What would be the wise thing to do if by some odd chance the US Treasury took in twice as much as they normally do in just one year?
Present spending =$3,636,497,000,000
Present intake = $3,140,386,274,000
How about paying down on the national debt which would still leave us $15 trillion dollars in debt.
The national debt at this point in time: http://www.usdebtclock.org/
$18,294,677,500,000 National debt
154,375 per tax payer
56,952 per citizen
I’m not sure the hypothetical makes any sense. If the treasury doubled it’s intake, then that money came from somewhere and it probably means they had 100% inflation, doubled taxes or the economy doubled in size. All of those require different responses, but I think all of them require additional spending just to keep public services on par.
Anyway, I don’t see a need to pay down the debt. some public debt is important - just think of the fact that US Treasuries are an international standard for investment. If you pay that off early, you affect everyone - banks, corporations, retirees, etc. So debt is part of an overall public policy.
I’m not saying that debt can/should be unlimited, of course. If this thread is inspired by the problems in Greece, the US has a very long time to avoid that problem, and if we can get to the point where debt grows more slowly than population, inflation and economy, we can avoid the problem entirely without ever reducing the total dollar value of debt.
If God just reached down and handed the IRS and extra 3 trillion dollars, what would happen? Would we spend the money or pay down the debt, or what?
The problem with the question is that it is entirely possible for the United States to give itself 3 trillion dollars whenever we feel like it. We don’t need a miracle, this is something we could do just by passing the correct laws.
But when we put it like that, it’s obvious what’s happening. We didn’t create 3 trillion dollars worth of goods and services out of thin air, we just created 3 trillion IOUs. If the amount of goods and services remains the same, but the number of dollars increases by 3 trillion, that means we just devalue our currency. Simple supply and demand, if demand remains the same and we radically increase the supply, we decrease the value of the good. One way to look at it is that the price of every good and service suddenly increases drastically, another is that the value of the dollar falls drastically. This is known as “inflation”.
In order to actually take in more revenue the economy–the actual production of goods and services–would have to actually increase.
Speaking of Greece, the intuitive answer to high debt is often to slash government spending (so-called “austerity measures”) or to raise taxes. Much in the same way you would slash spending to lower your credit card debt.
Unfortunately this often has the unintended and counter-intuitive effect of harming the economy and slowing growth. Reductions in government spending typically result in layoffs and reduced services. Which is what the Greek people are experiencing right now.
You put it better … I’m a slow thinker. So this would not be a good question for say a presidential candidate?
To a simple person like me $18 trillion dollars seems like an enormous amount of money.
The question always seems to come up every election … What about the National Debt?
It’s not a problem, that is what we hear all the time form the politicians.
It’s not a problem. It’s not a problem. It’s not a problem. It’s not a problem. Right up to the day, it is all of a sudden a big problem.
My lifetime, my children’s lifetime, their children’s life time. Can’t tell you when but the bill comes due at some point.
This argument overlooks the fact that money gets borrowed for some hopefully constructive purpose. Some government programs may be regarded as overextended or wasteful, or we may object to them on political or moral grounds. But in general we should be getting value for the debt that we incur.
If your tire blows out you need to replace it, even if that means getting out the credit card. The fact that this action will conceivably diminish the amount you will be able to bequeath to your progeny and descendants becomes less important.
You have a very peculiar definition of “all the time”. A great many politicians tell us constantly that it’s the Biggest Problem Ever and that We’re All Doomed. In fact, it seems to me that we hear that from politicians a lot more than we hear “it’s not a problem”.
The debt doesn’t matter, for the most part. The interest on the debt is what’s most important.
Some of you may remember that near the end of the Clinton presidency there was (or there was thought to be) a budget surplus. Discussion of what to do with the extra money consisted of just two options: Spend it on new programs, or tax cuts. I never heard anyone (except for a caller on a radio program one time) suggest the extra money might be used to pay down the principal on the debt.
So history says the answer to the OP’s question is, yes, that is exactly what they will do.
The national debt is coming due all the time, in small pieces. There is never a point where the U.S. has to make an $18 trillion balloon payment, or else the nuns lose the orphanage. The idea of China (or anyone else) “calling in its loans” is not possible, practically or legally. Federal fiscal policy isn’t a Three Stooges movie.
If you think sovereign debt works like household debt, you’re wrong.
That isn’t politics. It’s reality. Debating that is like debating whether the MMR vaccine causes autism or whether the Moon exists: One side has basic logic and reasoning, the other side doesn’t, and the other side getting offended and stomping its feet at the people saying un-PC things doesn’t change reality.
First, there is no way our debt can come due the way some posters seem to think. Bonds are sold with maturity dates, at which time they’ve been paid off and therefore stop accruing interest. You can’t demand the government pay them back any faster. Well, you can, but nobody is going to listen. Not even if you stomp your feet really hard.
Second, owning a bond doesn’t mean you own anything but a claim on the further interest payments. You can’t trade a bond which has yet to come due for a piece of land. It just doesn’t work like that. I honestly can’t explain it any better than that: Reality disagrees with Rush on this one, and Rush isn’t going to get his way by claiming people are pinheads or being mean to him or not being PC.
Third, other countries buying bonds is a good thing for three reasons: One, it funds our government’s projects, like roads and aircraft and so on. Two, it gives those countries a financial incentive to see us prosper, so we don’t feel tempted to default on loans. Three, since bonds are paid back in US Dollars, it makes those countries financially bound to our currency system, such that our Dollar taking a nose-dive wouldn’t be in their best interest.
Yes, the numbers are big. Yes, big things can be scary. I know I get the wim-wams when I see Rush coming down the street. However, sovereign debt, in and of itself, isn’t a bad thing.
The richest people around, with the most money that they don’t absolutely need to spend on day-to-day expenses, are also the people who can do, and do do, the most investing. That includes buying U. S. bonds. The rest of us merely normal people don’t have bazillions in bonds. Maybe we have that $50 Saving Bond that we got from Aunt Bess and Uncle Mort for our Bar Mitzvah.
The point being, we are all paying a significant chunk of our taxes to pay the interest on the national debt, while a vast amount of that interest is flowing to the very rich who have the most money invested. Thus, the national debt, and specifically the interest thereon, is a significant flow from all-of-us-in-general to the very rich. Continued massive indebtedness is a Reverse Robin Hood institution.
I might be missing something (I probably am), but if the government wanted to decrease the debt (if they had a budget surplus or something), couldn’t the Treasury just buy back existing treasury securities on the secondary market? That would reduce the public debt, at least.
They could if they had a budget surplus…which they don’t. That’s why we’re in debt. Otherwise what would the Treasury buy back those treasury securities with? More treasury securities?
No, I know that. But Derleth seemed to be saying that there wasn’t a way, like some people have been suggesting in this thread, to reduce the debt except through attrition, because " Bonds are sold with maturity dates, at which time they’ve been paid off and therefore stop accruing interest. You can’t demand the government pay them back any faster"
To run with the silly sovereign debt=household debt angle, a good way to show how stupid and counterproductive severe austerity is to imagine trying to get out of debt by stop bathing, imagine all the water and heat you’ll save! Sure you’ll lose your job and then be even worse off, should have thought of that before Rockerfeller!
You don’t get out of debt by shooting yourself in the foot.
What I said was true as far as it goes. I was not trying to talk about anything more complex than the mere fact that bonds aren’t “markers” or “IOUs” or whatever else you want to call them which can be “called in”, they’re financial instruments which operate according to actual rules and have a defined maturity date and interest rate.
Anything else was beyond the point I was making.
The national debt, and the interest paid on it (mostly to our own citizens) is not relevant. Saying it’s not a problem, or that it’s big problem, mostly depends on whether the politician saying that is in office, or running to replace those currently in office.
The only relevant way to loo at this is the interest paid, or the whole national debt, as a percentage of the whole economy (the gross domestic product (GDP)). And the really relevant part of that is if it is increasing or decreasing, and is that justifiable.
Interest on the national debt is about 1.25% of the GDP, or about 4 days worth of our national income.
The national debt is now about 70% of the GDP. About 255 days of our national income. It was about 55-60% in the midst of the Great Depression (or, rather, during the New Deal to address that depression). During the height of WWII it doubled, to about 125%. Personally, I think both of those were worth spending for.
Currently, nearly all the developed countries of the world (USA, UK, France, Germany, France, Spain, Portugal, Ireland, Finland, Israel, Egypt, etc.) have a ratio between 50%-100%. And the least developed nations (sub-Saharan Africa & South America) have ratios of 30% or lower. So most of the rest of the developed countries of the world seem to have chosen the same economic path.
:eek: Errr … cite?
Bill Clinton – a notable politician during the Clinton Presidency – and several of his underlings spoke of making the federal government “debt-free.” My cite is Google “Clinton surplus debt-free.” What’s yours?