Re: Debtor Nation, another view



On Wed, 12 Oct 2005, William F Hummel wrote:

On Wed, 12 Oct 2005 16:45:18 GMT, royls@xxxxxxxxx wrote:

On Wed, 12 Oct 2005 07:05:30 GMT, Mason A. Clark
<masoncERASETHIS@xxxxxxxxxxxxx> wrote:

On Tue, 11 Oct 2005 16:14:48 -0700, William F Hummel <wfhummel@xxxxxxxxxxx>
wrote:

                         Debtor Nation, Without Rhetoric
                                  By Thomas Nugent
                                       Feb 24. 2004

In the world of economic analysis, fundamental truths are sometimes
lost to rhetoric.


And this article is a good example.

For example, it is fact ? not theory ? that 
government budget deficits add exactly that amount to the savings of
financial assets that the rest of us hold.


Again, I didn't intend to post any comment, but for crying out loud *who*
is "the rest of us"?


He means the rich.

I know people who have *no* financial assets.  What
part of the "rest" are they?


They are the ones who will be compelled to pay the taxes that will be
paid to the rich, and to the banks and other financial institutions
the rich own, who together own the additional "private sector
financial assets" that government borrowing creates for them.

Things like this I regard as either ignorance or rhetorical tricks and stop
my reading.


Yes, it's deceitful to claim that government debt creates more private
sector financial assets, and try to obscure the fact that those assets
are nothing but a liability to future taxpayers.  Of course, the whole
idea is that those who own the assets are not the ones who will be
paying the taxes that give those assets value.


Ho hum, we've been here before.

A dollar bill is a financial asset for the holder.  It is also a
liability of the Fed (government debt).


Only if the government spends dollar bills that it does not have.

It is obviously not a
liability of future tax payers.

Oh, so you think liabilities of the Fed/govt can increase indefinitely and not hurt us or future generations?

A treasury bond is a financial asset for the holder.  It is also a
liability of the Treasury (government debt).  It may be less obvious
to some that a treasury bond is not a liability of future tax payers.

You failed to factor in that interest/discounts are paid on treasury securities and that is paid out to holders and that has to come from tax payers and/or debt servicing.

It can be rolled over indefinitely without affecting the tax bill.
That means it is the financial equivalent of a bond with no maturity.

All treasury securities have maturity periods. Yes, you can roll them over, but not without paying that interest/discount.

A bond that never matures obviously does not have to be redeemed by
future tax payers.

But that increses the size of the debt, and the debt servicing. Do you think debt service, as a fraction of, say, GNP, can increase indefinitely without hurting the economy?

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