Re: About National Debt (was For Trucker)

On 10 Aug 2005 00:30:59 -0700, "rickleeland" <rickleeland@xxxxxxxxx>
wrote:

>> Equating government debt to family debt is a serious mistake because
>> it leads to false conclusions. The analogy fails because government
>> debt is denominated in the very currency that it issues -- assuming it
>> has not borrowed in a foreign currency. The US has no need to borrow
>> in a foreign currency and does not do so. On the other hand,
>> households, firms, and state and local governments cannot issue their
>> own currency. They must balance their spending against tax revenues
>> on average or eventually go bust. The federal government has no such
>> constraint.
>
> EVERY analogy has sameness and difference between the example and
>the subject. The key is whether the sameness outweighs the differences.
>In this example, the sameness far outweighs the difference. Even though
>the government debt is denominated in the currency it issues, its value
>is determined by the exchanged value. The exchange rate of most
>currencies are determined by the open market. Most other currencies are
>pegged to another currency. Thus a government cannot determine the
>value of its currency. In the mean time, a government cannot issue
>currency at will to cover its debt.

Analogies can be useful in orienting one's thinking, but they should
never be used as "proof" of a proposition. And any measure of
"sameness" of an analogy is purely subjective. A proposition can only
be defended on the basis of fundamentals and logic, not by analogy.

The value of a currency is measured in terms of what a unit of that
currency will buy in a basket of goods and services, not by the
exchange rate with other currencies. The government does not
determine the value of a currency, but it can influence the value
through its control of its relative abundance. Regarding the covering
of its debt, the exchange rate has zero relevance if its debt is all
denominated in its own currency.
>
> According to http://en.wikipedia.org/wiki/U.S._government_debt:
>"Every dollar of increased U.S. public debt, and every rise in
>interest rates, and every shift in pricing of a major industrial
>commodity, decreases the cushion available, and increases the potential
>that the U.S. might default on its own bonds. This would likely mean
>that U.S. dollar savings would be worth drastically less. Far-fetched
>as this seems, it happened in Argentina when International Monetary
>Fund-required measures forced an economic austerity regime that was
>widely blamed by economists as leading to a meltdown in its
>currency."

The ignorance shown here is breathtaking. The notion that the US
might default on its own bonds is absurd. Only if the US borrowed in
a foreign currency, as Argentina did, could it possibly be in danger
of defaulting, and then only on the foreign currency portion of its
debt. But the US only borrows in the very currency that it issues,
and will never be forced to default on its debt, regardless of how
large the debt or the interest payments on the debt.
>
>Thus there IS constraint to the government in issuing its currency.
>Your assertion is wrong.

See above.
>
>> Your comments reflect the mistaken notion that the publicly held debt
>> must be paid back. Individual securities must of course be redeemed
>> as they mature, but the Treasury can roll over its debt indefinitely
>> selling new securities to pay for those being redeemed.
>
> You have a tendency to make false assumption about other's belief
>then prove it wrong. (You have committed this mistake about 5 times
>throughout our dialog, and I don't find it amusing). This is yet
>another leap of faith. I did not say that publicly held debt must be
>paid back.

True, you didn't explicitly say the debt must be paid back. But you
spent a lot of words on arguing about the ability to pay back the debt
in the following, which you clipped out of your post for some reason:

>> In other words, debt/GDP is only one method to measure the debt, it
>>does not reflect the ability to pay back the debt. At 1945, the
>>debt/GDP was 1.14 but the ability to pay back the debt is far greater
>>than 2005. The debt/GDP does not reflect this fact.
>>
>> There are several simple methods to gauge a nation's ability to pay
>>back the debt: (1) The rate of reducing the debt. After 1946, the
>>debt/GDP is slowly reduced, correctly reflecting the US dominance in
>>technology. From 2001-2005, the debt is steadily increased, correctly
>>reflecting the loss of US dominance in the world. (2) The export
>>surplus. External debt is more critical than the internal debt because
>>a nation cannot tax another nation's government, and the import deficit
>>does not always flow back while internal debt is circulating in the
>>nation to create more tax. Therefore not only we should include
>>intergovernment debt in the national debt, we should pay special
>>attention to it.

And then you followed it up with this proposal which falsely argues
that reducing the debt will increase tax money available for national
expense:

>The reason I propose a government should reduce its debt is
>simply to increase the tax money available for the national expense.
>According to http://en.wikipedia.org/wiki/U.S._government_debt, "Over
>47% of the personal income tax (but not of total tax revenue) collected
>in 2003 was spent on paying interest on the debt." How much higher can
>this ratio go? Why shouldn't a government try to manage precious tax
>money better? As to the risk part, see the quotes in the previous
>section.

I suspect the same author in wikipedia who wrote the nonsense in the
previous section about the danger of the government defaulting on its
own bonds also wrote this. The fact is that the money available to
the government for "national expense" is unrelated to the amount of
interest paid on the national debt. The government has unlimited
spending power in its own currency for the reasons I have already
explained.
.

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