Deficit spending

Discussion in 'Budget & Taxes' started by pjohns, Feb 14, 2017.

  1. pjohns

    pjohns Well-Known Member

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    Precisely!

    This seems to me to be nothing more than an accounting trick.

    In fact, it seems very close to the belief that someone who borrows on his credit card, rather than paying it off in full each month, never has to pay it off. (For awhile, that may seem like a terrific strategy; but eventually, this house of cards will simply collapse upon itself.)

    Do you seriously believe that Paul Ryan (or any other Speaker of the House) would actually authorize 50 trillion dollars worth of budget items?

    That seems like one of those things that seems scary in pure theory--but is not really applicable in the real world.
     
  2. pjohns

    pjohns Well-Known Member

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    I would certainly hope that this is not the case.

    I divide all personal debt into two categories: mortgage debt (since most Americans simply cannot pay cash for a house), and consumer debt (which I assiduously avoid; and would advise all others to do so, as well--with the possible exception of an automobile, which many people cannot pay cash for--especially if it is new.)

    Do you believe, perhaps, that this would be harmful to our economy, if (somehow) most Americans were to follow this advice?
     
  3. Deckel

    Deckel Well-Known Member Past Donor

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    More than just an accounting trip. With the declining purchasing power of a dollar, paying back a major expense today in future dollars costs us less for what we get today. It is how we monetize our debt.




    You do realize that our unstated debt is somewhere around $130T don't you? It happens quite often. It happens every time we have some open ended benefit like welfare, social security, medicare, etc.

    As was indicated above, it happens. That it seems more theoretical to you is simply because you have been tricked.
     
  4. pjohns

    pjohns Well-Known Member

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    Well, you are sorta-kinda correct, I think.

    It is certainly true that there is an ever-declining purchasing power for the dollar.

    But that is a fallacy known as the petitio principii fallacy (or question begging; or arguing in a circle): If not for the national debt, we would have no declining purchasing power for the dollar.

    Why not just try living within our national means, for a change?

    It is really not "unstated" debt; rather, it is both present and future debt.
     
  5. Deckel

    Deckel Well-Known Member Past Donor

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    History doesn't suggest that is true at all. The only time we have seen significant gains in the purchasing power of the dollar over mere blips was the period between the Great Depression and WWII when everybody was fairly well broke.


    In part because the people who generally support that notion are not willing to tax themselves to pay for their principles. They instead insist their taxes must be cut.




    No it is unstated. The Stated debt is something like $20T.
     
  6. pjohns

    pjohns Well-Known Member

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    Who ever suggested that we should have "significant gains in the purchasing power of the dollar"?

    I was suggesting only that it would be rather nice if it were stable.

    And I would say that his is especially important for senior citizens, who exist off a fixed income.

    It is fallacious to suppose that an increase in the federal tax rate automatically translates into increased revenue for the federal government.

    There is somewhere a "sweet spot" in that regard. (Please do not ask me precisely where that is; I am not quite sure.)

    Tax the people at too low of a rate, and that will translate into diminished revenue to the federal government.

    But tax the people at too high of a rate, and that will result in decreased economic activity; therefore, also to diminished revenue to the federal government.

    This "tated" debt--of roughly 20 trillion dollars--is certainly correct for the moment.

    A higher number--much higher, in fact--includes future obligations.
     
  7. OldManOnFire

    OldManOnFire Well-Known Member

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    Just curious on your Visa card...do you not have any limits on the service of that card? So if you have a $10K balance you might be paying $225/month payments but when you boost the balance to $50K your monthly payment, or debt service, will GREATLY increase.

    Have you bothered to research the debt service on the current US debt and how much this will increase as you add more and more debt? I'm guessing current debt service is $350 BILLION per year! Can you begin to imagine how helpful it would be to spend that $350 BILLION in infrastructure instead of interest payments? How about when you're spending $700 BILLION per year in interest...still no problem for you...
     
  8. pjohns

    pjohns Well-Known Member

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    I think the limit on my Visa is $15,000; but I am not really sure, as I almost always use my Discover Card. (For the record, its spending limit is $20,000.)

    In any case, I have my Discover Card set up for automatic debit of the full amount; so I do not pay any interest. Even more importantly, I have no debt that just snowballs on top of itself. (Technically, it could probably be classified as short-term debt; but I view it no differently than I view, say, my monthly electric bill, or my monthly water bill.)

    It would be enormously useful to spend that money elsewhere--I simply do not believe in debt, for either a country or an individual (the single exception being mortgage debt, since not many people can afford to pay cash for a house; and the tax code treats it differently than consumer debt, anyway).

    I am not sure, however, that I would spend it on "infrastructure." Most of this is either a state or a local responsibility...
     
  9. wgabrie

    wgabrie Well-Known Member Donor

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    If you can debit your credit card in full why not just use the debit card in the first place? They can be run like credit cards now.

    If the government pays the budget down so that it's balanced why would they issue treasury bonds?
     
  10. OldManOnFire

    OldManOnFire Well-Known Member

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    I wasn't asking about your personal credit situation? I was asking if you think there is no problem allowing the service on debt to continually increase? When the nation is spending $350 BILLION per year in credit interest and the total budget is $4 trillion, we're spending about 8.8% of the budget on interest payments. As we allow debt to increase the percentage will increase depending on the rate of increase of general spending. Trump wants to slash government while at the same time we (*)(*)(*)(*) away $350 billion every year in interest payments...
     
  11. wgabrie

    wgabrie Well-Known Member Donor

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    Trump wants to cut the government spending? Not so fast.

    It turns out that Trump thinks that improved economic growth will pay for everything without the need to cut federal programs.

    Good thinking, if it works. We just need improved economic growth and our money problems are over. Of course I don't think economic growth will rise above 1.3% and I'm always surprised when it does. So is this a bit of magical thinking on Trump's part, or does he have what it takes to prod on economic growth???

    Trump Pinning Hopes on Economic Growth to Avoid Budget Cuts
    http://www.msn.com/en-us/news/polit...onomic-growth-to-avoid-budget-cuts/ar-AAnE1pF
     
  12. OldManOnFire

    OldManOnFire Well-Known Member

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    Trump is also talking about no estate taxes, lowering capital gains taxes, lowering corporate taxes, and lowering taxes on the middle class, plus spending an additional $54 billion on the military, $1 trillion on infrastructure, and not touching SS, Medicare, SSI, and Medicaid. Plus we've had $500+ billion deficits for years now so will this continue or does he also promise to balance the budget? As he has promised to eliminate the national debt in what 8-9 years? Just talking about eliminating the $19 TRILLION in debt in let's say 10 years, and I hate letting math get in the way, but this means Trump must stop $500 billion deficit spending to balance the budget and have an additional $1.9 TRILLION every year to pay down debt...or he needs about $2.4 TRILLION in new taxation...this will take a Herculean effort!

    I wonder how all of these new tax rules will effect Trump Corporation?
     
  13. pjohns

    pjohns Well-Known Member

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    To address the latter part first: If we had not transmuted our country into a welfare state (beginning with FDR), we could balance our budget--even with a restoration of military spending.

    As to the first part of your post, I do not believe in paying interest--either for an individual or for a nation.

    To do so is to attempt to live beyond one's means--which may seem like a really terrific idea for a little while; but it will eventually collapse upon itself.
     
  14. OldManOnFire

    OldManOnFire Well-Known Member

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    First, 'if' is meaningless so why go there? Balls said the queen...IF I had them I'd be king! Ain't going to happen!

    You will need to do an impossible analysis of the economic position the USA would be in today if your government did not provide various welfare assistance? Let's start with 30 million or more of the 62 million currently receiving SS payments would be in the streets! Millions more will be dying due to a lack of healthcare from Medicare and Medicaid. You can go on and on with this and I suggest the USA would be in a state of disaster without appropriate government assistance.

    I'm 100% against debt as well especially since today's deficit spending is not rooted in any form of national emergency. Deficit spending has become standard operating procedure...SOP. Spineless politicians and presidents know if they add to deficit spending and debt almost no one cares but if they try to cut spending they will be voted out of office!
     
  15. pjohns

    pjohns Well-Known Member

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    No, it surely is not going to happen.

    I am merely pointing out that there is no inherent reason why our country cannot balance the budget, even while increasing military spending.

    Well, I receive Social Security.

    But I do not look upon it as welfare, as I paid throughout my working lifetime for it; taxes were taken out of my check--and I was never asked if I wanted this.

    The same is true of Medicare (except that I do not choose to receive this--other than Part B, which is for hospitalization only).

    And I do not support the existence of Medicaid. (It is not paid for through taxes dedicated to it.)

    Note: As concerning Social Security, I would truly be fine with the abolition of it.

    But this could not be accomplished overnight: Some people have paid into this system for years; and it would simply be unconscionable, in my opinion, to cut them off, and simply shrug our shoulders, as they lose all that money that they have already contributed to the system.

    Any abolition of the system would probably need to have two tracks, viz.:

    (1) Do not take out any Social Security taxes for any future employees.

    (2) Give all current employees the choice of either forfeiting all that they have already paid into the system (and never receiving Social Security), or continuing to pay FICA taxes, while eventually receiving Social Security benefits.

    Agreed.

    Fully.
     
  16. OldManOnFire

    OldManOnFire Well-Known Member

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    There are lots of solid reasons why we can't balance the budget overnight...like a hit to the economy and loss of jobs.

    I also don't generally consider SS to be welfare but millions of Americans receive SS or SSI who did not pay into the system.
     
  17. AlNewman

    AlNewman Well-Known Member

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    I would suggest you research how the federal reserve system work especially that little thing called the "Mandrake Mechanism". All currency in this country outside coins, which are now utterly useless, are created as debt instruments, an IOU from the fed to pay you with another IOU as there is nothing else.

    Buying a house with debt, a mortgage, means a person will spend more than $300,000 for a $100,000 home. Much wiser to save your money and buy land. Then build your own house as means allow. In the long run you get more for less.

    Consumer debt, the bane of a society built on instant gratification. Buying junk on credit that will probably be in the trash bin long before the payments run out, a sign of the idiots that make up this country today. But that point aside, if one does not borrow, there is no currency remaining. Not money, currency because they are not the same.
     
  18. pjohns

    pjohns Well-Known Member

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    Do you mean this? http://debt-elimination.net/mandrake-mmechanism-explained

    And just how is it relevant to this discussion, exactly?

    Well, it could.

    But I would suggest, instead, one's getting an amortization schedule, and making an extra payment of principal only each month. (This is especially helpful at the beginning, as the monthly mortgage payment is mostly interest. In fact, a payment of just a dollar or two--clearly marked, "principal only"--may kill an entire month's payment.)

    This should be treated just as one would treat a normal bill--as something that one must pay each month. And that, admittedly, requires some discipline.

    Agreed.

    Well, except for the part of describing Americans in general as "idiots." (I would far rather teach them than to ridicule them.)

    What is the difference, in your opinion?
     
  19. AlNewman

    AlNewman Well-Known Member

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    Depends, did you watch the videos? I take not, so no that is but a misquoted paraphrase of the author's, G. Edward Griffin, explanation of how fractional reserve banking works. If you were to actually research the term, you would maybe discover how the whole system is based on debt, not value.

    Relevance, is not the title of the thread "Deficit Spending"?

    Could, let's see, as I sit here with my HP12C financial calculator using $100,000 as Present Value, 4.5% Annual Interest Rate, and 30 year amortization, it gives me a payment of $506.69 Principle and Interest per month with a life time payback of $182,406.71. Now if that is increased to a 6% interest the payment jumps to $599.55 or $215,838.19 over the life of the loan. And this only includes the cost of credit and not all those little additions like down payments and mortgage insurance which could easily put the total cost past the times 3 multiplier.

    And while your solution is most commendable, just how many that would live in that $100,000 home could actually afford it? The same would be true for many, all that would change is the base numbers. Most in buying a home go for the maximum they can qualify for and strain to make the payments for a significant part of the front end of the loan.

    The majority of the whole of the world population are ignorant and beyond being taught anything. That is why that are so easily duped into the total indoctrination system of what passes in today's world as "education". I don't ridicule them, I just refuse to compromise my principles for the idiocy of others. A pig is still a pig even when wearing lipstick.

    Opinion, it's not opinion but fact. The definition of "money" has been long lost even to such a degree that most are but debt slaves. Currency, all one need do is to look at the face of a dollar bill, that Federal Reserve Note. Look up the definition of "Note". For the real meaning in this context, let's use the legal definition:


    When you discover the meaning of money, then the difference will become illuminated like a neon light.
     
    Last edited: Mar 8, 2017
  20. pjohns

    pjohns Well-Known Member

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    (1) It is a bit odd that you would mention a "100,000" home, as that is exactly what my wife and I paid for our condominium in the mid-1980s.

    And I see no reason to suppose that others are disinclined to live reasonably, also.

    (2) I cannot think of a single conspiracy theory--not even one--with which I agree. (Yet your whole argument seems to be steeped in one giant conspiracy theory.)
     
  21. AlNewman

    AlNewman Well-Known Member

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    Nothing at all odd about $100,000, it's a nice round number that will still buy a starter home in many places. In 1982, I bought a home for $103,000 in South Florida. In 2008 it sold for $750,000 but that is not what we are talking about, is it?

    No, we are talking about deficit spending, aren't we? Are we not talking about a world where the millennials, both mom and dad work to pay the mortgage on that $100,000 house and at the end of the month, eat a lot of noodles or on a good month spaghetti. Or perhaps mom and dad both have degrees and real jobs can buy that $150,000 home but still may have to eat noodles after paying on those college loans. Unless you are broke at a high level of lifestyle, what difference does it make? Both are just trying to survive the next down cycle with no reserves. Many will lose all and have to start again. Conspiracy theory, I would suggest you learn to read history, it's all part of the boom/bust cycle of deficit spending.

    I have no doubt at all about you cannot think as all progress is made by first a theory that discovers the answer. Those that accept all in blind faith cannot contemplate progress, only progressive without effort. But to declare a theory as conspiracy is the credo of one incapable of offering any other.
     
  22. Econ4Every1

    Econ4Every1 Well-Known Member

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    Are you aware that the Congress approves the spending that will exceed the so-called debt limit and then a year later votes to pay the bills it created a year earlier? Then members Congress (the members that belong to other party) blames the Prez for "irresponsible spending", spending the Congress approved and the President is constitutionally required to spend.

    It's a silly concept and is little more than a silly game of political semantics meant to get people all fired up over nothing.

    Moving on....

    It's nothing like a "credit card". The US Government is the issuer of the currency when you spend you are the user of the currency.

    To truly understand you have to understand what deficit spending is, what the real constraint on spending is, how inflation affects spending, where the government get's the money for increased spending and the fact that when a company in the private sector creates a bond, it can create the bond for free and sells it for something it can't create, dollars. When the government creates bonds for free, it sells them for dollars, which it can also create for free.

    And before someone says it, because someone inevitably will, no, I don't think the government can create (insert $ amount here) and send free money to people. There is a constraint on the amount of money the government can create, but its limit is not dependent on the number of bonds it can sell.
     
  23. pjohns

    pjohns Well-Known Member

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    Why does this (presumably) make it any better?

    Well, there is this one similarity:

    A credit card has a debt limit.

    This country has a national debt limit.

    Why should we ignore the obvious, in favor of mental gymnastics?
     
  24. Econ4Every1

    Econ4Every1 Well-Known Member

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    I wasn't trying to assert that it makes it better or worse, I was just curious if you realized it. Most people don't, and in their defense, it's because as a culture we don't value learning and even more importantly, understanding of macroeconomics.

    Now, you didn't claim to know or not know what I stated and with all due respect, I'm going to guess there are a few other things that might surprise you with respect to the US financial system.



    Rather than tell you you're wrong I'm hoping you will engage me in a little conversation and let's see if we can clear this up.....Now, it's not necessarily that I think you're wrong, there is a "debt" limit, it's just not what you think it is. Hopefully, you will play along.

    What is the debt limit of your credit card based on?

    The nation sets a debt limit for itself, what do you suppose the debt limit of a nation is based on?

    -Cheers
     

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