Why do governments get into debt?

Do you understand the purpose of investment? It is to lower total costs. When a company invests in a new factory, over a reasonable time, they will save enough to repay that cost, and then continue to save.

Has governments "investment" in education lowered education costs enough to repay that investment? Has the resulting increase in education, generated enough more income to repay that investment, and repay the student loans?

Investment expects a payback.

Government has no accountability.

 

governments can not be run like a business, it needs to be like a family...if the family home needs a new roof you can not delay the repairs it needs to be fixed before the home is destroyed so you borrow to fix it...I've spent a lifetime in the building industry so I see firsthand when owners put off personal infrastructure repairs, it only delays the inevitable and increases the expense later on...

 

There's nothing wrong with borrowing money. However, the government borrows money with absolutely no plan how to pay back the money borrowed. Just like the billion$ spent on Homeland Security and military the government can always conjure a reason to spend more and more and this same policy exists when the government wishes to borrow. Seems like the conjured needs to borrow always trump any plan to pay it back. No matter, most Americans are not crazy about paying off their debt and certainly are not crazy about government raising taxes or reducing expenses to pay down debt...so we have $17 trillion and counting...

 

but the government is the people, when people demand security and military dominance and wars it has to be paid for, where do they imagine the government is going to get the money?...if they object to taxation then it has to be borrowed, which they end up paying for anyways...

 

I also wanted to add that the borrowing cost for the government getting into debt is greater than the seemingly low interest rates we see now. The Federal Reserve is subsidizing the cost of these interest rates, and is paying for this with inflation. The longer the Fed artificially holds down interest rates below market rates, the more inflation there will be.

The specific reason for this is that when the Federal Reserve is issuing new money, they often intentionally overvalue the debts they are buying which will back all this additional money. This dilutes the value of the entire pool of Federal Reserve notes.

 

I would guess this is the most likely result. There is another possibility, but I doubt it will happen.

Right now, the government auctions off bonds. Someone out there, buys those bonds. Then the Federal Reserve steps in and purchases those bonds off the market, with money from the Treasury.

That money is locked up in debt. The government, owes the Fed Reserve money in the form of a bond.

*IF*..... massive massive if....... If when the government pays back those bonds to the Federal Reserve, the Fed then takes that money OUT of circulation.... then inflation will not happen.

But that would assume that government would allow them to do that, and that the Federal Reserve would actually take "income" from their balance sheets and have it disappear.

That seems highly unlikely. But theoretically speaking, the Fed could reverse this system, and avoid inflation.

I would not be holding my breath on that though.

 

That's all good and fine... but regardless of whether you 'mind paying our share', the economic reality is that this harms the economy. Every dollar that you give to government, is one less dollar used to grow the economy.

And no, tax dollars are rarely used to grow the economy. Most dollars are wasted. When you give money in the purchase of a product, that money is used to create more products. When you give money to a welfare queen, she doesn't produce anything. The wealth of society is consumed and gone.

Same is true of retirees, Unemployment Comp, food stamps, and on and on and on. Same is true of government grants. How many multiple billions have been used for grants, to researchers that produce nothing? Now you can try and make the case that research is good... fine. But it still produces nothing. Solyandra produced nothing. That money was spent, consumed, and gone. Same is true of the clean coal grant money, and many others.

And the bottom line is, ok maybe you don't mind your income stolen by government. But most of us, do. Stealing is wrong. Period. Just because you elect politicians to steal for you, instead of stealing it yourself, doesn't make it right. Stealing is wrong.

 

No, because the Fed is still buying Treasury bonds with a lower interest rate than what the market would demand, given such oversaturation of the market with debt. There is a cost to borrowing, and that cost has to manifest itself somewhere.

It's one thing to be taxed so the government can spend your money, but to have to pay compounding interest to private lenders on top of that!

And if anything goes wrong, and interest rates unexpectedly shoot up, the government could get caught in a debt trap. And who will be stuck paying? The taxpayers. Getting into debt is also like assuming risk. That is why I never use a credit card. Sure, it's not so bad if I remembered to pay it off every month, but what if something happened? Then my debt could spiral out of control, and I would be stuck having to borrow even more money, at exorbitant interest rates, to pay off the debts I already had.

 

The assumption is that unless the government builds infrastructure, then it won't happen.

Lincoln Highway, which stretches from New York City, to San Fransisco. 3,000 miles of road, built in 1913, but was built with ZERO government dollars. Local Channel 5 in Ohio ran this on the air.
http://www.newsnet5.com/dpp/news/lo...-but-most-Ohio-drivers-dont-know-theyre-on-it
There's a video. It's not youtube, or I'd post it.

The Gujarat miracle.
Gujarat is a province of India. Prior to 2000, Gujarat was one of the poorest provinces, where only a handful of roads were paved, and most homes had no indoor plumbing, let alone electricity.

In 2001, there was a massive earthquake that wiped out what little Gujarat had. The pict is too big to post. You can look up more information if you want, it's widely known.

As a result, the government decided to create "tax free zones" where companies could operate with zero taxes. They also cut all regulation, so that a company could do pretty much anything, without needing to get through all the red tape.

The result is that companies built their own sea port on the coast of Gujarat. They built their own shipping docks. They built a 4-lane highway for their trucks to transport goods in and out of the province. They built water and power infrastructure to power their businesses.

Of course once the utility companies were in place, they started servicing private citizen too. So just as Adam Smith suggested, the Invisible hand lifted everyone. The utilities created for the benefit of the companies, ended up also benefiting all the citizens as well.

By simply getting rid of the taxes, and getting rid of the regulations, private money built EVERYTHING. No tax dollars needed. Gujarat is now the 3rd or 4th wealthiest province of India, and is in fact the Manufacturing capital of India. And again, without tax dollar. They simply didn't have the tax dollars to do anything anyway. It was just tax cuts and cuts in regulations, that resulted in this economic miracle.

Because of people like you...
... in the public, and in government, believe that government must be the one to build infrastructure, the rich people love to take advantage of that. Thus you have Honda building a automotive testing ground, and convincing the Ohio government to tax poor people, to pay for million dollar stretch of un-used 6-lane highway. How does this make sense to anyone?

Now for the record, I don't mean to imply that no one uses that stretch of road. Some do, but not enough to justify 6-lanes. I've been on that road, and it was very common for me to drive an entire hour without see another car going in either direction. It's basically just for Honda. So poor people are taxed to pay for a rich company's road? That makes sense?

Then additionally, I also have a problem with this concept that infrastructure, for infrastructures sake, will always result in an economic benefit.
No it will not. First most places that need roads, have them. When people say "spend money on infrastructure" they really don't mean there's a town that has no roads, and we need to build a road to it. They mean just randomly building something. Like a bigger highway, or another highway. But do we actually need a bigger highway or another one?

Plain City is a small town about 25 miles west of Columbus Ohio. Currently it has only two, two-lane main roads that cross it. If the Fed, government, dumps a million bucks on Ohio, and says build something, and so Ohio looks around and says, let's make a four lane road going to Plain City, will that cause economic growth? No. It won't. I promise it won't.

There simply isn't the economic demand for a larger road. Making the road larger, doesn't magically create demand for it, anymore than Honda demanding a 6-lane road for their test track, magically creates six lanes worth of traffic passing through.

And here's the kicker. This is exactly what happens all the time.
The majority of roads created by government, that the left claims will boast the economy, are nearly always just additional roads to existing roads that already service that economic purpose.

The New Route 33, is a perfect example. Because it's entire length is paralleled by the existing Old Route 33 which travels the exact same path all they way out.

Are you telling me trucks can't drive the old Route 33? Of course they can. They did for decades before Honda came alone. So what economic benefit do you think the new road provided, that the old road did not? What boast to the economy did it gain? Only one.... Honda. Which is the only one that demanded the New Route 33 to begin with. So tax poor people, and pay rich people, for a private road.

See, this is why I keep saying the leftists are the real tools of the Rich. You people all claim to be for the working man, and against the rich fat cats, but they play you people like a fiddle. Every time they snap their fingers, you people dance like a monkey collecting money for a street peddler.

This same situation can be seen over and over again.
Take Route 40 which used to go from San Francisco to Atlantic City. Today, Route 40 in Ohio at least, is empty because of I-70. You drive down and see endless boarded up buildings, abandoned property and deserted land.
http://www.flickr.com/photos/9588695@N05/1518947041/in/photostream/
An abandoned motel.
http://www.flickr.com/photos/9588695@N05/1509636529/in/photostream/
Vacant gas station, with the original pumps.
http://www.markspearmanphotography.com/Travel/Route-40-The-National-Road/i-mZNdJWG/A
Another gas station.

In fact there are entire towns that have ceased to exist because of I-70, which parallels Rt 40 all the way to Indianapolis and beyond. This is how stupid it is. Rt 40 is almost exactly 2 miles south of I-70, when they leave the beltway of Columbus Ohio. When both roads reach Indianapolis, Rt 40 is exactly 2 miles south of I-70 at the city limits. The two roads parallel each other almost perfectly all the way there.

And here is how I know that spending billions on billions to build I-70 didn't create very much (if any) economic benefit. Both highways are 4-lane roads. If Rt 40 was full, as in reaching capacity, when they built I-70, then I-70 should have been full as well, resulting in Rt 40 still having traffic as spill over from I-70. Right?

If 4-lanes were full on highway A, and you moved that traffic to Highway B which also has only 4-lanes, then assuming that demand for roads was increasing (which is what we have to assume to justify more highways), then Highway B should be maxed out, and other people would still drive highway A. Is that what happened? No, Rt 40 is nearly empty. You can drive for hours and not see anyone. That's why all the gas stations are abandoned, and motels closed, and houses boarded up.

So now we have a perfectly good, perfectly fine 4-lane highway completely unused. What economic benefit do you think building another highway created? And spare me your dumb estimates. Whatever actual growth there was along the Interstate system, was offset by the absolute destruction of the economy along the old highways emptied by an un-needed new highway.

For every new gas station near I-70, there's an abandoned empty boarded up gas station along Rt 40. For every motel near I-70, there's an abandoned motel along Rt 40. Again, entire towns have gone out of existence. Then you want to tell me how wonderful the economic benefit of the interstate is? Really? Entire towns completely wiped out, is a 500% return in Federal taxes over 50 years? The whole freakin town doesn't exist anymore, and that's a 500% return on taxes? If that's what a 500% return on taxes looks like, we need to get less of a return.

This isn't the first time we've heard this either.
How many times, by how many countries, have tried this "Infrastructure to economic growth" belief system, and not had it work? Greece did this with passenger tram service that connected Greece to all of Europe. No growth, tons of debt, and a rail service so expensive that they could pay for private taxis for every passenger, and save money.

The white elephant projects that sunk the Spanish government in debt, were infrastructure projects. Rail terminals that no one used. Airports that closed 3 years after opening.

Japan in the 90s, spent billions on billions on high speed rail service, and they ended up with the Lost Decade, of stagnate, lame economic growth.

Who exactly would you point to, that you could honestly say has endless infrastructure spending resulted in drastic economic growth? The only thing you can do, is make estimates. Which is all that "500% return on taxes" statement is. It's just an estimate. They don't have any hard numbers, and they are ignoring the economic declines caused by perfectly good roads no longer used.

And just as a final point:
You people on the left have zero credibility in this area of what you'd like to spend money on.

We just spent $800 billion in a land slide stimulus package in 2009. You say it's the republicans that prevent infrastructure spending, and yet when Obama had both houses of congress, where did the $800 billion go? Unions, Social Security, Unemployment Comp, State Governments, HUD, The VA, Railroad Retirement Board, Political supporters, lobby groups. If I remember right it was what..... $40 Billion out of $800 Billion was actually put towards Infrastructure?

No no, we're in whiny child world, where even when Democrats control the entire government, it's the Republicans fault somehow, because we're immature babies that blame everyone else for everything we ourselves do. Yes yes. Darn Bush!

Special Message: Grow up. Act like a man. Come back to the forum when you out grow your 'blame everyone else' mantra. The rest of us are tired of baby talk.

 

Well now I didn't mean to imply that the interest rates would stay the same. Yes, the moment the Fed stops buying bonds, the bond values are doing to drop like a rock. Dead weight drop, for sure. So the cost to the government to borrow will absolutely increase, and I would guess rather drastically.

But as far as inflation of the currency, again the Fed could theoretically undo the currency growth. That's all I meant.

And as far as who going to pay for it.... well of course we are. The tax payers are screwed either way. It's just a matter of time.

The only possible way we could dodge this bullet is if government DRASTICALLY, as in scorched earth, cuts spending. I don't think the American people are willing to accept that. But that is in fact the only option outside hyper inflation, or massive tax hikes.

 

My answer would be tariffs. I would prefer a system of 0% taxes, 0% capital gains, 0% sales tax, and have all government operations funded through a flat universal tariff on imported good, which if I remember correctly, is in fact how the government was funded until the constitutional amendment that allowed an income tax.

Some may claim that I am contradicting my previous arguments against protectionism. The difference is, I am not trying to protect American business with tariffs, nor do I advocate the tariffs be high enough to serve as a wall of protection. They should merely be high enough to fund the fundamental duties of the Federal Government. National defense, and enforcing the laws. (laws being the justice system).

Of course that would mean that pretty much everything else would have to be cut. The defense budget would also have to be cut, since I don't think we could have a tariff high enough to meet $500 Billion, which is the DOD current budget. But I'm ok with that.

That said, even if we assume the current system of funding, we could easily cut taxes by 50%, and still have all the money we could possibly need for security and military.

We just have to stop spending on all the other crap. Remember, the government spent $3.5 Trillion, and the DOD budget was only $500 Billion. We could cut spending in half, fund all the primary functions of government, and use the surplus funds to *ACTUALLY* pay down debt. And once paid off, we could cut taxes as well.

 

Sorry about your addiction to anarchy, but governments do indeed have accountability. Your constant refusal to understand this is perplexing given the enormity of evidence. Investment doesn't always mean to lower total costs, it also means to make more revenue over time to cover the investment, perhaps new products or complimentary services. You've never been in business, have you? Here's an idea, in 1980 Ronald Reagan said government is not the solution to our problems, it is the cause. Take that thought and throw it out of your head, he was wrong. Why would this mope run for an office if he couldn't improve the lives of Americans? The seminal reason of government is to bands together for the good of the whole. The real debate is not if the government can help but how and how much. And remember, WE are the government.

 

A few isolated examples of half assed infrastructure projects and that's your argument? The Interstate highway system, the TVA, the Rural electrification program, the St Lawrence seaway, the inter-coastal seaway, the hoover dam, the Mississippi river dredging, public schools, hell, I could go on forever. Buy the way, the Lincoln highway was practically useless, ask Eisenhower.

 

We don't need stinkin govment telling us what to do. We don't want govment a tall. We don't need police, firefighters, and especially food assistance. Let them mo foes die! Only the strong survive- right?

Them people without no job, don't need food.

 

Tax is a natural part of government.

Read a little history.

 

yes even before societies had cash there were collections of food produce, manufactured goods or labour...societies have always pooled their resources toward the common good, it's part of being a social animal...and as much as we all hate taxes we require taxes in order for our society to function...and today's modern societies require a reliable and constant source of revenue, the best being income and sales tax...

 

There's thousands of examples. I picked several that I have personally been on, and can speak from direct experience.

And saying it was useless, when people a hundred years later are still driving it, is a bit moronic and stupid. Don't be that way.

Now I didn't say that ALL infrastructure was bad or useless. I didn't say that.

I said that infrastructure for infrastructures sake, was bad useless.

Some of the things you listed, where things that one could point to a direct economic need for. But if you look at what government is spending "infrastructure" money on today, it's not going to those things.

And again, I'm sorry, but the interstate highway system is not one of those things. Most states already had multi-lane, limited access, highways that went from state to state. When the interstate system was created, it did not provide economic growth, because the transport needs were already being met by existing roads.

Again, Rt 40 is a massive, perfect condition 4-lane limited access highway, that is basically deserted. There was no need for a road to replace it.

And about those public schools.... There was a time and place where they provided great service. But that time is long gone. Now they are super expensive idiot traps, where students come out more stupid than half the planet. We have impoverished former soviet bloc countries, whose student do better than ours.

Dumping more money into that hasn't been a plus.

 

Yes, do tell how wealthy those societies were. No one is suggesting that we have zero taxes. But the problem is we have taxes for things that are not for "the common good". Medicare does nothing for my good. Social Security is not for my good. Welfare and Food stamps, is not for my good. These programs, as with most others, are all at the expense of one group of people, for the benefit of another group of people.

Military, and national defense, and enforcement of justice, are for the common good. Everyone benefits equally from all of those.

If you cut our government down, and limited it to "the common good", We could easily cut taxes by 50%, and still have money left over to pay down all the US debt.

 

I live in CA, our freeways are critical, without a serious rail system we will soon be unable to move without government controlled operating times, business' will have to stay open all night to receive inventory and trucking will operate only at night private cars will be allowed only at certain days and times. A functioning rail system will save billions over freeway upkeep even though no rail fares will ever cover the cost. What does it mean? Permanent taxation on the public for mass transportation cost, the payoff? Goods and people efficiently moved throughout the state, harbors bustling and business expanding. As for public schooling, it is the future. Private schools do no better overall and are rife with graft and fraud unaccountable to the public. We have much to do to bring our public schools up to snuff and the problems go down to local leadership and family participation, other nations do, we can do it better. No large construction happens without some fraud and mistakes, the same for private construction. The difference? In a private company you won't know how much was lost, in the public sector, there are elected officials who are audited and can be held accountable.

 

common good?...the miltiary does nothing for me, a public service that is permanent drain on the economy produces zero profit for society...

healthcare-a healthy population is productive population, a healthy work force means a stronger economy, more wealth, more taxpayers to share the burden...

 

I'll call it ignorance and/or personal greed. Most people want far more, or demand far more, or feel entitled to far more...than they are personally willing to fund. Tens of millions of Americans become dependent on their government for public assistance yet the same tens of millions balk at paying taxes...this is not a sustainable scenario. And since we live with the 'fact' that the US government is $17 trillion in debt, all of this debt spending, year after year, only reinforces to Americans that they can have far more than they are required to fund. And our politicians are chicken-(*)(*)(*)(*) to publicly ask for government to be fully funded. Accumulating federal debt is a no-brainer with zero fiscal accountability. So what else can it be but ignorance and/or personal greed...

 

I believe in minimizing government and maximizing the private economy...obviously this means minimizing the quantity of dollars transferred to government from the private sector. However, I am greatly outnumbered by tens of millions of Americans who have a growing dependency on government support. Unfortunately our heavily biased political brainwashing prevents most of us from thinking about anything other than our political positions or our personal needs. Perhaps the past 40 or so years of failure in the USA to educate a quality workforce, the excessive military and security spending, the failure to maintain US manufacturing and global competitiveness, and our personal failures regarding our life's choices, is simply catching up with us? And as such IMO the collective we have reached a level of incompetence in which we are incapable of solving these complex problems...

 

In bold above, and thinking about this from a math perspective, in 2012, the US bought $2.334 trillion worth of imported products. In 2012, I think the federal government spent about $3.7 trillion. In order to fund the federal government solely with import tariffs, for each $1.00 of imports there would need to be $1.59 in tariffs. This increases the cost of the import from $1.00 to $2.59 and ripples through to the retail price anywhere from 250-300% higher than existing. So with all of our extra cash from not paying any taxes will we mind paying $1500 for a flatscreen TV? Or $75,000 for a Toyota Corolla? Probably not and this will encourage TV's and cars to be built in the USA which will lower imports which will underfund the government and now we're back to taxing US incomes...

 

Yes, and no. All of these problems can be fixed. But the issue isn't education, or incompetence. It's merely will. Do we have the will to accept the pain of cutting. The bottom line is, people don't want to do with less. Most of them understand the concepts we're talking about. They just don't care. I paid into Social Security. I don't care the system doesn't work, or that there's not enough people to steal money from to pay for what I want. I paid into, I demand it, and I'm going to get it, or I'm going to vote against everyone until someone says what I want to hear.

I've heard people say this statement almost verbatim.

And honestly that's what it boils down to. All of these things have simple solutions.

Manufacturing isn't dead in America. Not by a long shot. 2012 was a record year in manufacturing. If you were to separate out US manufacturing into independent nation, it would be the 8th largest economy in the world. Just US manufacturing by itself.

Now that isn't to say we have not lost manufacturing. We have! But we still have a growing productive, wealthy, manufacturing sector in this country. There are small things we can do that would drastically increase manufacturing in the US.

First, eliminate unions. Over and over, there is a steady consistent pattern that Unions ruin manufacturing. As the Unionized steel companies have closed down and sold off steel plants, many of those exact same plants have re-opened as non-union shops. Similarly, it was GM and Chrysler that went bankrupt, not Toyota and Honda. I have even read that some of the Auto plants that GM sold off, ended up bought by non-union auto manufactures, and reopened. And the only reason Ford didn't go bankrupt, was because they secured large Union concessions back in 2006.

Second, lower the minimum wage and cut regulations. Everything that drives up the cost of manufacturing. Cut taxes, so manufacturing is more profitable.

We can cut dependence on government. The question is do we have the will to do it? Most do not. People on both sides of politics, want to demand free stuff. That's all there is to it.

As for as excessive military spending.... Not with you so much on that. Too many people are living in a dream world where we're still leading the planet. Not as true as that used to be. I've looked at most of what our military is doing, and spoken with a number of people in the military, and quite frankly, most of what we are investing into, we need to be investing into.

Now I will agree, that we need to pull back from the "US everywhere" policy, and there are certainly a large number of conflicts we never should have been involved in. And I don't mean Afghanistan or Iraq. Both I think were absolutely necessary. I'm more referring to Kosovo, Bosnia, Sudan, Somalia, Haiti, and so on.

 

You can't have the 'will to do something' unless you can calculate what that something needs to be. And you cannot calculate the best solutions/actions when mired in religion and politics and ignorance and incapable of finding consensus. You can wish all you want but IMO reality proves to us all the time how incapable we have become. If it was easy to change this we would have done so 2-3 decades ago.

Regarding the masses, and considering the collective we, there is no such thing as a simple solution.

Well, we have farming jobs, and service jobs, and professional jobs, and government jobs, and manufacturing jobs, and the tens of millions of Americans who are demanding middle-class jobs pretty much need to achieve this through manufacturing jobs. Gotta wonder how many manufacturing and associated jobs have been lost in the USA during the past 30 years to outsourcing? I'm old enough to remember all of those jobs, and early on worked in some of those jobs, and now most are gone either due to outsourcing or new technology. IMO you cannot stimulate the economy of the USA, and create another $1-2 trillion in tax revenues, from people working on farms and service jobs.

Whether it's outright government welfare, or excessive government jobs, or the military and security spending, when those who pay taxes can no longer support those who don't pay taxes...we have a problem which is not sustainable. We are experiencing this problem now...