I was recently sent an email that contained a comment which someone wished for me to analyze. I normally don’t have the time for something of this length, but I thought I would take a little time to respond to most of this comment. It is the common view of an educated fool, to say the least. This analysis will not be exhaustive, as something of that nature could take volumes to fully untangle. The responses I will post will be off the cuff and somewhat basic. The commenter is lacking severely in those basics, and that always causes problems later down the road. Of course, there is ideological difference to be accounted for, but I am mainly interested in refuting falsity than worldview (unless the two are one-and-the-same for the person). I think that is enough of an intro. Without further ado, here is one of the most confused comments I have ever read, and some light and offhand remarks about it…
DEBT VERSIS DEFICIT
Today we see Americans bombarded on TV with concerns over the US Debt. We are told Debt this and Debt that; and trying to scare the daylights out of us. Yet we go back to PRIOR TO World War II, the United States was in a depression and the US Government was borrowing money from the Federal Reserve for years in order to operate the Federal Government and pay for services for the American people. Then WW II hit.
The debt incurred to win World War II drove the debt to where Taxpayers were on the hook for a debt that was significantly bigger, as a percentage of G.D.P., than the debt is today. (Reference: Paul Krugman, Economic Noble Prize Winner).
First, Paul Krugman. When someone cites to Krugman on an issue that is not international trade cycle, you can be sure they are citing a useful idiot. Krugman has a very limited and basic grasp of sound economics, and is the flag-bearer for Neo-Keynesian thought. Where he has been right has been dumb luck, and more often than not, you can tell that he fails time and time to understand the three first pillars of sound economics: scarcity, supply & demand, and opportunity cost. But let me be clear, I am not attacking the man. He is very intelligent (and does better mental gymnastics than anyone I have ever seen), but he is almost always wrong when talking macroeconomics. This is one such case. Murray Rothbard’s America’s Great Depression touches on the topic mentioned here, and Robert Higgs has almost single-handedly altered how economists view the economic post-WWII era. To understand more about that period of time in economics, head over to The Independent Institute to read more in-depth literature about the occasion. The lesson to be taken from Higgs’ work is twofold: the Federal Reserve was the cause of the Great Depression (remember it was founded in 1913 and began to print money immediately), and World War II vastly altered the structure of production to make GDP, spending, and employment numbers look as if our economy was flourishing. In reality, there were serious price controls, periods of serious inflation at some times and rapid deflation in others, and many other dangerous economic factors that cannot be simply overlooked for the fact that we survived them…
Here are some graphs showing debt and debt-to-GDP, to show that he is partially correct:
So when did the US Government pay back all that debt to the Federal Reserve? I am 57 years old and I don’t know anybody that was taxed to pay that debt back to the Federal Reserve. Fact is, it was never paid back and was not NEVER needed to be paid back. First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.
Unfortunately, the assertion that the debt was not paid back in any amount is not true. We do have to pay our debts as a country, generally, and when we have a surplus, it is used to pay down the debt. There is one thing here that this commenter overlooks about today’s situation though. We do print or tax at least enough to cover the interest payment on our debts. He is right in one respect – we do not pay down the principle, at least not very often, with money collected by taxes. Instead, we often print the difference, thanks to the Fed. It is very important that we be able to at least cover the interest on our debt, because then there is at least the possibility (illusory as reality might make it) that we can pay the principle. As soon as you cannot pay the interest on your debts, you cannot grow your way out of the problem. If you cannot pay any principle, you must default or come up with the money somehow. If you default, no borrowers will ever want to buy debt from you again, because they know that you do not pay that which you have promised you would. Who would want to buy U.S. Treasury bills if they don’t mean that the government is obliged to pay you the amount that you paid for them? So we could default if we can’t pay the interest on our debts. Or, we could have the Federal Reserve print the money, and pay the bills, which would result in massive inflation. If we choose this path (which I think is more likely, because politicians are much more likely to pretend as if everything is fine and we can pay anyone rather than saying “okay we gave out too much money and have to re-neg on our promises”), everyone left holding American dollars will be in deep trouble, because we will have hyperinflation. Hyperinflation is a circumstance where the value of money plummets so fast that living stably is impossible. It is going on in Zimbabwe at this moment and has been for the past 15 or so years, and the country is destitute for the fact:
Hyperinflation or default has happened many times in history, and every instance of fiat currency has failed sooner or later in this manner. We are nearly at this point. Some economists think it is too late. The problem here, is that we will not cut spending, even though our entire tax revenues are approaching the point at which we cannot pay the interest on our debts, and will be there by 2032 at the latest. Ah, but that is not the worst of it. We owe around $15 trillion today to various debtors, which include people who have bought government bonds, Social Security retirees, Medicaid beneficiaries, government workers’ pensions, etc. That number does not include unfunded debt obligations (promises that the government has made but not yet paid out). When those are included, the number jumps to over $160 trillion, or over 2 world economies – and that is within the next 80 or so years. Do you believe that the U.S. economy can grow twice as large as two world economies in 80 years even though the world’s economy has taken hundreds of years to reach the point it is at today? Do you believe that the tax revenues (which are generally only around 15-20% of an economy) can grow that large that soon? It appears here that the commenter has missed a very very large factor, and an error that will catch him completely off guard if the system collapses before he dies. Don’t forget how many countries hold bonds, dollars, or treasury bills. This crisis is to happen within my lifetime, and is not limited to the United States. It will be worldwide, and debt will be the cause.
World War II was different in several respects, though, as the commenter seems to have a clue about. First of all, it is the victors who divide the spoils. We happened to be the greatest victor, ushering in the nuclear age. As a result, most of our debt was forgiven outright. Second, as the richest nation on earth, we pushed a system called the Bretton-Woods system which meant that the demand for U.S. dollars would not falter, and our debts would always be secured by the demand for U.S. currency. The Bretton-Woods system, by which a country could trade U.S. dollars for gold, was ended in 1971, and the demand for U.S. dollars has declined since. Even so, the U.S. dollar is still the world’s reserve currency, meaning that ay time a country wants to buy oil, they do it in U.S. dollars, the standard for international transactions of the type. This was protected after 1971 only by the U.S.’s might as an economic powerhouse. Before that time, people knew they could get gold for dollars, so dollars were worth having. That kept the demand up. Now that Bretton-Woods is over and our economy is in decline, demand for U.S. dollars has shot through the floor. The only thing holding it together is consumer confidence, pretending everything is as normal, and printing money as has never been done before, int he history of the world. When the crash comes, it won’t be like the fireworks of Zimbabwe, Argentina, or even the Weimar Republic. It will be more like a nuclear blast that floors all economies worldwide.
On a side about the reserve currency, which is still 60% the U.S. dollar, as explained above, it might be ended by the IMF and World Bank soon. Several countries have already been “caught” trading in gold, silver, rupees, Euros, and other currencies. Some of the wiser watchers of international events believe that the decline of the petrodollar (U.S. dollar as reserve currency) is the reason behind the Wars in Iraq, Libya, and Iran – the reasons given were just pretense. It was not exactly about oil, but something far more dangerous to U.S. interests if it is lost – the petrodollar status. But I digress…
For the most dismal of thoughts on the future of our economy, see here.
Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves. (Reference: Paul Krugman, Economic Noble Prize Winner).
Nobody gets this point because it is completely false, and where it is true, it is completely immoral. The government must pay its debts, just as a family must. But saying that it “owes the money to itself” is ridiculous. So does a family…
There is a better point to be made here: Greece. The U.S. very much resembles what Greece was several years ago. Now, Greek citizens are under austerity, which as it becomes more severe, will mean that the people paying taxes of today will be paying for programs of yesterday – except they won’t receive any of the benefits that are supposed to be provided by the government taxes. In other words, when we put of our debts to tomorrow, the people paying for them tomorrow will get less and less benefit out of the money that they have to pay in taxes. Instead there will come a point, if spending increases, whereby the next generation is completely financing the previous generation’s governmental benefits, with no gain and mere stasis of the status quo. I find this way of financing the bad decisions of today to be appalling, and one can easily see why riots and civil unrest are becoming typical in the streets of Athens. It will come here, if our system continues. It is just a matter of when.
As a philosophical point of note, we don’t own anything to ourselves, any more than when we execute a criminal we have killed ourselves or when we put a man in jail we have imprisoned ourselves. The sentence does not hold water, it is just one of those catchy political vapid statist defenses of stealing from some to give to others.
We know that after WW II, the depression was over, the economy was booming and unemployment was less than ever before. What happened to the US Debt? How did the economy recover and why?
See above and Robert Higgs. The GDP and employment boomed because government spending is included in GDP (so since things were being made to the tune of billions of dollars at the government’s direction, it appeared that things were just dandy). Further, employment numbers are severely limited as indicators of the economy when half of the work force is employed by the government to the purpose of killing people. For more information about why when a military force is disbanded, the economy improves, see Frederic Bastiat’s That Which Is Seen and That Which Is Not Seen, or just think: what happens when half of the people no longer are forced to pay for the salaries and living expenses of the other half?
If war is so great for an economy (yes, destroying resources is a GREAT idea), why is our economy not doing better at this point? We are in 3 to 5 right now, so what is the problem? I am not only against war because of the human casualties. Destroying resources, even if it improves unemployment numbers, is wasteful and stupid.
So, in order to Pay for WW II, the Federal Government had to roll the equivalent of Trillions of dollars out of the Federal Reserve to pay for WW II on top of the already existing US Debt that had been developing over years during the depression.
In order to finance the War, the Government began to REGULATE AND TOOK CONTROL OF CORPORATIONS, THE RAILROADS, THE AIRLINES, THE AUTOMOBILE COMPANIES, THE FINANCIAL INSTITUTIONS, THE INSURANCE COMPANIES, ETC. The US Government took over everything.
Then the US Government began directing these CORPORATIONS AND COMPANIES to build military machinery such as Tanks, Fighters, Bombers, Military Vehicles, developing a National Defense Highway System that we drive on across this country today, other roads, bridges, dams, levies, the electrical grid we have today across the country, and the foundation of the US economic infrastructure we have today. All designed, built and architected in the name of NATIONAL DEFENSE BY CONTROL AND DIRECTION OF THE FEDERAL GOVERNMENT. ALL THE JOBS CREATED WERE CREATED BY THE UNITED STATES GOVERNMENT.
Government spending is a topic I have addressed before in other places, such as here and here. The underlying theme is that government spending distorts productive and efficient producers, at the detriment of everyone. Yes, the government can do it. But is that the best way?
Another note on WWII, that reflects the idea of blowback. Hitler was blowback. If WWI did not end as Wilson wished it to, with a complete decimation of the German economy and humiliation of the people, there would never have been a Second World War.
DEFICIT DEFICT DEFICIT
So by the end of WW II the government had a surplus of money to operate the US Government and the DEFICT WAS GONE. Why? Because so many people had become employed and PAYING TAXES that there was NO MORE DEFICIT. And what about the DEBT? Well it was still there but who cared? NOBODY CARED ANYMORE ABOUT THE DEBT BECAUSE IT DID NOT MATTER. Fact is the US Government is NOT A DEBT ACQUIRER BUT A USER AND DISTRIBUTOR OF CURRENCY.
It is a FACT that in order to remove the economic impact either small or large of a Government DEBT, you have to remove it by getting more people EMPLOYED SO THERE IS A LARGER TAX BASE. As Mr. Krugman explained; when the tax base is larger than the need to operate the government (surplus), the so called debt will shrink overtime.
See the above, concerning discussions of what can and cannot be taxed away. But also, think about the nature of taxes, which are theft. “It is okay, because we can just steal from people to pay for it” is not an acceptable line of thought to the non-sociopaths among us. Why does that morality change when the state is the thief?
So what happened after WW II? The US economy was booming and of course the rest of the world wanted in on the action. We observe that the US Government was willing to finance the reconstruction of Europe, Japan, and other countries to help them rebuild their infrastructures and expand their economies. How? It was done using US Dollars right from our US Federal Reserve. Why was the United States willing to do this? Was not this also a kind of debt to the United States Government since we were using our US Currency? Oh and by the way, where is the proof these countries ever paid any of that money back to our US Federal Reserve?
This guy needs an economic history lesson. Wow.
I will add, on the topic of taxes and printing money, always think about what you cannot see. The best economists have the ability to look at the impact of a policy in whole, not just that which you can see. What you cannot see when money is printed is that the value of all dollars goes down, and we are all taxed through inflation. The Fed could print up a million dollars per person today, but it would destroy the economy overnight. It is not a costless choice to print money.
In the 1950’s the US Government saw the coming of the Computer Age. They also knew and figured out that whoever controls the Financial Information would control the world economies and thus to a large degree control the resources of the world. I can argue that the US Government cut deals and agreements with countries (secret or otherwise) that ensured that the US Dollars would be the World Currency FOREVER through the International Monetary Fund (IMF). This I believe was done and agreed to by China, Russia and everybody else. In return the US Government agreed to finance the economic development of these countries and the agreement to allow for moving US Manufacturing and Production jobs overseas to their respective countries.
The IMF is an entity that exists on the same plane as the Federal Reserve, and in cahoots with the Fed. It could not exist without the Fed, and is simply a multi-currency, diversified version of the Fed. Ergo, everything negative I have ever said about the Fed applies, except that the IMF is worse because it is an impotent puppet of U.S. interests abroad on the economic axis.
We see how the rest of the world economies shook when the trade centers were hit and our economy shook. We see in 2008 when we almost had a US economic meltdown how the rest of the world economies suffered simultaneously. I rest my case on that point.
So deregulation of corporations has allowed them freedom to expand US Manufacturing and Production of goods and services to foreign countries and of course that has meant reduced regulations, lower labor costs, and lower production and manufacturing costs.
This assertion has a strong ideological bent, but is exactly the opposite of sound economics. I would like to pay less for Nike shoes. I can’t do so if Nike only builds their shoes in the U.S., because our minimum wage is high, and regulatory burden is very expensive (a recent estimate is around $10,700 per worker) and prohibitive. Plus, outsourcing is very good for economies that are weak. The reason the U.S. economy is failing is because of regulatory burden, not in spite of it. Bastiat again has things to say about this, and his Sophisms, Volume 1 speaks almost entirely to the idea that cheaper goods from abroad hurt the economy at home. When we create laws that prohibit outsourcing, the producer will benefit. But who suffers as a result? The consumers, which is far more people than an industry’s producers, because all are forced to pay greater prices and have less money in their pocket. Any reduction in prices to the consumer helps the economy, it does not hinder the economy. Otherwise, we would outlaw the sun…
So during the days of WW II, we were mostly a domestic economy and the US Government really didn’t care about what other countries thought or how corporations felt about us rolling money out of the Federal Reserve to finance the war or fix our economic problems. There was only one big economy back then and it was USA.
Today, we have successfully financed off the back of our Federal Reserve the expansion of many of the economies of the world and the US tax payer has helped this happen. Americans have lost millions of jobs to foreign countries and foreigners over the years since WW II and now Corporations can not only develop, produce and manufacture goods and services for less in these foreign countries, but they can now in turn SELL THEIR PRODUCTS RIGHT THERE IN THESE COUNTRIES. There is no incentives for Corporations to bring these jobs back to the United States and most Republican Law Makers and many Democratic Law Makers are so bought off by Corporations, they have no political or moral will to change things. As a matter of Fact they want to sell to the American people the brainwashing idea that we need to deregulate Corporations further and tell us that is the answer to creation of more jobs here in the USA. They also want to sell us the idea that we should not tax US Corporations because if we do, that will also cause them not to hire and give them more incentive to send more jobs overseas.
CORPORATIONS AND THE GOVERNMENT
We hear the words, Democracy, Free Trade, Free Market, Capitalism and Republicans want us to believe that those principles are consistent with Government Corporation Deregulation Policies and lower Corporate Tax Policies. First of all; take any Corporation and what kind of “Government” is a Corporate Entity? IT IS A COMMUNISTIC ORGANIZATION OR GOVERNMENT IN AND OF ITSELF. Let’s see what is the purpose of a Corporation? It is to SERVE A BOARD OF DIRECTORS AND MAKE THEM MORE MONEY EACH YEAR. Does a Corporation care about serving and taking care of its employees? NO. If a Corporation could, it would force slave labor to make more profit. It is not meant to serve the employee but only the Board of Directors. Its sole purpose is to make a profit and as much profit as possible ANY
WAY LEGALLY POSSIBLE.
A government is an entity with a monopoly of force over a given territory. There is no such thing as a corporation that is a government, at least formally. It is true that corporations have captured the government in many respects, and all such practices should be ended. But here is another fallacy: that seeking profit means hurting people. Profit is only gained by a company doing that which its customers want. Apple makes products people love, and is rewarded for it. When it fails to do so, profits will decline. The two, profit and caring about the people that it services, are hand-in-hand for nearly every industry.
In finance and banking, the above is not necessarily true. But the only reason that those in such professions were able to profit by hurting people is because they had the power of government in their hands. No free market entity could hurt the public and get away with it if they did not have explicit protection or grant from the state.
So what is the purpose of the government? The purpose of the government is to REGULATE CORPORATIONS SO THEY CANNOT RUN OVER THE PEOPLE AND CREATE A FAIR COMPETITIVE ENVIRONMENT SO THE PRINCIPLES OF FREE TRADE, FREE MARKET, CAPITALISM AND DEMOCRACY CAN EXIST FOR THE BENEFIT OF ALL AMERICANS.
Another ideological difference. After all of the definitions and purposes of government that I have seen, the best government exists for the protection of property, and that purpose alone (remember that humans are property of themselves, and self-ownership is prerequisite to any private property ownership). Again, Bastiat speaks. The Law. Read it.
CORPORATIONS AND GOVERNMENT DEBT
Today we are not a domestic economy. Today we are a world economy thanks to the US Tax Payer and the US Federal Reserve. Corporations care about the US Debt (Money rolling out of the Federal Reserve where there is not enough tax base to cover it); because the more Debt we have; the more it costs US Corporations to trade against other currencies on the world market. So it de-values US Corporate Stock the larger the US Debt.
For me, I do not give a rats butt how our debt affects US Corporations or other World Currencies. Haven’t we done enough already for these countries and Corporations. We bail out the Financial Markets (Corporations Stocks) and leave the American people suffering. That seems to be the agenda – Save the Rich and heck with the Poor and Middle Class. We send trillions of dollars to foreign countries and ignore the poverty and suffering of the American People.
The poor in America are among the top 10% of all wealthy people in the world. It is not because of the government that they are this way. Rather, it was the companies and producers that sought ways to more efficiently produce products and provide for their customers that can be thanked for we are where we are today. The U.S. is the wealthiest country on earth because it was an environment of deregulation, low taxes, and social tolerance. Government was never the answer to our success, except in the minds of modern leftists who have no perspective of international governmental history.
CORPORATIONS AND LAWMAKERS
Let’s face it. They are BOUGHT BY CORPORATIONS TO SELL US THIS BULL CRAP. Why DOESN’T US GOVERNMENT DO WHAT IT NEEDS TO DO AND ROLL ENOUGH MONEY (TRILLIONS) OUT OF THE FEDERAL RESERVE TO HELP US, THE AMERICAN PEOPLE AND GET THE ECONOMY BOOMING AGAIN? Why not give every American a million dollars? Why not? We give millions to other countries and the rich? Who is the biggest welfare recipient? It sure as hell is not the American People. Let me assure you of that.
Because it would destroy the economy, good sir. See above. And I agree about corporate welfare. The left and right are atrocious on the matter…
WHY IS IT SO HARD TO FIX OUR ECONOMY? There is no incentive for lawmakers making millions a year off booming corporations stock. Corporations have bought enough lawmakers that they can influence law and US Policy. For corporations it would be better for Americans to be getting $2.00 an hour with no insurance, no benefits, etc. They would love to turn us into a third world country on the level of Mexico.
Hyperbole 101. Corporations are made of people, and many are trying to make the world a better place. This type of talk is nonsense, and does not fit with economic history. Still, I find the assertion “corporations own the government and control it! therefore the government should make more laws about corporations!” to be laughable. Such obvious circular logic is almost unparallelled in modern thinking.
SO WHAT ABOUT CHINA?
You hear this non-sense we have to be worried about China backing our DEBT. China does that to a degree but not because they like us; they do it because they have to. The US Federal Reserve controls their economy and if China doesn’t play by the rules, the US could pull the plug on them. It’s like this. If we put an embargo on China exporting to our country; it would sink them as an example. Right now President Obama is working to get China to raise their damn currency rates which they and South Korea and other countries should of done years ago. But wait, why not. Because the damn Republicans and Corporations have no interest in that happening. Put the whole US Government in a bind I assure you they would quickly bring China around. Other countries raising their currency rates would cost corporations more money and higher labor rates in those countries. So from a Corporate perspective they will lobby forever to keep that from happening. Thus you see the difficulty Obama is having getting that done.
Not much to say here. China could destroy us easily, and would not hesitate to do so, even at the expense of their own. They seem to know, however, that we will destroy ourselves, and India and China have been seeking hard currency for large trades and reserves for a long time now…
IMF and CHINESE CURRENCY
Let me say this. If the US Dollar was to be replaced by the Chinese Currency, you would see WW III. China exists today as a world power strictly because the United States financed the expansion of their economy using money from our Federal Reserve. The US Government is not going to let them take control of the IMF; NOT EVER.
Whatever you say, man!
SO WHAT IS MONEY IN RELATION TO RESOURCES?
Whoever has the most power to control the resources of the world or the power to take control of those resources if needed; controls the bartering power of the world and thus ultimately has power to dictate economic growth in the world.
I can argue that with all the environmental protection laws on the books in the USA and the difficulty to tap into our own reserves; this indicates that it is believed by the US Government to be in our country’s best interest to use other countries resources first instead of our own and to try and control their resources as much as possible. Thus we see the military machine of the USA 10 times larger than any other military in the world with the largest Naval presence. I believe that it was decided and probably secret policy that the US Government would preserve our own resources at all cost and use and manipulate other countries resources at our advantage. Thus we see the use of Saudi Arabia and other country’s oil and our dependency on that oil today.
The issue today is dependency. We now trade security for oil in that we pay for the oil and provide money to assist other countries to build up not only their economies but also their military power. So with security threats such as nuclear proliferation to other third world countries we have now cut our noses off to spite our face.
It is becoming more popular now to rid our dependency on foreign oil in exchange for using our own natural resources to reduce security threats to our country.
From a currency perspective and value of money perspective you can argue that the value of your currency is directly related to a country’s ability to use another country’s resources or take those resources through military means if there is no cooperation between the 2 countries for mutual interest.
So for one, the US has the largest most powerful military in the world which provides leverage against other countries and bargaining for trade advantage throughout the world. Forget the Economic Ratings by Financial Institutions. They don’t mean anything to Governments. Resource Control is what matters to a government because whoever has resources has the ability to CREATE GOODS AND SERVICES AND CAN ESTABLISH ANY CURRENCY THAT DESIRE AND THEY BARGIN TO MARKET THOSE RESOURCES AND PRODUCTS AT THEIR WILL.
Sure if you want to believe that Corporations matter in the long run and believe in the status quo of how we do business with other countries with normalized relationships; then you can accept the Republican agenda and Corporate power and Corporate Government influence.
Republicans are hacks, I agree. But no one is economically more destructive or willing to hit their knees and bow to corporations than Democrats.
These are GRAVE TIMES FOR AMERICANS. We need to listen to the 99 and not the 1. The 99 movement is right on target to demonstrate on the steps of corporations because they understand where the problems are originating from.
We have had a US Government for too long allowing monopolies such as Fannie Mae and Freddie Mac too much financial control, insurance companies with too much power and control, oil companies with too much power and control and we see Republicans wanting to continue this non-sense.
Fannie and Freddie are nearly essential to a leftist worldview. This guy seems to be very confused to be denouncing Repubs and Freddie/Fannie in the same paragraph…
SIZE OF GOVERNMENT
Here again we see this non-sense Republican GOP Law Makers telling the American people our government is too large and we need to reduce its size. Size of the Government has nothing to do with what has been going on for 50 years. How easy it is to blame the size of the government and try scare the American people with that. Reality is we are a big country with the largest economy in the world and we have to have a growing government size to REGULATE THE GROWING OF MORE AND MORE CORPORATIONS AND COUNTRIES AND THE SERVICES, RESOURCES, ETC NEEDED TO KEEP OUR COUNTRY STABILIZED AND PROSPERING.
REDUCTION IN SIZE OF GOVERNMENT
What does that do? It creates higher unemployment, puts more people on welfare and unemployment benefits and thus creates a larger deficit. The Republican GOP will say it reduces the US Debt. That is a lie. IT DOES NOT REDUCE THE US DEBT AND BESIDES THAT THE US GOVERNMENT DOES NOT HAVE DEBT AS WE HAVE ESTABLISHED ABOVE. What it does is help create more unemployment and put more of a percentage of Americans in poverty and reduce the middle class thus increasing Corporate power over the American people. It helps to turn us into a third world country. Selling this brainwashing bull crap to the American people is diabolical and its simply providing more corporate power to US Corporations.
The idea of borrowing money is truly not in the best interest of a family or home owner. But if you’re the US government and you control all the resources in the country and half the resources of the world or potential to take control of 90% of the resources of the world, does that really mean you have debt? NO absolutely NOT.
WHAT IS THE POTENTIAL OF THE UNITED STATES.
We have hardly tapped into our natural resources. I rest my case here.
Nobody Understands Debt By PAUL KRUGMAN
Paul Krugman: Mr. Krugman received his B.A. from Yale University in 1974 and his Ph.D. from MIT in 1977. He has taught at Yale, MIT and Stanford. At MIT he became the Ford International Professor of Economics.
Mr. Krugman is the author or editor of 20 books and more than 200 papers in professional journals and edited volumes. His professional reputation rests largely on work in international trade and finance; he is one of the founders of the “new trade theory,” a major rethinking of the theory of international trade. In recognition of that work, in 1991 the American Economic Association awarded him its John Bates Clark medal, a prize given every two years to “that economist under forty who is adjudged to have made a significant contribution to economic knowledge.” Mr. Krugman’s current academic research is focused on economic and currency crises.
At the same time, Mr. Krugman has written extensively for a broader public audience. Some of his recent articles on economic issues, originally published in Foreign Affairs, Harvard Business Review, Scientific American and other journals, are reprinted in Pop Internationalism and The Accidental Theorist.
On October 13, 2008, it was announced that Mr. Krugman would receive the Nobel Prize in Economics.
when people in D.C. talk about deficits and debt, by and large they have no idea what they’re talking about — and the people who talk the most understand the least.
First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.
Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.
This was clearly true of the debt incurred to win World War II. Taxpayers were on the hook for a debt that was significantly bigger, as a percentage of G.D.P., than debt today; but that debt was also owned by taxpayers, such as all the people who bought savings bonds. So the debt didn’t make postwar America poorer. In particular, the debt didn’t prevent the postwar generation from experiencing the biggest rise in incomes and living standards in our nation’s history.
But isn’t this time different? Not as much as you think.
It’s true that foreigners now hold large claims on the United States, including a fair amount of government debt. But every dollar’s worth of foreign claims on America is matched by 89 cents’ worth of U.S. claims on foreigners. And because foreigners tend to put their U.S. investments into safe, low-yield assets, America actually earns more from its assets abroad than it pays to foreign investors. If your image is of a nation that’s already deep in hock to the Chinese, you’ve been misinformed. Nor are we heading rapidly in that direction.
Now, the fact that federal debt isn’t at all like a mortgage on America’s future doesn’t mean that the debt is harmless. Taxes must be levied to pay the interest, and you don’t have to be a right-wing ideologue to concede that taxes impose some cost on the economy, if nothing else by causing a diversion of resources away from productive activities into tax avoidance and evasion. But these costs are a lot less dramatic than the analogy with an over-indebted family might suggest.
And that’s why nations with stable, responsible governments — that is, governments that are willing to impose modestly higher taxes when the situation warrants it — have historically been able to live with much higher levels of debt than today’s conventional wisdom would lead you to believe. Britain, in particular, has had debt exceeding 100 percent of G.D.P. for 81 of the last 170 years. When Keynes was writing about the need to spend your way out of a depression, Britain was deeper in debt than any advanced nation today, with the exception of Japan.
Of course, America, with its rabidly anti-tax conservative movement, may not have a government that is responsible in this sense. But in that case the fault lies not in our debt, but in ourselves.
So yes, debt matters. But right now, other things matter more. We need more, not less, government spending to get us out of our unemployment trap. And the wrongheaded, ill-informed obsession with debt is standing in the way.
I don’t know what else to respond to here that isn’t nonsense or simply political hackery. For now, I think that is enough…
I would add – there is nothing here that I have not previously addressed on SNV. If you ever have a question about something, search the blog. If it is not here, it is surely in the Meet Me Halfway tab. Thanks!