Ahhh, here's where the rubber meets the road. A lot of people believe that the government has to borrow dollars in order to have them. I mean, that only makes sense, you and I can't have money before we borrow it, right? But, it's fairly easy to work out why it's exactly the opposite for the government.
Ask yourself, what comes first, money or debt? Since the US government only accepts it's own dollar to purchase the bonds it sells, how can bond sales come before the dollars that are used to purchase them?
In other words, hypothetically, if we wound the economy back to day one, where there were no dollars and no bonds, how could the government sell bonds
before it creates and circulates the dollars to purchase them?
Similarly, when the government spends money each year, it creates and spends money first, bond sales come after.
People tend to think of spending and taxes like this:
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When in fact it is linear, with a definite beginning, like this:
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So each year we see an amount spent in green and taxed in red. Imagine if the government had run a balanced budget at the very beginning, $75 million in and $75 million out. There would be no money. The government's debt forms the basis of the money that we use. Now, I haven't mentioned the banking system or the fact that the government's money, called reserves is only a small fraction of money circulating, so there is more to it, but if this part isn't understood, the banking part won't make any sense.
Going back to the bathtub.
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The government creates money first (G) and it sells bonds after. The reason bonds aren't accounted for is because bonds neither add nor remove money from the economy, they simply shift money from "checking" to "savings".
The tub in the pic above represents the economy and to your point, it gets bigger every year because there are more people and technology makes it possible to do more work with the same number of people. This is why the government has to create and spend more money into the tub to keep it full so all the business that wants to get done can get done. If the tub falls to low, that's when we get recessions and depressions though there can be other reasons.
Most people think of government debt like this:
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When in fact, it looks more like this:
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In another post I pointed out that 2/3rd of the "debt" is money the government owes itself or money earned by individual bondholders here in the US. So when the government pays interest on bonds, people in the private sector are earning income. Of course about 1/3 of that interest is paid to foreign debt holders. But, that's a whole other conversation. Most people have no idea how a nation like China comes to hold about $3.2 trillion dollars (about $1 trillion of that is in bonds). Does anyone stop and think why in the world a nation like China would "fund" our debt? Why would they give the US any money at all? The answer is they have to, but that is best left to a new thread.
So what? As I showed before, the amount if interest paid on the debt relative to the size of the economy is the same as it was in 1945.
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Still less than 2% of GDP. Now, for what its worth I think the Fed raising rates is a mistake. Why? Because the rational is that it's supposed to slow spending by reducing purchases. But few people consider that rates adds money to the economy in for form of interest paid on debt.
Which is why the average person would tell you the economy is bad, while Wall St continues to hit record highs. Why? Because the government is paying billions in interest to bond holders who tend to be in the investor class. It also causes the disparity between the middle and upperclasses to increase.
Your right, but like my illustration above, it is the lower and middle classes that, as you say, work. While the government pays interest to the investor class. It's literally welfare for the rich.
If the government wanted to control inflation the solution should have been to increase taxes on the people who are doing most of the spending. Raising interest rates doesn't accomplish the goal the Fed thinks it does. It's just a transfer of wealth from the poor to the rich, as you say, the middle class works and the wealthy get paid interest for holding bonds.
So to be clear, I'm not defending government policy, I'm simply trying to explain that the system of debt does not work the way that most people think.
Amen brother. I think we agree more than you might think. The first step to changing this policy is for people to understand that the debt isn't some ticking time bomb that our kids are going to have to pay. That idea is what keeps the middle class down. No, the solution is to tax more on people earning $500k or more, not to repay the debt, that can't happen, but to keep the disparity between the middle class and the wealthy at a healthy level. And right now, when the Walton family has more wealth than 30% of the country.
No, we don't have to repay the debt. It can and should exist in perpetuity. It is that belief that keeps the wealthy ahead. They want you focused on debt, and interest rates while they lower taxes. Taxes need to increase on the wealthy. Why? Because when just a handful of people can create a hedge fund will trillions of dollars and the goal of that hedge fund is profit, people get hurt and suffer.
There was a time when investment was in things like factories and worker training, but now we have hedge funds buying up trailer parks so they can raise lot rents so that people can't afford to live there and are forced to abandon their homes, homes they paid for, because they cannot afford to move them. That's horrible, but it's the result of a class of people that has so much money they use it to make more, and more.....
If you have Netflix, this is worth a watch....
Addressing Obama's comment. They say that Dems and R's don't agree on anything.
I made this vid to show that D's and R's agree on one thing, and they are all wrong.....
They are all wrong and everything I've said, backed with sources and evidence proves it.
The debt as a ticking time bomb is a lie that goes back 80 years. At what point are we going to realize that the debt is not what we're being told?
-Cheers