Re: About National Debt (was For Trucker)

On 10 Aug 2005 12:08:37 -0700, "rickleeland" <rickleeland@xxxxxxxxx>
wrote:

>> 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.
>
> You assumed that analogy is used to PROVE a proposition. Bad
>assumption.

When you delete your earlier remarks, you hide the context. That is a
bad habit. I was referring to your own argument by analogy which you
edited out.

>> 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.
>
>This paragraph should be changed to: "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, which is determined at any given moment by the
>exchange rate with the currency of the nation that provides the goods
>or services." When the exchange rate is doubled against another
>currency, the value of this currency (to purchase goods and services
>from another nation) is reduced into half.

No. The statement I made is accurate. The cost of goods and services
in the US for domestic buyers is what defines the value of the
currency. That automatically takes into account foreign goods and
services, which includes the effect of exchange rates.
>
>> 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.
>
> A nation can only issue so many bonds before its currency melts
>down.

Does a "currency melt down" mean losing its domestic purchasing power?
Does it mean its forex rate drops to zero?

Show us precisely why it would happen with a specific scenario, not a
generalization.

>A government sells new bonds to cover its debt. When a currency
>has a meltdown, who will buy the new bond to pay off the debt? Though
>a government can print more money to pay off the debt (and basically give
>the useless paper/credit to the creditors), it only worsen the
>meltdown. Paying off a bond with meltdown currency is essentially the
>default of a bond. Which government wants to do that?

No problem. When the public has more currency than it wishes to hold,
its only profitable use of the excess is to buy the bonds offered in
that currency. Thus the bonds will always be in demand if there is an
excess of currency. And if there is no excess, then there will be no
reason to sell government bonds.
>
>> And then you followed it up with this proposal which falsely argues
>> that reducing the debt will increase tax money available for national
>> expense:
>
> How do you prove it is false? With all other factors being equal,
>lowering debt reduces the interest a government must pay for its debt,
>thus increase the portion of tax money available for government
>expense.

The interest paid on the debt does not in any way reduce the money
available for the government to spend. That implies a fixed amount of
government money available, like a zero sum game. If that were the
case, then someone should know what that fixed amount is. Have you
ever heard anyone attempt to specify that figure?
>
>> 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.
>
> The credibility of this sentence is very questionable. Care to site
>just one credible source that also claims "the government has
>unlimited spending power"?

It should be obvious if you just think about. If it were not true,
then there must be a limit. But no one has ever defined a limit
because for all practical purposes it doesn't exist.

.

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