Trump's desire to reduce the deficit. Can someone explain to me how this is a good thing?

Cost of living adjustment.

In such an environment, it would be prudent to take out an adjustable rate loan.

Nominal incomes, not purchasing power.

 

They are created in three ways: 1) the treasury creates them by printing them. 2) The federal reserve creates them by adding them to the accounts of member banks. 3) A bank issues a bank check.

 

On January 26, 2016, debt held by the public was $13.62 trillion or about 75% of the previous 12 months of GDP. Intragovernmental holdings stood at $5.34 trillion, giving a combined total grossnational debt of $18.96 trillion or about 104% of the previous 12 months of GDP.

In fifteen short years mandatory spending on entitlements will exceed revenue:


Of course revenue should rise as the economy continues to grow, perhaps Trump's positive pro-business attitude will stimulate more growth than Obama's un-stimulating efforts, but look at the tend in those columns, particularly "net interest" (red), it looks like this doubles from 2020 to 2030 and then doubles again. Net interest (what it costs to service the debt) is as "mandatory" spending as are Social Security, Medicaid and Medicare. By 2060 it looks like the government will be spending more to service the debt than it spends on Medicaid, Medicare and Social Security.

 

We're talking about spending here.

I do agree, in general, about weaknesses caused by a byzantine regulatory structure, especially in finance and agriculture.

 

Doesn't matter. Purchasing power is used to direct resources. That's why higher money velocity results in higher prices, it's a bidding war.

The United States has a lot of cushion, that's certain, but we can't borrow indefinitely. We're not different from the Greeks, just bigger.

I see no reason to be obsessed with income. In the long run, efficiency is more important than bigger numbers.

Spending cuts free up resources to be used elsewhere.

You seem to believe that there is no potential downside whatsoever to government deficit spending. This is entirely wrong. There have been cases throughout history of nations being destroyed by deficit spending. The French monarchy is a good example.

It's based on an oversimplified view of the system. Ultimately, the US retains the ability to simply stiff creditors around the world or to inflate prices. That gives us a lot of leverage. But permanent deficit spending will result in a catastrophe, it has to. It might be a catastrophe for the Japanese or the Chinese, sure, but catastrophe nonetheless.

 

Note the complete avoidance.

 

The next generations had no say on this game. We have to understand that the circulation of this money is fixed, the value is fixed, and tied intrinsically into other governments.

Is this system made for the world? Is it a patriotic system? Does this system work for us or against us?

 

Close enough.

Federal Reserve does not create money, it takes collateral mostly in the form of US Treasury securities and holds them as assets and it creates dollars as liabilities. See how the assets and liabilities (almost) match? Now do the math.

Bank checks don't create money. Banks take notes secured by the promise of the borrower and create money out of thin air.

The value of the borrowers note is offset by the liability held by the bank. Again, the net in the private sector is zero.

Conclusion, only Treasuries add money to the system.

 

Depends on what you mean by "us."

The current system gives the United States a great deal of soft power on the geopolitical stage. And, the effects of monetary inflation are spread throughout the world, negating it's worse effects within the US itself.

From a nationalist perspective the current system is great for us. We have all the leverage the Chinese and Japanese are at a significant disadvantage.

But there are always downsides.

 

That's a little vague. Can you be more specific?

 

Having a deficit is fine as long as the national debt is too large. Currently about 20% of the economy does to the federal government. The national debt is about 100% of the economy. The government has to pay the people we owe interest of about 2%. This basically means we are using 2% of the entire US economy paying off debt and this is about 10% of the entire federal budget. And our deficit is project to balloon and we will be spending more and more money on interest payments. This is just money down the drain and a very bad idea. Currently interest rates are really really low but if they go up this will only make our interest payments even higher.

We could end up like Japan whose debt is 250% of the economy and they spend 43% of their budget on interest payments for their debt. Given rising healthcare and social security costs this is going to only worsen our deficit problem without major slashes to welfare programs without any tax reductions.

 

With interest rates exceedingly low, I think it is extra dumb to reduce the deficit now. I think deficit spending should be used for improving our infrastructure, which is desperately needed.
The stupidest part of the budget proposal is that people needs are cut, but defense? Defense is targeted to INCREASE - even tho we already outspend the next 7-8 nations COMBINED and most of those are our allies.
Defense spending, unlike spending on infrastructure, is the equivalent of burning money. Other than the flash of jobs for producing the weapons, there is no long-term benefit.
Before the scaredy-cats tremble, I am NOT advocating reducing defense to zero, but certainly don't increase it above the current absurdly high level.
When interest rates are high, I think keeping the deficit down is good, because interest on the debt can become onerous.

 

There is an easy solution to social security - ELIMINATE THE SALARY CAP FOR CONTRIBUTIONS. There was an earlier social security "crisis" - "Saint" Reagan solved it by raising the salary cap for contributions - just eliminate the cap - the poor currently pay every month into SS - let the upper salaries do the same.

 

How much revenue will raising the cap generate yearly?

 

No it doesn't. It steals future demand from the future. And we have stolen enough from those that will follow us.

The government shouldn't run a surplus.

 

So then why was the period of the highest debt to GDP ratio followed by the best 20 years in modern history?

No, the reality is that austerity steals from out children today under the delusion that it will leave more money for the future.

If you support repaying the debt, you support a national surplus, so which is it?

 

Even if people had extra money to put into savings (because that's what we're talking about), all that would do is reduce demand equal to the amount saved.

 

You think that the money not collected by virtue of the salary cap becomes "demand?"

It becomes investment or savings.

The rich don't have that kind of consumption habit. Those that do don't stay rich long.

 

I agree with most of that, but remember, interest isn't paid mostly to bankers, it's paid to anyone that holds US Treasuries. about 1/3 of treasuries are held by people in the private sector. When the government pays interest people earn that interest as income. Interest adds money to the private sector, it doesn't remove it.

 

It becomes investment, savings or spending.

That's why taxes should be increased on the wealthy.

 

We were the only industrialized nation with it's industrial base not lying in smoking ruins.

No it doesn't.

No. You are confusing requiring the government to operate within the means the Citizenry are willing to provide, with the Government taking more than it needs to fulfill the duties granted it by the citizenry.

 

I think taxes should be increased on the wealthy to pay off the debt.

It's like we're in two different worlds.

 

What does that have to do with it?

Have you seen Trump's budget? Do you see all the things it cuts? 13% from education? Now I'm not claiming you support it, or even that it will become law, but if it were to pass, that would steal from our children today on the mistaken idea that it will increase the amount of money to spend in the future.

That's not how surpluses work. It has nothing to do with means. Surpluses happen when the government takes more money from the private sector in taxes than it spends back into the economy.

 

You realize that paying off the debt eliminates money in the economy, right?

 

The more interesting question is, what was our monetary policy during that 20 years?

Specifically, what happened in Washington during those first 5?