4. Savers will always want the safest, risk-free interest for trade collateral, insurance, pensions, bank reserves, etc. Now, almost two thirds of the world’s reserve currencies are in US dollars and about half of all US Treasury bonds are held by foreigners. But if China’s infrastructure and productivity become better than ours, its sovereign bonds could become safer than ours and we could then lose our bond-buyers. But that could happen only if US voters let their DINO concerns stop the renewal of falling bridges, failing schools, creaking railroads, etc. Money can be printed, but infrastructure has to be built with real resources over
time, for which there is no substitute.
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Your remarks in quotes. My answers afterwards or in brackets:
“Furthermore, your A4 presumes the buyers of the bonds are interested in making money only”
What else is there?
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“But then A5 assumes that people [Americans? Foreigners?] will still buy [bonds? goods?] locally (in the US) because they are interested in more [what else is there??] than just making money.”
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“China could quite easily collapse our bond market if they wanted too by beating our local prices.
That would collapse everything in the US....luckily at the moment they need us to buy stuff from them.
That might not always be true.”
China is already beating our local prices. That’s why they have a trade surplus. And it doesn’t collapse anything in the US. Lower prices raises our standard of living. We can handle the unemployment with a little more relief for the unemployed.
Incoherent!!
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“China uses us because we have a large consumption rate.[China sells because we buy] Other countries are growing and moving in our direction. As that happens, we become less important.....especially as our massive debt begins to move the US dollar out of being the international trade standard”.[Exactly why A4 was written].
“We don't even need a shutdown of the treasuries sales...just a slow down. As we accrue more and more debt, we need to be able to continue to sell more and more treasuries to keep up with the interest. You cannot inflate the balloon forever.”
Just look at DINO from 1940 to today and tell me cannot increase DINO forever.
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6 Answers
- Claudia G.Lv 67 years agoFavorite Answer
Let's cut to the chase:
1) The National Debt is real in so much as any bond or note (viz. I.O.U.) is real.
2) As with any debt instrument it can either be paid off or defaulted upon.
a) If it is "paid off" in inflated currency, the macro effect will remain the same for the physical dollars which would otherwise go into programs paid for out of the government budget would return to the economy through purchase or investment from those who hold the physical U.S. dollars and have no other option but to use them within our economy.
b) If it is "paid off" with inflated currency (i.e. the Federal Reserve Bank simply prints money), the net result would be inflation (possibly hyper-inflation) with the concomitant reduction in purchasing power of foreign goods and services.
3) If payments were defaulted upon, there would be a "crash" in the domestic market; for domestic holders would be deprived of their reserves which acts as collateral in order to meet their short term obligations, with the resulting liquidity problem causing a depression.
- MaxwellLv 77 years ago
"THE DINO IS NOT NOW AND NEVER WILL BE A BURDEN FOR TAXPAYERS."
Debt, in name only or not, we still need to make interest payments on the debt.
The bigger the debt, the bigger the interest payments.
The bigger the interest payments the more tax dollars we must collect to pay the interest payments and still have enough money left over to fund the govt.
The more tax dollars we must collect, the bigger BURDEN it is on tax payers.
Ergo...the DINO is in fact a burden for taxpayers.
ADD:
Okay.
I picked the very first claim, used step by step logical progression to disprove the point.
now what do I win?
ADD:
We sell bonds to fund many things. We sell bonds to fund wars when necessary.
The bonds and treasuries sold COULD be used to fund things more productive than interest payments....and then we could collect less tax money to run the govt.
But we have a large debt and must sell treasuries to pay interest instead of fund productive things.
ADD:
I'm not sure why you regularly come on here and push the idea that debt doesn't matter, never mattered, and never will matter.
I know you've been convinced, but try to tell Greece that debt doesn't matter and that it never needs to be repaid, and that it isn't a burden.
ADD:
Just claiming it isn't a burden doesn't mean it isn't a burden.
It devalues our currency. Tax payers lose their buying power in the international market.
Massive debt IS a burden. You empty claims to the contrary are not swaying anyone.
Be an adult? You've set up a reality that fits your needs and then complain when people don't conform to your reality.
Ex: A4. the answer is yes. they could stop buying them. Depending on the return rate vs the inflation rate, people could very realistically stop buying....but you've framed your reality as though it could never happen unless people are stupid, and therefore people that don't agree with you are "children".
Furthermore, your A4 presumes the buyers of the bonds are interested in making money only. But then A5 assumes that people will still buy locally because they are interested in more than just making money.
China could quite easily collapse our bond market if they wanted too by beating our local prices. That would collapse everything in the US....luckily at the moment they need us to buy stuff from them.
That might not always be true.
ADD:
Incoherent? "Locally" as in domestically...from the United States, not from a foreign nation. If you can't figure that much out from context this isn't going to go well.
And you act as though we are the only show in town.
China uses us because we have a large consumption rate. Other countries are growing and moving in our direction. As that happens, we become less important.....especially as our massive debt begins to move the US dollar out of being the international trade standard.
We don't even need a shutdown of the treasuries sales...just a slow down. As we accrue more and more debt, we need to be able to continue to sell more and more treasuries to keep up with the interest. You cannot inflate the balloon forever.
- 7 years ago
The flaw in your logic is that you ask people to disprove things you have only said. Where is your evidence for the claims you make? Give us something substantial to work with, more than just words.
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- Anonymous7 years ago
Can you please give me some more detail? Being this vague is not very helpful.
