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38 cents on every dollar, How?

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  • Independent
    Plymouth, WI
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    Can someone please explain to me, how can we borrow 38 cents on every dollar we spend, and still survive as some kind of a country, free from foreign rulers?

    I know no house hold or family in our country could survive borrowing 38 cents on every dollar they spend, so what is going to happen to America when we don’t pay the lenders of trillions back? There is no way in the world for America to pay this kind of money back; our deficit has only been rising.

    What has America’s rulers used for collateral to borrow these trillions we now owe, our country? If so, what happens to us the majority, when America’s financial owners want to collect their collateral, since we will never be able to pay them back? Call me a conspiracy crier again, but communist China doesn’t want America’s people, they want just our land, China has plenty of people to take our places.

    Hmmm, maybe there is some truth to the system planning major death for America’s majority, a conspiracy theory that I heard from several believers?

    I really don't know what to think of this money borrowing game we have fallen in. I know why we have to borrow this money. Number one, to pay for war, number two, to make up for the tax cuts the system gave the very rich.
  • Independent
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    Good points, united.  GREAT points.

    And how long until it's 50 cents on every dollar?

    Or 75 cents?

    And it's getting worse EVERY DAY.

    Spending HAS to be cut.

    We've added 5 trillion to the national debt in just the past three and a half years.

    We HAVE to change.
  • Independent
    Plymouth, WI
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    fenway,

    I agree, we have to change the system.  I know not one politician or even one party can do it alone, it will take the majority to make the changes we need.  We have the best constitution in the world, its time our majority uses it.
  • Liberal Democrat
    Democrat
    Colorado Springs, CO
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    CBB hasn't chimed in in a while, so let me add a perspective from one of the Modern Monetary Theorists, Bill Mitchell, in this article in the Harvard International Review: Debt, Deficits, and Modern Monetary Theory. I have posted this article before but it's worth bringing up a again.

    CBB has talked about this many times in this website, and maybe he's gotten tired of dealing with the cognitive dissonance in those of us that adhere to old monetary concepts. Since we abandoned the gold standard in 1971, we have what is called a fiat currency. As Mitchell explains, in a fiat currency system, the currency has value because all tax obligations are denominated in and have to be extinguished with that currency. We have no choice. Quoting Mitchell:

    Once you consider that, then you immediately realize that the national government is the monopoly issuer of that currency. That means that the national government in such a system can never be short of that currency; it can never run out of money. It doesn’t need you or I to lend it money or you and I to pay taxes to get more money. It can never run out of money. That’s the first basic insight of MMT: governments are not constrained in their spending by a need to raise revenue.

    If you extend that logic a little further, you might ask, “Well, don’t we pay taxes and buy bonds so that the government can spend?” Well, you first have to ask yourself the question, “Where do you get the money to pay taxes and buy bonds?” And the answer is that we can’t get our hands on the currency until the national government spends it. Spending is the prior act in a fiat monetary system; taxing and borrowing are following acts. In effect, the government is only taxing what it has already spent, and it’s only borrowing back money that it has already spent. Once you start pursuing this logic, you realize that most of the propositions that are occupying the current debate around the world are based upon false premises.


    Mitchell goes on to explain that within MMT, public debt is private wealth, and the interest payments that the government pays on that debt are private income. Our total public debt is just an accumulation of past budget deficits that have "added financial assets to the private sector, providing the demand for goods and services that have allowed us to maintain income growth."

    Without deficits, therefore income growth and our ability to save and accumulate financial assets would be much slower. Or to put it another way, the implementatiion of austerity programs like what we see today in Europe will surely lead to a double dip recession and more loss of jobs. 

    So government deficits and debt are good...it drives private wealth and private income...and creates jobs.

    Mitchell maintains that public policy on spending and deficits should be devoted to making sure that there are enough jobs, fighting poverty and supporting public health and public education systems....that people who are less well off are able to become more prosperous.

    CBB has also posted several links to MMT and is a big fan of Warren Mosler.  There is much more to digest in Mosler's articles on the Huffington Post like this one entitled: It must be impossible for the Fed to create inflation.

    I won't go into that article, but if you are worried about inflation from the Fed's policies, I suggest you read it.

  • Independent
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    "government debt and deficits are good..."

    Just ask Greece how much "good" their debt and deficits are doing for THAT country.

    And the USA is on the same path unless we change.
  • Liberal Democrat
    Democrat
    Colorado Springs, CO
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    Greece is not analogous to the USA.  Its economy is tied to the Euro. It does not control its own currency. As per the Pragmatic Capitalism website:

    "The Euro system, which is also a single currency system (like the gold standard) adds significant confusion to the current environment and is often confused as a flaw in fiat money. In reality, the Euro proves why single currency systems are inherently flawed when they do not involve truly autonomous currency issuers. The nations within the Euro are analogous to the states within the USA. In this regard, they are currency users and not currency issuers. Without floating exchange rates and/or a central treasury there is no balancing mechanism which allows this currency union to function as the USA does. The gold standard imposed similar constraints on the world and put trade deficit nations at inherent risk. We can see from the Euro crisis that this sort of currency union causes massive imbalances within such currency systems. Therefore, the ideas of the gold standard and the Euro are not applicable to the monetary system in which the USA exists."
  • Strongly Liberal Democrat
    Democrat
    Dallas, TX
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    Great job Schmidt.

    The Eurozone is in Ponzi. The only thing that has kept the whole thing crashing is periodic ECB bond buys. But the whole thing is in contagion, with the debt crisis now at the core. Germany is killing their customers, and the pain has come full circle.

    The Euro does not have a genuine central fiscal authority. In America, we have a federal government and a central bank, who operate on the same balance sheet. In the Euro system, Germany, France, Greece, etc. are like US states and are constrained like households.

    All private debts have an asset and a liability that cancel out. But with government debt, the private system holds the asset, and the government owes the liability. Thus, there's a net increase in financial assets held by the private sector. The problem in the Euro system is that the governments debt cannot safely float as a function of the economy, and self-imposed fiscal constraints under the Euro system and the perceptions of such further the risk premium paid for moving beyond them. The Eurozone was founded on austerity, on disciplining profligate governments who interfered in the private sector and the what not. It failed. Now they want to double down. 


    In the Euro system, default on government debt is an actuality, as the currency using governments may not be able to pay in a timely manner. Thus, there's risk associated with Euro government debt, not associated with USG debt, as the USG can always mark up accounts to redeem its debt. Willingness is the only issue in the US case. And it's the Republicans who are the ones threatening not to pay.

    Euro government debt auctions are not explicit reserve drain auctions. It amounts to a market monetary operation dueling with ECB baseline targeted interest rates; that is, the ECB has it's own primary means of doing reserve drains to achieve its targeted economic goals, and governments auction their debt independent of ECB monetary goals, and then the ECB adjusts. The ECB is the issuer of the currency; the governments are the users.
  • Independent
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    If currently "we borrow 38 cents on every dollar we spend", then how much is too much?

    If 38 cents is no problem, is 50 cents too much?

    Or 75 cents?

    At what point does our borrowing become problematic?
  • Strongly Liberal Democrat
    Democrat
    Dallas, TX
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    If government spending + private sector spending = more than our economy can produce at current price levels then demand-pull inflation will result.

    We are way below output capacity. There's a chronic aggregate demand shortfall, and we won't have near-full employment until we fill it.
  • Strongly Liberal Democrat
    Democrat
    Dallas, TX
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    Oh and there's this from Warren Mosler in Italy on May 18th: "Italy, Then and Now" (pdf here).
  • Independent
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    Still no answer.

    Let's try again.

    If we borrow 90 cents of every dollar we spend...is THAT a problem?

  • Strongly Liberal Democrat
    Democrat
    Dallas, TX
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    There's no ad-hoc, arbitrary, 'magic' level that is a problem.

    If government spending was only 5 dollars and it only taxed .50 cents, my concern would not be the government's level of borrowing per spending, but the absence of spending.

    Only the government can create net financial assets. And it is the monopoly supplier of the final form of payment in the US financial system.

    And again: If gov spending + our spending exceed supply at current price levels demand pull inflation will result.
  • Independent
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    If being 15 trillion in debt is such a great thing, then why not make it 20 trillion?

    In fact, if Obama is re-elected, I'd guess he'll put our debt at somewhere over 20 trillion.  Maybe closer to 25 trillion.

    If borrowing 38 cents of every dollar is so good, then let's up it to 95 cents of every dollar and things will be so much better.

    Ya think?
  • Strongly Liberal Democrat
    Democrat
    Dallas, TX
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    Look....the deficit is a function of our economy.

    At 4 trillion in spending, a 95% deficit would add massive aggregate demand; targeting a 95% deficit would require constant cuts in taxes. The government would have to defend that rate of taxation and it currently does not index the tax code like that.

    And with taxes too low and gov spending + private spending exceeding supply at current price levels, owners of capital might say, "I don't need dollars to pay taxes anymore, because I don't have to pay taxes; because of that, I would rather sell my goods and services for another form of currency or form of payment instead of accepting US dollars." Thus government would face difficulties provisioning itself, with private sellers unwilling to accept government payment in US dollars for their goods and services. Taxes regulate demand. They give state currency 'value.'

    What you are so worried about, i.e. the national debt, is actual a record of all net-US dollars ever created for private sector use by government. It represents the entire non-US government savings of US dollars.
  • Independent
    Plymouth, WI
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    The formally known as Tea Beggars, now Tea Party, is nothing more than an even further over the top Republican.  Still, when it comes to this issue from a common sense point of view, I have to agree that the deficit being so huge is a problem. 

    Before the wars, our politicians talk about bringing our deficit down, now it is five times higher and rising.  If it was an issue back then to lower the deficit, then the issue now has to be five times greater at least. Since the deficit is rising now also, the issue now could even be consider ten times a greater issue, than ten years ago, when the deficit was not rising, and ways to lower the deficit were available, now it is only guaranteed to keep on rising, with no end in sight. 

    Having a deficit is a good thing, but too much of a good thing will hurt you.  If our huge deficit is still good and not hurting, how come the government almost shut down, since we had reached the deficit ceiling?  The government saved complete government failure with a last second agreement between the Democrats and the Republicans, with the Republicans not keeping their agreement in the end. 

    Common sense not only tells me this huge of a rising deficit is bad, but also, recent history and knowledge of ten years ago tells me this is not good.  I’m not siding with any political party on this issue, but if one feels how I do, that’s fine with me, not everything, all the other parties say, is false.



    If our parties cannot find ways to agree, our government will not function, not how it was meant to anyhow. When it comes to the current deficit issue, all our parties should beable to agree, yet here we are again, two complete different stories on an issue.

    Years ago, the parties could compromise, now they take two complete different opinions, depending on who lobbied them, with no oppinion in favor of the majorities real needs for a good future.