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The National Debt

The National Debt

I agree 100% that our debt has the potential to cause great suffering and misery... IF... we allow it to. It's difficult to imagine a worse self-inflicted injury a society can bring upon itself than the Great Depression. There were people willing to work AND demand for their labour but no capital to exchange... There were warehouses FULL of goods and people that wanted them but no capital to exchange. There were idle factories ready to produce but there was already surplus inventory built up in the factories mentioned before. Completely self-inflicted, completely psychological.

Its 'easy' to alleviate debt... we can print money... sure, that causes inflation... what does inflation do? I depreciates the value of the US dollar relative to other currieries making EXPORT cheaper and IMPORTS more expensive driving domestic employment. It also make our debt 'cheaper' since if we owe $1T we STILL owe $1T but that $1T is now worth less :)

Our society gets to decide exactly WHAT our debt means... we don't have that luxury when it comes to PHYSICS.

https://www.youtube.com/watch?v=KIbkoop4AYE

DTsea | 09. September 2014

Inflating money like that is stealing from lenders and savers. Need lesson in consequences?

CF Weimar republic

Uganda

Italy

Etc etc. Stable money value is what underpins the deal between worker and payer, lender and bprrower.

nwdiver93 | 09. September 2014

I agree it's not optimal but it's better than the alternative. Automation has made a few strides since 1921. Our society is MUCH better equipped to cope with increased demand as a result of inflation.... in many ways it would be a GOOD thing. It's difficult/impossible to compare industry in 1924 to industry in 2014. Prices only rise rapidly if demand can outstrip supply. Something that is harder and harder to do.

https://www.youtube.com/watch?v=7Pq-S557XQU

J.T. | 10. September 2014

It's interesting that your first solution is to print money. Did you consider the benefits of cutting back on spending?

renwo S alset | 10. September 2014

When I am searching for insight, I tend to seek those considered by their peers to be the best and brightest. I get information I trust from peer reviewed journals and individuals that have earned recognition from other experts in their fields, such as Nobel prize winners.
I might suggest you read Paul Krugman and his thoughts about debt, inflation and when to accept stimulus or frugality, based on economic realities.
When it comes from lay people or the media, I dismiss it as opinion. When I offer it, it should be considered the same.

SeattleSid | 10. September 2014

Cutting spending always sounds great; until you consider the ways politicians of a certain persuasion prefer to do it: slashing programs on which the future of a society depends. Health care, education, infrastructure, research, anti-poverty programs... short term bookkeeping leading to long-term disaster, as I see it. Not to mention that those same politicians want to keep increasing defense spending. (I recognize it's the one form of government-sponsored jobs programs they favor; and they have a point, other than the fact that it's a pretty inefficient and overly expensive way to create jobs.)

Serious about the national debt? Now here's> an idea that would seriously address it, while maintaining funds for future needs (and, yes, I understand it'll never pass):

http://www.huffingtonpost.com/rep-bernie-sanders/a-progressive-estate-ta...

Brian H | 10. September 2014

Uh-huh. In the '70s, interest rates went >20%, and borrowers (corp. or personal) were bankrupted -- including the 100+-yr old firm I worked for. No one would invest, because the chance of ending up with enough to buy in a year what you could afford now was small. Cash was dumped on purchasing anything that might retain some utility. Jobs shriveled away.

Inflation is a quick fix for the short-sighted and slow-witted.

nwdiver93 | 10. September 2014

Inflation is ultimately caused by supply being unable to meet demand. Increasing the supply of money increases the demand for goods/services; Increased productivity increases the supply of goods/services. If productivity is high enough then it is effectively impossible to outstrip supply and you can increase the supply of money without significant inflation.

For example; For me it is effectively impossible to outstrip my supply of free electricity. I would have to drive ~5000 miles per month and keep my home at 64F and I would STILL have a surplus.... and I have no desire to drive 5000 miles per month :) Humanitys ability to consume is limited... Automations ability to produce is not.

https://www.youtube.com/watch?v=7Pq-S557XQU

Red Sage ca us | 10. September 2014

nwdiver93 wrote, "Inflation is ultimately caused by supply being unable to meet demand. Increasing the supply of money increases the demand for goods/services; Increased productivity increases the supply of goods/services. If productivity is high enough then it is effectively impossible to outstrip supply and you can increase the supply of money without significant inflation."

Thanks for saying that. This is something that I have inherently believed since I was a kid in the 1970s. I had no idea how economists and industrialists seemed to overlook or ignore this, because it seemed very obvious to me, even though I could never have expressed it as well as you have today.

I think the problem is that on a social level, there are those that prefer to stand by the illusion of there being a 'class system', even though this is NOT supposed to be a feudal society. The only way to enforce such concepts in our reality is through monetary means. So people are kept 'poor' due to misguided theorems of what society should be and how societal structures must be upheld.

nwdiver93 | 10. September 2014

When the supply of money was increased in the 70s the primary resource that was unable to meet demand was oil.

Another GREAT reason to abandon our addiction as quickly as possible. Sunshine is a FAR more difficult resource to deplete :)

If you're thinking, "That's great but what about the solar panels" Well, the two primary ingredients in a solar panels are Silicon and Aluminum...

Red Sage ca us | 10. September 2014

I really don't like the notion that currency should be tied to something that is 'rare' either. That doesn't make sense because banks are allowed to 'create' money out of debt anyway. Gold, silver, platinum, oil, tulips, sea shells... All these artificial means of measuring 'wealth' are just a smokescreen. If something is hard to find, or in limited supply, all of a sudden it is considered 'valuable'. That makes for an excuse to make the same thing 'expensive'. Total idiocy.

dchesterp | 10. September 2014

Considering in 1999 and 2000 the US had budget surplus that was estimated to take 10-15 years to eliminate the debt. But what happened then, the conservatives complained they were being taxed too much and promptly cut taxes that doomed surplus and gave us unending deficits and growing debts.
So even with spending cuts the same thing will occur again as the pressure to cut taxes will out strip the ability to pay back the debt.

Remnant | 10. September 2014

@ SeattleSid (September 10, 2014)

<< Cutting spending always sounds great; until you consider the ways politicians of a certain persuasion prefer to do it: slashing programs on which the future of a society depends. Health care, education, infrastructure, research, anti-poverty programs... short term bookkeeping leading to long-term disaster, as I see it. Not to mention that those same politicians want to keep increasing defense spending. >>

A government run society is tyranny, aside from malfunctioning in virtually every area of activity in which government controls prevail.

VA medical care is emblematic of any government health care and is BAD!

Government education is mostly indoctrination about the necessity of government controls over everything and of credentialing political clients irrespective of knowledge and skills.

Government anti-poverty programs are actually poverty subsidization programs, leading to more rather than less poverty.

OTOH, if the government is too big and spends like a drunk sailor, leading to unsustainable levels of national debt, must it not be reigned in? And if so, shouldn't the malfunctioning, most corrupt, most wasteful, and over-expanded beyond any conceivable usefulness departments be pared down first and most?

At the same time, it is inconceivable that at a time of serious threats to our national security anyone who keeps the American national interest in proper focus would even think to cut a defense budget that has already been cut to perilous levels quite recently.

Furthermore, defense is constitutionally by far the most legitimate and most important of the federal government's powers and duties.

Dwdnjck@ca | 10. September 2014

Bull.

nwdiver93 | 10. September 2014

Odd... the people that deny AGW are the same people that want SMALLER government... this sounds vaguely familiar...

"When someone who thinks government is NEVER the solution is confronted with a problem where government is the ONLY solution the easiest thing to do is deny the problem"

Oh yeah... maybe.... just maybe... these people are passing judgment not based on 'evidence' but on 'ideology'.... where have we seen this before...

Oh yeah...

Bikezion | 10. September 2014

The national debt is nothing more than the interest on the federal reserve notes, the federal government borrows from the federal reserve.

The problem is the federal reserve is neither. It's not federal (it's a private corporation), and it's not a reserve! It's a printing press, where they print money and lend it to the US government at face value...plus interest.

The other problem is the federal government is restricted by the constitution to only coin money, they can't print it, and they can't borrow it. So they incorporated the government (1871) and the US corporate (national) government can borrow from the (privately owned, corporate) federal reserve. So the business of government, borrows from the business of national banking, and the American people (subjects) get left holding the tab. And the people in the land of the free are in bondage for the debt their government borrows.

Timo | 11. September 2014

@nwdiver93: your "annual global energy source" -graphs are pure BS. Available space to collect solar is like 0,0000001% of that. Unless of course you want to cover entire Earth with solar panels and put some very huge solar satellites in orbit to cover the fact that energy conversion of solar panels is not 100% efficient.

Secondly "geothermal" if counted like you counted solar (as potentially available energy without thinking where you can actually put the power plants) needs to a be more than thousand times higher.

Red Sage ca us | 11. September 2014

Remnant: There is a distinct difference between the 'defense budget' and the money the nation spends on the 'armament industry', typically referred to as 'military spending', when it has nothing to do with the military, and everything to do with politics, instead.

We are currently enduring the tyranny of feigned stupidity and purposeful idiocy. It is brought on by those who misidentify themselves as 'conservatives' when they are anything but.

The status of Veterans Administration medical care is a direct result of decades of cuts to their budget.

Indoctrination in lieu of education occurs most in those states that refuse to teach actual history in favor of omission, lies, and fabrication.

When 98% of the funds distributed to 'the poor' are spent within 48 hours of their receiving them, that is obviously a form of subsidized economy -- for the businesses they frequent, and the products they buy.

Trust that if people were to begin organizing, forming a mutual fund, trust, bond issue, or SPDR, that allowed 'the poor' to invest on their own toward a combined effort that took advantage of tax shelters to grow their money, instead of spending it overnight, the very people who claim they should be 'more responsible' with their money would be the first to protest -- and loudly.

Know that if all the social programs disappeared overnight, so would many a business that rely upon a constant influx of cash on the 1st and 15th of the month in depressed areas.

Brian H | 11. September 2014

In an inflation, everyone is eager to borrow, none want to lend (as the future payback may be worthless). Same applies to nations, and the US' free ride because the USD is the international settlement currency is being challenged and circumvented by bilateral and regional arrangements. Obumble's $7T IOU may not be as easy to print into submission as many imagine!

Red Sage ca us | 11. September 2014

The biggest issue with the so-called 'economy' is the notion that it should be based upon credit. Encouraging people to borrow, expecting others to lend, just contributes further to the bottomless pit of doom. Treating people, or companies, or nations who agree to remain in debt indefinitely as if they have 'good credit' is an absolute fallacy. Treating that outstanding debt as an asset to be bought or sold is complete idiocy. Yet these 'solutions' are freely adopted and continually offered by both 'conservatives' and 'liberals' who certainly ought to know better. When it comes to government, it should not be about 'tax and spend'. At this point it should be strictly 'tax and pay your damned bills'.

Remnant | 11. September 2014

@ nwdiver93 (September 9, 2014)

<< I agree 100% that our debt has the potential to cause great suffering and misery... IF... we allow it to. >>

It's all very simple. Of course, you can print money, but they will catch you pretty darn quick and charge you with counterfeiting, unless your name is Federal Reserve.

The better solution is to get your rich uncle to pay off your debt.

So, you can play prodigal nephew all you want.

P.S. After all, everybody knows that money grows on trees, but some selfish bastards have cornered the market on money trees and now use them just for themselves. Watch out, your rich uncle might be one of them.

nwdiver93 | 11. September 2014

Expanded availability of money alone does not cause inflation; It's when the increased demand cannot be met by supply that there is inflation as the price goes up to reduce demand until a new equilibrium is reached. If you flooded the county with $TRILLIONS$ and the market was able to supply everything at their current prices then prices WOULD NOT RISE.... why would they? The major limiting factor in the past has been oil... there's only so much of it and there's a limit to how fast we can pull it out of the ground.

Lucky for us there are alternatives that we cannot exhaust :)

Brian H | 11. September 2014

People will charge as much as they can get, and if cash is easily available, they will get their price. Prices escalate rapidly, without limit. Reality proofs have occurred in many places. Your life savings for a bruised apple!

nwdiver93 | 11. September 2014

It's still a competitive market; If your competition is cheaper people will buy from them... if you can afford to lower your prices to compete you will. Even the wealthy don't want to pay more than they have too... that's human psychology.

There will always be someone interested in cutting prices to increase volume.

DaphneGreen | 11. September 2014

I thought this was a good place to post this article. If anyone feels I'm out of bounds, just ignore it.
http://www.marketwatch.com/story/never-let-a-politician-or-pundit-give-y...

Remnant | 11. September 2014

@ nwdiver93 (September 11, 2014)

<< Expanded availability of money alone does not cause inflation; ... The major limiting factor in the past has been oil... Lucky for us there are alternatives that we cannot exhaust. >>

Three false statements.

(1) Raising the quantity of money reduces the unit value of money and prices rise as a result. Productivity increases can compensate the price increase with price reductions, but the market signals are lost and the damage inflicted by the monetary inflation continues unrecognized and plays havoc of cost accounting and business planning. Companies that expand on this basis are marching on thin ice.

(2) The price of oil has a pervasive influence on the cost of living, but it cannot affect monetary inflation or its consequences.

(3) Even if the supply of sun, wind, or geothermal energy is not exhaustible per se, our SCARCE means of using this supply is quite exhaustible and subject to the market forces.

nwdiver93 | 11. September 2014

Simply increasing the quality of money does not decrease it's value...

That increased supply of money must stimulate more demand for goods/services than can be supplied...

The two most important elements in a solar panel are also the two most common non-gas elements on earth... and the rarest component is still used in soap... I don't we're going to see supply problems anytime soon...

Bikezion | 11. September 2014

We have been mis-labeling. The thing we have been calling money, is more appropriately fiat money, aka legal tender, IOU, or currency. Money is a medium of exchange, generally using something that has intrinsic value, currency is printed on paper, or digital, and has its value in the force of government. Money cannot be easily manipulated, want to increase the money supply? Go mine it from the ground. Currency on the other can and is increased every time it is borrowed, it is by very definition a debt instrument. That is the main reason we have inflation (devaluation of the currency), and the same reason the debt ceiling continues needing to be raised. Since 1911 we have lost 95% of our buying power. (Federal reserve was created in 1913). Most of it since 1971, the year the US went off of the gold standard.

J.T. | 12. September 2014

Steve Forbes on the changing values of money:

“There’s not a very real understanding of how the gold standard works,” Forbes explained. “The thing to keep in mind is that really, money is a measure of value. It measures value the way scales measure weight or clocks measure time. It makes doing transactions easier and it makes investing easier. When money is uncertain, then it means less transactions, less investing.

It’s like what our life would be like if the number of minutes in an hour changed each day. It would be chaotic! But that’s what we have with money.”

J.T. | 12. September 2014

Second graph lost its tag.

nwdiver93 | 12. September 2014

Money by definition is legal tender used in exchange for goods and services instead of bartering like savages... It's value is determined by the market not by the government. Even when 1oz Au = $1 you can't eat gold... The amount of a goods/services you could buy with $1 was STILL determined by the market, not the government. ALL economies have decoupled their currency / money from commodities like gold for many reasons; not the least of which is this;

Tying the value of your currency to a commodity is insane. We stopped doing it for a reason.

Red Sage ca us | 12. September 2014

nwdiver93 wrote, "It's value is determined by the market not by the government. ... Tying the value of your currency to a commodity is insane. We stopped doing it for a reason."

Precisely. Gold, silver, platinum, diamonds... These hold no value for me whatsoever. I have no desire or need for them. I don't care about their rarity or the difficulty to attain them. So I won't agree to assigning the worth of currency to them. The single best thing that President Richard M Nixon did was breaking the bond of the US Dollar from the Silver/Gold Standard. If it had remained under that standard things would be much, much worse today.

nwdiver93 | 12. September 2014
Brian H | 12. September 2014

Drivel.

Remnant | 13. September 2014

@ Red Sage (September 12, 2014)

<< ... Gold, silver, platinum, diamonds... These hold no value for me whatsoever. I have no desire or need for them. I don't care about their rarity or the difficulty to attain them. So I won't agree to assigning the worth of currency to them. >>

It's not you to decide, Sage, nor the government, it's the market. If people accept certain items in payment for what they sell to you, you will endeavor to acquire such items.

Money should be free from political manipulations.

Red Sage ca us | 13. September 2014

Remnant: It is certainly up to me to decide what I will accept for payment for the services I render. Call me foolish, but I'd rather have US Currency than gold, silver, platinum, or diamonds.

bonaire | 14. September 2014

To me, money is debt paid back in future labor-time. As we have lowered what we will pay someone for work through low cost labor searching, we have lowered the value of money as our population bloom occurred from 1900 through today. By creating more debt, we have created more money. If all debt was paid back, much of the dollars in circulation could vanish. With fractional reserve banking, mortgages and corporate loans were created out of thin air with the intention of someone paying it back with interest. Where does the money to pay the interest back come from? Other debt. It is a circle of debt that continues to grow and give wealth to those lending the money. Until the debts cannot be paid. At that point, it is an impossibility to maintain debt service on accounts that cannot pay back loans and a reverse cycle happens of defaults and failures. It is going to happen and if we do increase the base interest rates, existing loan servicing will start to take a hit as more and more pain is felt establishing new bonds and loans to pay back existing debt. Fewer projects are started, like gigafactories, stadiums, city centers and fewer jobs occur. With more job failures, debts are not paid back and the cycle deepens. Who is affected? Our kids. Enjoy what is to come. If I had written this in 1940, 1980 or 2000, it would read the same. As time goes by, all we can do is keep devaluing currencies and hope it all works out. But those million dollar starter homes in SF and Vancouver cannot be good for locked up debt value. Multi million dollar apartments in NyC, London, Tokyo and other spots also. The buying power of the dollar appears to be an inverse correlation to world population.

bonaire | 14. September 2014

This is pretty good for a review of where the wealth is.

http://www.zerohedge.com/news/2013-06-02/its-1-world-who-owns-what-223-t...

nwdiver93 | 14. September 2014

Bonaire... there's a lot of truth in what you said... as Sage mentioned, Banks 'Create' money when they loan deposits... this is a GOOD thing; this helps drive the economy. The objective of a healthy economy is.... A HEALTHY ECONOMY which is defined not by the level of debt but by the level of economic activity. The ONLY objective is ensuring goods and services are being exchanged... $$$ is like a photon, it only has value when its moving.

But... the value of money doesn't magically drop when more is created. Here's a thought experiment... if the fed printed a Trillion dollars and gave it to you there is now more money in circulation but how does the fact that you have a Trillion dollars make the cost of ANYTHING go up? That new currency needs to buy enough of a product that the supply/demand balance shifts before the cost of anything would rise. As productivity increases that is less and less likely.

If it's possible for apple to produce 10B iPhone 6s at $200ea then it's not very likely the cost would be driven up by high demand since there simply aren't enough people :) Making this even less likely is the concept of economies of scale. The cost per unit DROPS as more are produced.

The objective is to have a vibrant economy... not lower debt.... and not jobs.... Those are three mostly independent variables;
https://www.youtube.com/watch?v=7Pq-S557XQU

Remnant | 14. September 2014

@ nwdiver93 (September 14, 2014)

<< The objective is to have a vibrant economy... not lower debt.... and not jobs.... >>

Well Diver, your economics is remarkable. It doesn't look like anything I've seen before. We should call it Diving Economics.

What is a "vibrant economy" though?

Red Sage ca us | 14. September 2014

My problem with credit isn't with lending, or borrowing, but with the concept of amortization, which I find to be inherently evil.

Brian H | 14. September 2014

Declining value is simply reality, though simplistic or formulaic approaches are really just policy attempting to emulate the market.

nwdiver93 | 15. September 2014

Exactly why WOULDN'T you consider an abundance of goods/service AND ample demand a 'vibrant economy? As automation improves jobs are less and less relevant... a paycheck is just one of many ways to get purchasing power to consumers.

https://www.youtube.com/watch?v=fnJTWzf8kH4

J.T. | 15. September 2014

@nwdiver93 a paycheck is just one of many ways to get purchasing power to consumers.

So right. There's also welfare, food stamps, never ending unemployment insurance, foster care padding, Medicare fraud, Medicaid fraud, insurance fraud and many others.

Remnant | 15. September 2014

@ nwdiver93 (September 15, 2014)

<< Exactly why WOULDN'T you consider an abundance of goods/service AND ample demand a 'vibrant economy? >>

Because abundance must be appropriate and sustainable to cause "vibrancy". Monetary inflation cannot do that. New money cannot be spread uniformly and synchronously throughout the economy, but if it could, it would have only small economic and social consequences.

In actuality, the consequences of monetary inflation ripple out from the points of injection of the new money, affecting the economic factors unevenly, creating bubbles of false economic signals, according to the whims and needs of the political and financial manipulators. Demand and production evolve haphazardly while bubbles eventually deflate, with painful economic and social consequences.

<< As automation improves jobs are less and less relevant... a paycheck is just one of many ways to get purchasing power to consumers. >>

I agree with J.T. on this one. Subsidizing lack of production is bound to expand the populations that rely on other people's money to survive and produce nothing but biological waste, a pathological culture of fatherless families, and lawlessness. Providing them with "purchasing power" by taxing the producers is not just illogical, but patently absurd.

nwdiver93 | 16. September 2014

So... should we just allow capitalism to collapse under the weight of its own success? OR should we pass laws prohibiting automation?

Interesting historic exchange between Ford CEO and UAW Boss

Ford CEO, "How are you going to get these robots to pay union dues?"

UAW Boss, "How are you going to get these robots to buy your cars?"

What happens when through no fault of their own... millions of people are unemployable?
https://www.youtube.com/watch?v=7Pq-S557XQU

J.T. | 16. September 2014

What happens when through no fault of their own... millions of people are unemployable?

There's no law that says that we have to make people.

nwdiver93 | 16. September 2014

If 1 person can produce for 1000 that ratio is 1:1000 wether there's 7B or 7T people inhabiting earth... a lower population does not alleviate unemployment. An economy NEEDS consumers. Production cannot be greater than consumption.

J.T. | 16. September 2014

lower population does not alleviate unemployment. I'm no economist but if everyone on the unemployment line died today, unemplyment would indeed go down. Plus, we'd need a boatload of funeral workers. :-)

nwdiver93 | 16. September 2014

If they were in the unemployment line then they were receiving unemployment and foodstamps... therefore they were consumers. If they're dead then they can't consume and the empty unemployment line will be quickly refilled by jobs lost due to the drop in consumption.

Production = Consumption

If Consumption Drops.... Production drops

Consumption is necessary for production; Production is necessary for Consumption; Jobs ARE NOT necessary for either with sufficient automation :)

Brian H | 16. September 2014

So far in most part new occupations and types of product and work have arisen to occupy idle hands (if willing). If change (automation) occurs too fast this may not be possible. Some largish categories of "work" (entertainment and sports, e.g.) are less subject to the phenomenon, but are not suitable or capable for most people. Experience to date with those denied opportunity to contribute in some manner is not good.

Whether society can evolve new channels for such contribution is unknown. Getting paid for contributing to blogs?

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