# How would my life be different if the U.S. had no budget deficit **URL:** \ **Category:** Great Debates\ **Created:** [November 16, 2015, 7:58pm UTC](https://boards.straightdope.com/t/how-would-my-life-be-different-if-the-u-s-had-no-budget-deficit/737729 "2015-11-16T19:58:55Z")\ **Posts on this page:** 18\ **Page:** 4
**Author:** ![treis](https://avatars.discourse-cdn.com/v4/letter/t/bc79bd/32.png) [@treis](https://boards.straightdope.com/u/treis)\ **Post date:** [November 19, 2015, 4:07pm UTC](https://boards.straightdope.com/t/how-would-my-life-be-different-if-the-u-s-had-no-budget-deficit/737729/61 "2015-11-19T16:07:33Z")
> [@Shodan](#): > > Correct, of course, but that simply destroys value instead of repaying it. > > Regards, > Shodan Not really true either. The people holding bonds still get their money back albeit in currency that is less valuable than it otherwise would have been. Nothing of real value, i.e. factories, machinery, companies, etc. are being destroyed. So the total wealth is still the same. The end result is that real assets (i.e. factories, land, etc.) become relatively more valuable than currency assets (bonds, bank accounts, etc.). > [@ITR champion](#): > > Taking on some debt in times of recession or emergency, and paying down that debt during the good times, seems alright to me. Definitely better than running massive debts all the time. I know of plenty of nations that were ruined by too much debt: Argentina, Greece, Germany in the 20’s. I never heard of a nation being ruined by too little debt. All of those nations borrowed in currencies they didn’t control. And certainly the US during the Great Depression suffered terribly due to the lack of debt. Or I suppose more accurately, the unwillingness to take on sufficient debt. ---
**Author:** ![Shodan](https://avatars.discourse-cdn.com/v4/letter/s/9f8e36/32.png) [@Shodan](https://boards.straightdope.com/u/Shodan)\ **Post date:** [November 19, 2015, 4:24pm UTC](https://boards.straightdope.com/t/how-would-my-life-be-different-if-the-u-s-had-no-budget-deficit/737729/62 "2015-11-19T16:24:23Z")
> [@treis](#): > > Not really true either. The people holding bonds still get their money back albeit in currency that is less valuable than it otherwise would have been. Nothing of real value, i.e. factories, machinery, companies, etc. are being destroyed. So the total wealth is still the same. I think the history of the Weimar republic shows that total wealth does not remain the same when debt is repaid in inflated currency. Regards, Shodan ---
**Author:** ![treis](https://avatars.discourse-cdn.com/v4/letter/t/bc79bd/32.png) [@treis](https://boards.straightdope.com/u/treis)\ **Post date:** [November 19, 2015, 4:27pm UTC](https://boards.straightdope.com/t/how-would-my-life-be-different-if-the-u-s-had-no-budget-deficit/737729/63 "2015-11-19T16:27:57Z")
> [@Shodan](#): > > I think the history of the Weimar republic shows that total wealth does not remain the same when debt is repaid in inflated currency. > > Regards, > Shodan The Weimar republics debt wasn’t denominated in a currency they controlled so it is a totally different situation. ---
**Author:** ![Shodan](https://avatars.discourse-cdn.com/v4/letter/s/9f8e36/32.png) [@Shodan](https://boards.straightdope.com/u/Shodan)\ **Post date:** [November 19, 2015, 4:58pm UTC](https://boards.straightdope.com/t/how-would-my-life-be-different-if-the-u-s-had-no-budget-deficit/737729/64 "2015-11-19T16:58:49Z")
> [@](#): > > Because reparations were required to be repaid in hard currency and not the rapidly depreciating Papiermark, one strategy Germany employed was the mass printing of bank notes to buy foreign currency which was in turn used to pay reparations. > [@](#): > > In January 1923 French and Belgian troops occupied the Ruhr, the industrial region of Germany in the Ruhr valley to ensure that the reparations were paid in goods, such as coal from the Ruhr and other industrial zones of Germany. Because the Mark was practically worthless, it became impossible for Germany to buy foreign exchange or gold using paper Marks. Instead, reparations were paid in goods. Inflation was exacerbated when workers in the Ruhr went on a general strike, and the German government printed more money in order to continue paying them for “passively resisting.”[11] [Cite](https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic). That reparations had to be paid in gold or goods made no difference. Regards, Shodan ---
**Author:** ![treis](https://avatars.discourse-cdn.com/v4/letter/t/bc79bd/32.png) [@treis](https://boards.straightdope.com/u/treis)\ **Post date:** [November 19, 2015, 9:40pm UTC](https://boards.straightdope.com/t/how-would-my-life-be-different-if-the-u-s-had-no-budget-deficit/737729/65 "2015-11-19T21:40:46Z")
> [@Shodan](#): > > [Cite](https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic). > > That reparations had to be paid in gold or goods made no difference. > > Regards, > Shodan It’s enormously different. Germany can’t make goods or gold out of thin air. They need to buy it on the open market. That makes two big differences. If the debt was denominated in marks then the amount of marks created to pay back the loan is limited to the size of the debt. If it’s in gold, then the amount of marks that will be created is whatever the spot price of gold is times the payment amount. That means there is no real limit on the amount of marks created to pay back the loan. The second is that it is a vicious circle. Germany needs to buy gold and prints enough marks to do so. The money supply increases and the value of the mark goes down. When they go to do it again, the currency is less valuable so they need to print more marks to buy the same amount of gold. Now the money supply increases even more, the value of the mark goes down more than the first time. Which leads them to having to print more marks to buy gold this time… That is exponential growth and done long enough the number of marks approaches infinity. End result is hyperinflation. It is an immediate effect as well. As soon as people figure out what is going on, no one in their right mind is going to trade anything for a mark. ---
**Author:** ![Shodan](https://avatars.discourse-cdn.com/v4/letter/s/9f8e36/32.png) [@Shodan](https://boards.straightdope.com/u/Shodan)\ **Post date:** [November 20, 2015, 1:16pm UTC](https://boards.straightdope.com/t/how-would-my-life-be-different-if-the-u-s-had-no-budget-deficit/737729/66 "2015-11-20T13:16:44Z")
The point is that inflating the currency does affect the total wealth of an economy. [Gresham’s Law.](http://www.investopedia.com/terms/g/greshams-law.asp) Regards, Shodan ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [November 20, 2015, 2:04pm UTC](https://boards.straightdope.com/t/how-would-my-life-be-different-if-the-u-s-had-no-budget-deficit/737729/67 "2015-11-20T14:04:15Z")
Oh, my. Let me repeat my earlier advice. \*If \*you’re unclear on basic economics, then forget whatever you think you know about money and … > [@septimus](#): > > … focus first on the real economy. Let’s hear from someone who admitted upthread that he didn’t know what “real economy” means: > [@Shodan](#): > > The point is that inflating the currency does affect the total wealth of an economy. [Gresham’s Law.](http://www.investopedia.com/terms/g/greshams-law.asp) > > Regards, > Shodan Wrong. A country which produces and consumes 100 widgets priced at 10 shillings each has the same GDP (100 widgets) as a country which produces 100 widgets priced at 1000 shillings each. The economic troubles of Weimar Germany weren’t caused by their inflation; they were caused by the fact that they weren’t producing enough widgets to meet their onerous obligations. Inflation does cause secondary ill effects (though “Gresham’s Law” is the wrong way to delve into that discussion) but let’s first grasp the basics. ---
**Author:** ![Shodan](https://avatars.discourse-cdn.com/v4/letter/s/9f8e36/32.png) [@Shodan](https://boards.straightdope.com/u/Shodan)\ **Post date:** [November 20, 2015, 2:37pm UTC](https://boards.straightdope.com/t/how-would-my-life-be-different-if-the-u-s-had-no-budget-deficit/737729/68 "2015-11-20T14:37:05Z")
I am not at all unclear about basic economics. > [@](#): > > A country which produces and consumes 100 widgets priced at 10 shillings each has the same GDP (100 widgets) as a country which produces 100 widgets priced at 1000 shillings each. GDP includes investment and savings, not merely production and consumption. Inflation reduces the value of investments. You keep saying that one should not discuss money and focus on the “real economy”, and then mentioning money. Could you please make up your mind? Regards, Shodan ---
**Author:** ![puddleglum](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/puddleglum/32/137_2.png) [@puddleglum](https://boards.straightdope.com/u/puddleglum)\ **Post date:** [November 20, 2015, 3:50pm UTC](https://boards.straightdope.com/t/how-would-my-life-be-different-if-the-u-s-had-no-budget-deficit/737729/69 "2015-11-20T15:50:22Z")
> [@Voyager](#): > > Or by issuing new bonds. > > Ditto. > > What do you mean by deficit? If you mean outlays are greater than income, they cash bonds and don’t buy as many, and the bigger government sells bonds to someone else to make it up. Government bond sales are the same in both cases. > > If you mean SS has run out of bonds that is a problem, but it is a problem of planning and has nothing to do with the issue at hand. > I’m retiring soon. My savings will diminish over the next 30 years. As long as it stays positive and I have enough to live on over my annuity and SS, I’m fine. The savings exist to be drawn down. If I’m out of savings and have to cut my lifestyle, I either didn’t save enough or am spending too much. But that has nothing to do with the benefit of drawing down my savings. If I die with a pot of money I probably saved too much or spent too little. Lets say they sold 100 dollars worth or bonds at 20% over ten years. Then in ten years in order to pay it off they will need to issue 120$ in bonds. In ten years they need to issue 144$ in bonds, etc. Overtime more and more of the budget is eaten up by interest on the bonds. The only way out of this is to either have the economy grow faster than the interest rates or start paying down the debt. Social Security is the US government, in the trust fund it has a bunch of bonds sold by the government. You bought an annuity for retirement. That is a promise for someone else to pay you money later in exchange for money today. Very similar to buying and selling bonds. What if you had sold yourself the annuity? Would you still feel good about your retirement? Because of your savings you have a pot of money to live on for retirement. When Social Security starts spending more than it takes in there is no pot of money to tap into. ---
**Author:** ![puddleglum](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/puddleglum/32/137_2.png) [@puddleglum](https://boards.straightdope.com/u/puddleglum)\ **Post date:** [November 20, 2015, 3:56pm UTC](https://boards.straightdope.com/t/how-would-my-life-be-different-if-the-u-s-had-no-budget-deficit/737729/70 "2015-11-20T15:56:40Z")
> [@foolsguinea](#): > > I thought that was due to the gold standard, and the money supply not keeping up with a growing economy. > > Look, I’m on your side, sort of. There are times when deficit spending is reasonable. We are currently in one of them. But I’m not convinced that we need deficit spending as a baseline even in the good times and quiet years. We are at least five years into the recovery and have recovered full employment. These are the good times and quiet years. We should be saving up for the next recession. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [November 20, 2015, 4:29pm UTC](https://boards.straightdope.com/t/how-would-my-life-be-different-if-the-u-s-had-no-budget-deficit/737729/71 "2015-11-20T16:29:07Z")
> [@Shodan](#): > > I am not at all unclear about basic economics. 😕 Oh? > [@Shodan](#): > > GDP includes investment and savings, not merely production and consumption. Inflation reduces the value of investments. > > Regards, > Shodan :smack: 😃 😃 ---
**Author:** ![Shodan](https://avatars.discourse-cdn.com/v4/letter/s/9f8e36/32.png) [@Shodan](https://boards.straightdope.com/u/Shodan)\ **Post date:** [November 20, 2015, 5:01pm UTC](https://boards.straightdope.com/t/how-would-my-life-be-different-if-the-u-s-had-no-budget-deficit/737729/72 "2015-11-20T17:01:25Z")
> [@](#): > > GDP (Y) is the sum of consumption (C), investment (I), government spending (G) and net exports (X – M). > Y = C + I + G + (X − M) _:shrugs:_ Regards, Shodan ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [November 20, 2015, 5:10pm UTC](https://boards.straightdope.com/t/how-would-my-life-be-different-if-the-u-s-had-no-budget-deficit/737729/73 "2015-11-20T17:10:20Z")
> [@puddleglum](#): > > Lets say they sold 100 dollars worth or bonds at 20% over ten years. Then in ten years in order to pay it off they will need to issue 120$ in bonds. In ten years they need to issue 144$ in bonds, etc. Overtime more and more of the budget is eaten up by interest on the bonds. The only way out of this is to either have the economy grow faster than the interest rates or start paying down the debt. > Social Security is the US government, in the trust fund it has a bunch of bonds sold by the government. You bought an annuity for retirement. That is a promise for someone else to pay you money later in exchange for money today. Very similar to buying and selling bonds. What if you had sold yourself the annuity? Would you still feel good about your retirement? Because of your savings you have a pot of money to live on for retirement. When Social Security starts spending more than it takes in there is no pot of money to tap into. I don’t know what you are opposed to, the selling of bonds in general or SS buying them. I’m all for decreasing the deficit by taking some of the money the 1% has made from the improvement in the economy (most of the improvement in wealth) and using that for deficit reduction and other necessary expenses. If you are against SS buying the bonds, where would you put the difference between SS tax income and payments? US bonds are the safest investment out there, why not there? That just keeps the bonds in the family. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [November 20, 2015, 5:27pm UTC](https://boards.straightdope.com/t/how-would-my-life-be-different-if-the-u-s-had-no-budget-deficit/737729/74 "2015-11-20T17:27:48Z")
> [@Shodan](#): > > I am not at all unclear about basic economics. > GDP includes investment **and savings** , not merely production and consumption. _ **Inflation reduces the value of investments.** _ > > Regards, > Shodan > [@Shodan](#): > > _:shrugs:_ > > Regards, > Shodan I’ve taken the liberty of highlighting your blunders above. “Investment” refers to, e.g., the production of capital goods, not to “investing” money in a bond. ---
**Author:** ![treis](https://avatars.discourse-cdn.com/v4/letter/t/bc79bd/32.png) [@treis](https://boards.straightdope.com/u/treis)\ **Post date:** [November 20, 2015, 7:11pm UTC](https://boards.straightdope.com/t/how-would-my-life-be-different-if-the-u-s-had-no-budget-deficit/737729/75 "2015-11-20T19:11:05Z")
> [@Shodan](#): > > The point is that inflating the currency does affect the total wealth of an economy. [Gresham’s Law.](http://www.investopedia.com/terms/g/greshams-law.asp) > > Regards, > Shodan So are you abandoning the position that it doesn’t matter if loans are denominated in a currency the country controls? As to your new contention, Gresham’s law has nothing to do with wealth. Nor does inflating a currency directly affect an economy’s total wealth. If the US prints a trillion dollars today, we still have the same number of factories, companies, natural resources, etc. as we did before. Of course there will be knock on effects of excessive inflation, but strictly speaking inflation doesn’t damage affect a country’s wealth. ---
**Author:** ![puddleglum](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/puddleglum/32/137_2.png) [@puddleglum](https://boards.straightdope.com/u/puddleglum)\ **Post date:** [November 20, 2015, 8:33pm UTC](https://boards.straightdope.com/t/how-would-my-life-be-different-if-the-u-s-had-no-budget-deficit/737729/76 "2015-11-20T20:33:17Z")
> [@Voyager](#): > > I don’t know what you are opposed to, the selling of bonds in general or SS buying them. I’m all for decreasing the deficit by taking some of the money the 1% has made from the improvement in the economy (most of the improvement in wealth) and using that for deficit reduction and other necessary expenses. > If you are against SS buying the bonds, where would you put the difference between SS tax income and payments? US bonds are the safest investment out there, why not there? That just keeps the bonds in the family. I think the selling of the bonds is fine as long as the money is used for investments or because of a temporary downturn in tax receipts. The SS buying them is a horrible idea. Putting the money in actual private investments like sovereign wealth funds is probably a bad idea because the sums involved are too high and too likely to be politicized. My preferred solution would have been to cut the amount of payroll taxes to more closely match the expenditures and to return money to the taxpayers when forecasting difficulty made that impossible. Keeping the bonds in the family is a bad idea. It is not really a family the government is one entity. Say you have a checking account and a safety deposit box. Every month your paycheck goes in the checking account to pay expenses and you tell your banker to put whatever is left over into the safety deposit box in cash for retirement. At the end of every month you then take the cash out of the safety deposit box, spend it, and put in an IOU for that amount. How much money have you saved? The answer is zero. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [November 20, 2015, 8:48pm UTC](https://boards.straightdope.com/t/how-would-my-life-be-different-if-the-u-s-had-no-budget-deficit/737729/77 "2015-11-20T20:48:10Z")
> [@puddleglum](#): > > I think the selling of the bonds is fine as long as the money is used for investments or because of a temporary downturn in tax receipts. The SS buying them is a horrible idea. Putting the money in actual private investments like sovereign wealth funds is probably a bad idea because the sums involved are too high and too likely to be politicized. My preferred solution would have been to cut the amount of payroll taxes to more closely match the expenditures and to return money to the taxpayers when forecasting difficulty made that impossible. Do you mean expenditures in that year? in the long run we’re a bit underfunded now, so I assume so. While that would return money in surplus years, what about in the upcoming years where the system will be in an anticipated deficit situation? Would you increase payroll taxes, regular taxes, or cut benefits? And are any of these options politically feasible. Yes I know we will have to pay to redeem the bonds, but these bonds would have been issued anyway, and if there was no surplus we’d have to redeem them and pay for the shortfall in SS due to expenditures being greater than income. > [@](#): > > Keeping the bonds in the family is a bad idea. It is not really a family the government is one entity. Say you have a checking account and a safety deposit box. Every month your paycheck goes in the checking account to pay expenses and you tell your banker to put whatever is left over into the safety deposit box in cash for retirement. At the end of every month you then take the cash out of the safety deposit box, spend it, and put in an IOU for that amount. How much money have you saved? The answer is zero. A. The government is not a family. Are you spending the money in the safety deposit box on necessary expenses, or for the hell of it? Say you need to buy a car. You can use the money in the safety deposit box and decide to pay it back with 5% interest, or you can keep it there and pay the car company finance arm 5% interest. Which is better? We actually did kind of this. Some of our mortgage came from my father-in-law. I paid it off with interest for years. Since my wife is an only child, the interest I paid goes into his estate where we’ll eventually get it back. That’s a far better deal than if we paid that interest to a bank. Spending frivolously is always a bad idea, but that is not the issue here. ---
**Author:** ![foolsguinea](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/foolsguinea/32/14751_2.png) [@foolsguinea](https://boards.straightdope.com/u/foolsguinea)\ **Post date:** [November 20, 2015, 10:06pm UTC](https://boards.straightdope.com/t/how-would-my-life-be-different-if-the-u-s-had-no-budget-deficit/737729/78 "2015-11-20T22:06:57Z")
> [@puddleglum](#): > > We are at least five years into the recovery and have recovered full employment. These are the good times and quiet years. We should be saving up for the next recession. Well, you may be right. But interest rates are still very low, so we can get away with some debt. But yes, we need to raise marginal taxes and get ahead of things at some point. [Previous page](https://boards.straightdope.com/t/how-would-my-life-be-different-if-the-u-s-had-no-budget-deficit/737729.md?page=3)