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Thread: Can the NATIONAL DEBT be demystified?

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    Veteran Member Lumpenproletariat's Avatar
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    Quote Originally Posted by Wiploc View Post
    Quote Originally Posted by Lumpenproletariat View Post
    But what about the annual budget deficit? Where is that paid from? Is that also paid from the new debt, like the redemptions (repayments of principal) are?
    The United States has its own fiat currency. So a deficit doesn't necessarily have to be "paid" from anywhere.
    Why not? Swammer above just said the deficit was paid, from the new debt, or new bond issues. At least for 2018:
    Quote Originally Posted by Swammerdami View Post
    But what about the annual budget deficit? Where is that paid from? Is that also paid from the new debt, like the redemptions (repayments of principal) are?
    Yes. The ($10 trillion minus $9 trillion) in the 2018 example WAS the budget deficit that year.
    Meaning that budget / all those budget items were paid for with enough new debt money to cover the deficit, or the amount not covered by tax revenue.

    Isn't this true every year, for every deficit? Isn't it always covered completely by new debt money? The term "fiat" doesn't change that, does it? Doesn't it come from issuing new bonds, regardless whether someone calls it "fiat" money?

    And presumably that debt is repaid, every dollar of principal and interest, to the bondholders. And if it's paid, then it has to be paid FROM somewhere. There has to be some source from which it's paid. Which has to be more debt -- right?

    And all the budget items are paid for with something, though the tax revenue is less than the total budget. So how is that extra trillion or half-trillion $$$ deficit paid? Isn't it from the new debt issued / new bonds = latest debt increase?

    There seems to be a suggestion that some of the budget, or the debt is paid by "printing" dollars, essentially the same as running the presses to print bills, like the Germans did in the 1920s, and this is called "fiat" money which is not debt money. But isn't that false?

    Isn't it the case that the last time the U.S. issued money that way was in the 1860s, in a very rare case to fund the Civil War, when Lincoln rejected the demands of banks which demanded too much interest?

    Hasn't all other war funding since then been done by BORROWING the money, rather than "printing" it? And except for war debt, isn't it the case that there was no deficit until 1931? even if you call it "fiat" money, wasn't it all paid for by taxes or by borrowing (for war)? and since 1931 we've been running the repeated annual deficits virtually every year?


    To smooth out the business cycle, we're supposed to run deficits during recessions and surpluses during booms.
    But that's 90% myth, isn't it? We've had many "boom" years but NO SURPLUSES (or virtually none) since 1931. In the late '90s we had a few balanced budgets but virtually no real surpluses. When did the U.S. have "surpluses during booms" except before 1930? Hasn't it really been deficits during both recessions and booms?


    We like a little inflation, so those shouldn't cancel each other out; our surpluses should be smaller than our deficits.
    How about ZERO surpluses -- is that small enough?

    Even before 2020 we had several trillion-dollar deficits, give or take, but what surpluses have we had? Virtually none.

    We've had some huge deficits vs. some modest deficits vs. a few rare balanced budgets. We need to stop kidding ourselves that deficits are partly offset by surplus years. More than 50 years ago there were 3 or 4 modest surplus years, but otherwise surplus years are non-existent, despite several "boom" periods.


    So, sometimes, and to some extent, deficits don't get "paid for."
    What does that mean? that welfare and military etc. were not paid what the published budget says they were paid? They were all sliced down 10% lower, as needed to eliminate the deficit?

    No, the whole budget is always paid, from somewhere.

    Assuming Swammerdami is correct, all the debt is paid when due, and all the budget funding not paid by tax revenue was paid by new debt (except in the 1860s when some of the budget was paid for by "printed" money not borrowed -- (and maybe earlier also?)).

    Is there any exception to this?



    So in summary it seems the following are
    the basic facts about the debt:

    Currently the debt money is increased about 10 trillion $$$ per year, but is repaid by a similar amount (maybe a trillion less) each year, so the net debt increases in the range of a trillion or so each year -- though just now it's increasing faster than this because of the pandemic.

    Increasing debt is used to pay the annual deficits, which have to be paid -- not by "printing" money but by borrowing only.

    And even though the Fed plays various games, it's not correct to say that it "prints" money like Lincoln did for a short time in the 1860s. Whatever it does to create more money, it's always by some new form of debt increase, which all must be repaid from still more debt in later years which has to keep increasing in perpetuity.

    Is that correct? Is any of that not accurate? Is any of it exaggerated, or distorted?

  2. Top | #22
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    The definition of "fiat money" is somewhat ambiguous, so I won't take sides in that subdebate. Here are my comments:
    Quote Originally Posted by Wiploc View Post
    The United States has its own fiat currency. So a deficit doesn't necessarily have to be "paid" from anywhere.
    The U.S. has central-bank money, slightly different from fiat currency historically. The Treasury mints fiat coins; but it borrows paper and digital money in the debt market. It is the FedRes which issues money, backed by member bank cash(*) on deposit, very high quality debt paper or even, in tiny amount, the precious metal. (* - bank cash is itself FedRes money, so there is recursion there: FedRes money is backed by FedRes money.) Forcing the government to borrow money, even if it's just fiat money, is thought to be preferable to simply printing unbacked money, which would tend to cause inflation.

    But today, "MMT" is a fait accompli; the FedRes is openly bragging about buying, not only unlimited amounts of Treasury debt, but even commercial debt of investment(?) grade! So yes, if one government entity buys up any excess Treasury debt, planning to let it roll over in perpetuity, the American dollar is equivalent to fiat currency.

    To smooth out the business cycle, we're supposed to run deficits during recessions and surpluses during booms. We like a little inflation, so those shouldn't cancel each other out; our surpluses should be smaller than our deficits.
    Yes, Clinton and the Democrats famously balanced the budget in the 1990's and even took the account into surplus. It turned out not to help: When the GOP came to power, they started a costly war and made deep tax cuts — with a purpose to use up the Clinton surplus and thereby serve a Starve the Beast agenda. But yes, throughout 19th and 20th centuries, U.S. federal debt was contained. Recall that the greenbacks Lincoln issued during the Civil War were eventually redeemed (for gold) at 100 cents on the dollar.

    The 21st century is a different matter. With the Rs deliberately increasing the debt — hoping to stifle public investment — Ds cannot invest without also running high deficits. It's almost a game of chicken. Many other countries are also increasing debt rapidly, especially during this pandemic.

    A deficit that is "paid for" by borrowing wouldn't be able to do the job of softening a recession. So, sometimes, and to some extent, deficits don't get "paid for."
    Ideally the net debt should grow at a rate no higher than the economic growth rate, but that is a lost cause. So one is led to wonder: Will MMT continue to "work" over the coming decades? Some investors are concerned about the long-term future of central-bank ("fiat") currencies and are diversifying into Bit-coin and precious metals.

    So what will the future bring? Shouldn't investors be demanding higher interest on long-term bonds? The U.S. government generally defers to Wall St., and banks want a strong dollar, so in the short term expect the dollar to be propped up. Longer term? Who knows.

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    Veteran Member Wiploc's Avatar
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    Quote Originally Posted by Lumpenproletariat View Post
    Originally Posted by Wiploc

    Originally Posted by Lumpenproletariat

    But what about the annual budget deficit? Where is that paid from? Is that also paid from the new debt, like the redemptions (repayments of principal) are?



    The United States has its own fiat currency. So a deficit doesn't necessarily have to be "paid" from anywhere.
    Why not?
    A very strange question. One that suggests our viewpoints may be so different as to preclude communication. Nonetheless:

    Suppose you have ten dollars. You take in nine more, and spend ten. So now you have nine where you had ten before. How did you "pay for" that extra dollar that you spent?

    I keep putting it in quotes because I don't really understand it. You gave the dollar to the man who sells hot dogs. So how do you pay for it? You handed him the dollar. You paid the dollar for a hotdog. Why should you now have to pay for the dollar that you just paid?

    It's very weird.

    But I assume this is a linguistic thing, terminological, and that what you're asking is something like, how do you enter the transaction in your books?

    You credit cash on hand. That "pays for" the dollar you spent.

    If you didn't actually have the dollar, but instead had to borrow it from Jane? Then you credit your debt to Jane.

    But that's because you don't have fiat money. You actually have to get your dollars from somewhere; you can't just make them up.




    Swammer above just said the deficit was paid, from the new debt, or new bond issues. ...
    Which is why I spoke up.



    Quote Originally Posted by Swammerdami View Post
    But what about the annual budget deficit? Where is that paid from? Is that also paid from the new debt, like the redemptions (repayments of principal) are?
    Yes. The ($10 trillion minus $9 trillion) in the 2018 example WAS the budget deficit that year.
    Meaning that budget / all those budget items were paid for with enough new debt money to cover the deficit, or the amount not covered by tax revenue.

    Isn't this true every year, for every deficit?
    No.

    It's more complex than this, but assume that inflation is caused by, and is proportional to, the amount by which government outspends its revenue. If we borrowed enough to make up that difference, there wouldn't be inflation.

    Government spending causes inflation. Taxation (etcetera) causes deflation. So long as taxes and spending are balanced, we don't get either inflation or deflation.

    And yet, as you point out, we almost always get inflation. The implication is that we almost always spend a little more than we bring in.

    Borrowing money has the same anti-inflationary effect at taxing it. So, if we borrowed enough to cover all of our spending, we wouldn't have inflation. And we do have inflation.

    That's a good thing; we like a little inflation. My point is that we have it, almost always. Which means that, as a general rule, we spend more than we bring in from taxation and borrowing.

    Let me stress, again, that the situation is more nuanced than this, complicated by, the business cycle, transaction speeds, confidence in the government, expectations about inflation, economic growth, fluctuations in the money supply, Brownian motion, extraordinary delusions and the madness of crowds, and doubtless other things I don't know about. But the underlying principle remains.


    Isn't it always covered completely by new debt money?
    No.



    The term "fiat" doesn't change that, does it?
    Yes. If our money was backed by gold (or whatever) then, over the long term, we couldn't spend more than we brought in.



    Doesn't it come from issuing new bonds, regardless whether someone calls it "fiat" money?
    Most, maybe, but not all.



    And presumably that debt is repaid, every dollar of principal and interest, to the bondholders.
    Money is fungible, but there's a sense in which we never paid off our debt from World War II. And we never will. Instead, we just inflated it down to where it's negligible.



    And if it's paid, then it has to be paid FROM somewhere. There has to be some source from which it's paid. Which has to be more debt -- right?
    It doesn't have to be, no. It usually is, of course. If we just paid off our debt by printing money, then money would become nearly worthless.

    But, no, it doesn't have to be. And usually a bit of it isn't. Thus a persistent inflation.



    And all the budget items are paid for with something, though the tax revenue is less than the total budget. So how is that extra trillion or half-trillion $$$ deficit paid? Isn't it from the new debt issued / new bonds = latest debt increase?
    Mostly, yes, but not all.



    There seems to be a suggestion that some of the budget, or the debt is paid by "printing" dollars, essentially the same as running the presses to print bills, like the Germans did in the 1920s, and this is called "fiat" money which is not debt money. But isn't that false?
    We exercise restraint, so we don't get runaway inflation. But we prudently arrange to have a little inflation.



    Isn't it the case that the last time the U.S. issued money that way was in the 1860s, in a very rare case to fund the Civil War, when Lincoln rejected the demands of banks which demanded too much interest?
    I assume that spending a little more than we bring in is usual. Hence inflation.



    To smooth out the business cycle, we're supposed to run deficits during recessions and surpluses during booms.
    But that's 90% myth, isn't it? We've had many "boom" years but NO SURPLUSES (or virtually none) since 1931. In the late '90s we had a few balanced budgets but virtually no real surpluses. When did the U.S. have "surpluses during booms" except before 1930? Hasn't it really been deficits during both recessions and booms?
    I don't think it's at all a myth. We're supposed to run surpluses in good times. The fact that we don't do what we're supposed to in no way suggests that we aren't supposed to do it.



    We like a little inflation, so those shouldn't cancel each other out; our surpluses should be smaller than our deficits.
    How about ZERO surpluses -- is that small enough?
    Too small.



    Even before 2020 we had several trillion-dollar deficits, give or take, but what surpluses have we had? Virtually none.
    And you're okay with that?



    We've had some huge deficits vs. some modest deficits vs. a few rare balanced budgets. We need to stop kidding ourselves that deficits are partly offset by surplus years. More than 50 years ago there were 3 or 4 modest surplus years, but otherwise surplus years are non-existent, despite several "boom" periods.
    "I smoke twenty packs a day and it hasn't hurt me yet. You need to stop kidding yourself about smoking being harmful."



    So, sometimes, and to some extent, deficits don't get "paid for."
    What does that mean? that welfare and military etc. were not paid what the published budget says they were paid? They were all sliced down 10% lower, as needed to eliminate the deficit?

    No, the whole budget is always paid, from somewhere.
    Whatever you say.



    Assuming Swammerdami is correct, all the debt is paid when due, and all the budget funding not paid by tax revenue was paid by new debt (except in the 1860s when some of the budget was paid for by "printed" money not borrowed -- (and maybe earlier also?)).

    Is there any exception to this?
    If we stipulated that you were totally right as a matter of history, that would still leave the obvious possibility that next year, or some other year, the deficit would not be exactly offset by borrowing.



    So in summary it seems the following are
    the basic facts about the debt:

    Currently the debt money is increased about 10 trillion $$$ per year, but is repaid by a similar amount (maybe a trillion less) each year, so the net debt increases in the range of a trillion or so each year -- though just now it's increasing faster than this because of the pandemic.

    Increasing debt is used to pay the annual deficits, which have to be paid -- not by "printing" money but by borrowing only.
    If you said that that's how we do it in practice, I'd be skeptical, but I'd grant the possibility. But, since you say it has to be paid in that manner, you're just wrong.



    And even though the Fed plays various games, it's not correct to say that it "prints" money like Lincoln did for a short time in the 1860s. Whatever it does to create more money, it's always by some new form of debt increase, which all must be repaid from still more debt in later years which has to keep increasing in perpetuity.

    Is that correct? Is any of that not accurate? Is any of it exaggerated, or distorted?
    I think you overstate your case.

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    Two issues are being conflated: The mechanics of government debt, and the possible effect of that debt on inflation. Lumpenproletariat has asked about the mechanics.

    As for inflation, whatever the future holds, inflation is very low right now and has been since 1991, the last year that U.S. annual inflation exceeded 4%. A large majority of economists agree that low inflation is BETTER than zero inflation or, worse, deflation. The FedRes sets 2.0% inflation as a deliberate target, and since 1992, inflation (as measured by CPI) has averaged less than 2.3%. Some economists now advocate a slightly higher inflation target, 3% or 4%. Inflation has averaged 3.5% since the election of FDR.

    Yes, over a century 3.5% inflation will compound and "destroy almost 97% of the dollar" — this is a frequent meme among the gold bugs on YouTube but it is gibberish. 2% inflation is GOOD. 3% or 4% inflation might be even better in present-day financial conditions. The danger is much higher inflation possible in the future and NOT inflation at present levels.

    Finally, whether you choose to call our central-bank money "fiat" money or not, the simple fact is that, with the exception of coins and postage stamps, the U.S. government (excepting FedRes) does NOT create currency; it BORROWS what it needs. Increasingly, because of QE ("Quantitative Easing"), that debt paper is purchased by FedRes with money it creates but let us do not confuse that fact with the question of mechanics OP asks about.

    Thanks in advance! :-)

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    Veteran Member Wiploc's Avatar
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    Two stipulations:

    1. Mr. Swammerdami knows much more about economics than I do.

    2. I know nothing at all about the question asked in the OP.

    -

    Now, to the other matter:

    F=MA. Force equals mass times acceleration. That's a thing.

    Energy equals mass times the speed of light squared. That's a thing.

    Those are equations. They work. They are laws.

    But if we say that expenditures equal revenue plus borrowing, that's not a law. It can be true, but it doesn't have to be. If it is true, it may be coincidence. Or it may be done deliberately. But there is no law of economics or accounting that makes it always true. And sometimes it is not true.

    If Mr. Swammerdami tells me I'm wrong about this, I'll have to take that under advisement. Until then, I believe I'm clarifying where he appeared to misspeak.

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    Quote Originally Posted by Wiploc View Post
    ...
    Mr. Swammerdami ...

    But if we say that expenditures equal revenue plus borrowing, that's not a law. It can be true, but it doesn't have to be. If it is true, it may be coincidence. Or it may be done deliberately. But there is no law of economics or accounting that makes it always true. And sometimes it is not true.
    Please just call me Swammi :-)

    Expenditures PLUS savings equal revenue plus borrowing, but government savings, depending on definition, are very small. And details matter: Do we wish to combine SocSec with the rest of Government or treat it as a separate entity?

    Federal government's financial statements DO show coin seigniorage BTW; it is a very tiny amount which, I think, is subtracted from borrowing.

    The question remains: Is there a significant amount of government expenditure not covered by revenues or borrowing? Assuming money the Treasury owes to FedRes is considered "real debt" — :-) — then I don't think so.

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    Veteran Member Wiploc's Avatar
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    Quote Originally Posted by Swammerdami View Post
    Is there a significant amount of government expenditure not covered by revenues or borrowing? Assuming money the Treasury owes to FedRes is considered "real debt" — :-) — then I don't think so.
    But there could be, right?

    The reason that expenditures PLUS savings roughly equal revenue plus borrowing, is because that is our current practice. We do that on purpose, by choice.

    We don't have to keep those balanced. We do it because we have restraint, and because we like the results.

    Do I have that right, Swammi?

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    Veteran Member Wiploc's Avatar
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    Quote Originally Posted by Swammerdami View Post
    Please just call me Swammi :-)
    I'm wip, or wiploc.

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    It appears that the OP author is under the impression that when bonds come due, the holders are paid from current revenues. When the federal government runs a budget surplus, that is what is done. When the federal gov't runs a budget deficit, the debt that comes due is refinanced and the holders of the debt coming due are paid from the refinancing. Since the refinancing is not an adding to the level of the debt, it is not shown as additional revenue.

    This link - https://www.treasurydirect.gov/govt/...publicdebt.htm - is a useful source.

    For historical data on US debt, etc...m, https://www.treasurydirect.gov/govt/...t/histdebt.htm is a good source.

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    Veteran Member Lumpenproletariat's Avatar
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    So U.S. debt is paid from additional debt (future lenders) -- Right?

    Or past debt is paid by current lenders.


    Quote Originally Posted by Wiploc View Post
    Quote Originally Posted by Lumpenproletariat View Post
    The United States has its own fiat currency. So a deficit doesn't necessarily have to be "paid" from anywhere.
    Why not?
    A very strange question. . . .

    Nonetheless: Suppose you have ten dollars.
    "have" it from where? You mean simply that you have, or the government has, money that it borrowed earlier. Which now it can spend. Right?


    You take in nine more, and spend ten. So now you have nine where you had ten before. How did you "pay for" that extra dollar that you spent?
    No, there was no "pay for" in the question. The question was where it was paid FROM. You said it's not paid "from" anywhere.

    I keep putting it in quotes because I don't really understand it. You gave the dollar to the man who sells hot dogs. So how do you pay for it? You handed him the dollar. You paid the dollar for a hotdog. Why should you now have to pay for the dollar that you just paid?It's very weird.
    No, the dollar had to come "from" somewhere. If he was asked where he got that dollar, the answer might be that he earned it somewhere, or that he stole it, or borrowed it, etc. What's wrong with asking where the dollar came "from"? or where the guy paid it "from"? He must have had some source of the money he's paying. We can't ask what the source is? What's "weird" about asking for the source "from" which the dollar was paid? or from what "source" the government pays the budget which exceeds the tax revenue?

    The simple answer seems to be that the deficit is paid out of borrowed money, maybe borrowed earlier.


    But I assume this is a linguistic thing, terminological, and that what you're asking is something like, how do you enter the transaction in your books?

    You credit cash on hand. That "pays for" the dollar you spent.
    No, it's not about how to record the transaction. It's about where the money came "from" -- the guy buying the hot dog either earned it earlier, or stole it, or borrowed it, etc. That's the answer.


    If you didn't actually have the dollar, but instead had to borrow it from Jane? Then you credit your debt to Jane.
    No, in that case the answer is that it was borrowed from Jane. It's not about recording the transaction. What's wrong with just saying it was borrowed from someone earlier?


    But that's because you don't have fiat money. You actually have to get your dollars from somewhere; you can't just make them up.
    It doesn't matter whether it's called "fiat" or some other term. Even if you "make them up" that has to mean you ran a printing press or in some other way produced the money to pay it to someone. So even if you "make them up" the question still is reasonable: where did those dollars come from? The answer might be "we made them up" or "we printed them on our copier" etc. If that's it, then just say so. That's also a source for the money.


    Swammer above just said the deficit was paid, from the new debt, or new bond issues. ...
    Which is why I spoke up.
    Are you saying Pope Swammi is wrong? Are you saying some of the deficit is paid by means of "printing" new money rather than from additional debt? like Germany "printed" bills in the 1920s? basically the same because it's not borrowed?

    Is it widely recognized by those knowledgeable that some of the deficit is paid this way, without new borrowing but just by "printing" money like Germany did?

    None of the debt is paid by working to produce future value, as (most/some) private debt is. It's reasonable to ask why some debt should not be paid by future work to produce value, instead of only by borrowing more in the future. This is a legitimate question to raise.

    So then isn't it the case that most of the budget deficits/debt is repaid from debt money, such as future debt, or issuing new bonds to be repaid later, or maybe in some sense from past borrowed money? So virtually all U.S. debt comes from lenders who understand that the payment to them of principal and interest is dependent on still more debt, or still more money from borrowers, or additional debt. So, the money borrowed from A will be paid back to A by other money borrowed from B, while B will be paid back from money borrowed from C, or even from A again. In any case, virtually all the debt is paid out of some other debt money, earlier or later.

    The debt payback to the bondholders is from still more borrowing or debt. Like borrowing from John and assuring him that he will be paid back from money borrowed from Mary, and telling Mary that the money borrowed from her will be paid out of the money borrowed from John. So now you have that money -- we're richer by thousands we got from Mary and John, and both of them will get full payment of their principal and interest -- the money is fungible, so it doesn't matter if some other borrowing is also necessary. All the lenders will get their principal repayment and interest from still other lenders from somewhere.

    But also a small part comes from "printing" new money, perhaps, like Germany printing bills in the 1920s, but if so that's only a tiny fraction of the debt repayment.


    Quote Originally Posted by Swammerdami View Post
    But what about the annual budget deficit? Where is that paid from? Is that also paid from the new debt, like the redemptions (repayments of principal) are?
    Yes. The ($10 trillion minus $9 trillion) in the 2018 example WAS the budget deficit that year.
    Meaning that budget / all those budget items were paid for with enough new debt money to cover the deficit, or the amount not covered by tax revenue.

    Isn't this true every year, for every deficit?
    No.
    What new debt is not paid from future debt? Only a tiny fraction, perhaps, which is "printed money" such as Germany in the 1920s. The only other way it can happen is if the government runs a surplus, which it basically never does.


    It's more complex than this, but assume that inflation is caused by, and is proportional to, the amount by which government outspends its revenue. If we borrowed enough to make up that difference, there wouldn't be inflation.
    So you assume there is a tiny amount of inflation due to German-style "printing money" as in the 1920s. But even so this is only a tiny fraction, so is negligible. And there's no reason to believe this is any significant cause of the U.S. inflation rate. You can't show a causal connection between these.


    Government spending causes inflation. Taxation (etcetera) causes deflation. So long as taxes and spending are balanced, we don't get either inflation or deflation.
    We do get other inflation or deflation unrelated to government spending and taxing.

    But this doesn't address the point that virtually all new debt is paid by future debt. (Maybe ALL, 100%, but even if it's only 99%, the point is still the same.)


    And yet, as you point out, we almost always get inflation. The implication is that we almost always spend a little more than we bring in.
    No, you seem to think ONLY government spending/taxing causes inflation. But there are other causes.


    Borrowing money has the same anti-inflationary effect as taxing it. So, if we borrowed enough to cover all of our spending, we wouldn't have inflation. And we do have inflation.
    But from other causes than government spending.


    That's a good thing; we like a little inflation. My point is that we have it, almost always. Which means that, as a general rule, we spend more than we bring in from taxation and borrowing.
    Do you know that for a fact, or is this just your speculation? i.e., that some "printing" of money is done to partly pay the deficit? You haven't said how you know this.


    Let me stress, again, that the situation is more nuanced than this, complicated by, the business cycle, transaction speeds, confidence in the government, expectations about inflation, economic growth, fluctuations in the money supply, Brownian motion, extraordinary delusions and the madness of crowds, and doubtless other things I don't know about. But the underlying principle remains.
    Regardless of the inflation due to "printing money" to pay some of the debt (or reduce it) -- even if it's true, the point is that payment of the U.S. debt (or annual deficits) is basically from new debt issued in order to pay off earlier debt.

    There is reason to question the wisdom of relying totally on future debt to pay for the present debts, and expecting future lenders to always want to keep buying the bonds, knowing that there is no source for the future repayment other than future borrowing or future issuing of more bonds like the ones they're buying now. All the lenders are relying on future lenders for their payback, and this is all that the debt is based upon. Unlike all the U.S. debt prior to the 1930s which was mostly paid back by future tax revenue, in a period when annual deficits were the exception and budget surpluses were the rule.

    This is not changed by your speculation that a tiny fraction of the deficit might be paid by "printing" money instead of borrowing it.


    Isn't it always covered completely by new debt money?
    No.
    But virtually always? Yes.

    That "printed money" you're speculating about is only a tiny fraction, probably less than 1%, if there's any at all. It's only your speculation that we're relying on "printed money" like Germany did in the 1920s. This is dubious. But even so it's only a tiny fraction at best.


    The term "fiat" doesn't change that, does it?
    Yes. If our money was backed by gold (or whatever) then, over the long term, we couldn't spend more than we brought in.
    This has nothing to do with whether anything is "backed by gold." Virtually all our debt is being paid from still more debt, regardless of "fiat" jargon or "backed by" jargon. The way to not pay with future debt is to run a balanced budget. Or, to at least reduce the deficits/debt, by borrowing less, rather than borrowing 10% or more of the budget as we are doing now.

    Small amounts of ongoing debt might be accepted as standard, such as 1 or 2% of the total budget being paid by debt rather than current tax revenue. One might make a case for that.

    But no one is explaining the benefit of financing 5% or 10% of the budget, as the norm, by debt, always to be repaid by more future debt.


    Doesn't it come from issuing new bonds, regardless whether someone calls it "fiat" money?
    Most, maybe, but not all.
    The point is that it's paid from borrowed money, from earlier or new borrowing, from issuing bonds. So, how is the debt repaid to the lenders? From additional borrowing. It's like applying for a loan, to buy a house or whatever, and when the lender asks if you can repay it, your answer is that it's no problem because you'll borrow more money to pay for this money you're borrowing now. And those new loans to pay for this loan will also be repaid from still future borrowing.

    Or, to this you want to add: "But we're also going to 'print money' to pay for some of it. So don't worry, we've got you covered. We can pay it from future borrowing and from 'printing' new money for whatever small part isn't covered. So rest easy about getting repaid. It's no problem."

    Is that not how the deficits are paid? or how the lenders paying for the current budget will themselves get paid? through future borrowing, just like we're borrowing from them now?

    How is this not an accurate description of how the federal deficits are paid?


    And presumably that debt is repaid, every dollar of principal and interest, to the bondholders.
    Money is fungible, but there's a sense in which we never paid off our debt from World War II.
    No, it was totally paid to those lenders back then. They all were paid principal and interest. To pay a debt means to pay the lenders, not that you get totally out of debt. And most debts are paid by working to earn more money to pay the debt, while some is paid by taking out future debt to repay the previous lenders. But there is a limit to how much the deficit can be repaid by future debt without doing damage to the economy, just as private debt usually is not secured by just promising to borrow more in the future to repay the current lenders. It is more healthy for the economy if a major part of the debt is paid for by doing work to create value, rather than total reliance on future borrowing to repay the earlier borrowing.

    Much/most of our war debt before WW2 was paid back by doing work to create new value rather than with additional debt. But now it's all paid from additional debt -- old debt repaid out of more recent debt, to be repaid out of future debt.


    And we never will. Instead, we just inflated it down to where it's negligible.
    No, 10 trillion $$$$ per year, or thereabouts, is not negligible. The necessity to borrow another 9 or 10 trillion every year, in order to pay the previous lenders, is not something you can dismiss as "negligible."


    And if it's paid, then it has to be paid FROM somewhere. There has to be some source from which it's paid. Which has to be more debt -- right?
    It doesn't have to be, no. It usually is, of course. If we just paid off our debt by printing money, then money would become nearly worthless.

    But, no, it doesn't have to be. And usually a bit of it isn't.
    You're just saying a small part of the debt repayments are from "printing money" like Germany did in the 1920s. But that's what is "negligible," if it's true. It doesn't change the fact that the debt is repaid basically from additional debt -- more trillions of debt repeatedly needed in order to repay the earlier trillions.


    Thus a persistent inflation.
    Meaning money is "printed" like Germany did in the 1920s. But it's small. It's "printed" in order to pay some of the budget deficit, or it's "printed" in order that the deficit can be smaller.

    So maybe the high inflation of the 1970s was due to "printing money" during those years in order to pay the budget, such as paying the Viet Nam war cost?

    Is it agreed that there was more "printing" money in the 1970s to pay costs, and this caused the higher inflation? You're not telling us where you're getting this. There are other causes of inflation than only the government spending.


    And all the budget items are paid for with something, though the tax revenue is less than the total budget. So how is that extra trillion or half-trillion $$$ deficit paid? Isn't it from the new debt issued / new bonds = latest debt increase?
    Mostly, yes, but not all.
    So "printing money" like Germany in the 1920s is one way to pay the deficits (but only a tiny fraction, so this is of no significance to explaining how the debt is repaid).


    There seems to be a suggestion that some of the budget, or the debt is paid by "printing" dollars, essentially the same as running the presses to print bills, like the Germans did in the 1920s, and this is called "fiat" money which is not debt money. But isn't that false?
    We exercise restraint, so we don't get runaway inflation. But we prudently arrange to have a little inflation.
    Again you're saying money is "printed" in order to pay some of the debt, like Germany did in the 1920s. The only difference is that it's a small amount. Does everyone agree that we're doing this? Or is this a secret which even some experts are not supposed to know? or which they know but are supposed to deny? How do you know any of the debt is paid this way?


    Isn't it the case that the last time the U.S. issued money that way was in the 1860s, in a very rare case to fund the Civil War, when Lincoln rejected the demands of banks which demanded too much interest?
    I assume that spending a little more than we bring in is usual. Hence inflation.
    I.e., "printing" money to pay some of the cost, rather than borrowing. But you're not saying how you know this. This is probably not the cause of U.S. inflation, as you seem to think.


    To smooth out the business cycle, we're supposed to run deficits during recessions and surpluses during booms.
    But that's 90% myth, isn't it? We've had many "boom" years but NO SURPLUSES (or virtually none) since 1931. In the late '90s we had a few balanced budgets but virtually no real surpluses. When did the U.S. have "surpluses during booms" except before 1930? Hasn't it really been deficits during both recessions and booms?
    I don't think it's at all a myth. We're supposed to run surpluses in good times. The fact that we don't do what we're supposed to in no way suggests that we aren't supposed to do it.
    So, by running constant deficits and no surpluses, we're going against what we're "supposed" to do? So you're judging that we're not "supposed" to be doing this? In other words, it's wrong to be doing this? Constantly running high deficits and virtually no surpluses leads to bad results which wouldn't happen if we did what was right instead, which is why we're not "supposed" to be doing it, and we're paying a price for it, or will pay a price for it some day, in your judgment.


    We like a little inflation, so those shouldn't cancel each other out; our surpluses should be smaller than our deficits.
    How about ZERO surpluses -- is that small enough?
    Too small.
    So again you are condemning the large constant deficits and virtually no surpluses because this is doing net damage (now or in the future), in your judgment.


    Even before 2020 we had several trillion-dollar deficits, give or take, but what surpluses have we had? Virtually none.
    And you're okay with that?
    Again you're judging that these chronic deficits are doing long-term net harm, for which a price is being paid, or will be paid, and we'll be sorry we did this.


    We've had some huge deficits vs. some modest deficits vs. a few rare balanced budgets. We need to stop kidding ourselves that deficits are partly offset by surplus years. More than 50 years ago there were 3 or 4 modest surplus years, but otherwise surplus years are non-existent, despite several "boom" periods.
    "I smoke twenty packs a day and it hasn't hurt me yet. You need to stop kidding yourself about smoking being harmful."
    Didn't you say we're "supposed" to do differently than this? Why do you judge that we're "supposed" to do other than this if this is not harmful?

    You said:
    . . . we're supposed to run deficits during recessions and surpluses during booms.
    And you said this "supposed to" isn't a myth:
    I don't think it's at all a myth. We're supposed to run surpluses in good times. The fact that we don't do what we're supposed to in no way suggests that we aren't supposed to do it.
    So you're judging that we're not supposed to do this, but why are we "not supposed" to do it if it's not harmful or wrong or bad? Which is it? If it's not harmful or bad or wrong, then how can it be that we're "not supposed" to do it?


    So, sometimes, and to some extent, deficits don't get "paid for."
    What does that mean? that welfare and military etc. were not paid what the published budget says they were paid? They were all sliced down 10% lower, as needed to eliminate the deficit?

    No, the whole budget is always paid, from somewhere.
    Whatever you say.
    So you're saying some of it is not paid? Which items of the budget were not paid for? Did they cut funding for military or health care or EPA or food stamps etc. in order to reduce the budget down to the level of the tax revenue? Which year was that?


    Assuming Swammerdami is correct, all the debt is paid when due, and all the budget funding not paid by tax revenue was paid by new debt (except in the 1860s when some of the budget was paid for by "printed" money not borrowed -- (and maybe earlier also?)).

    Is there any exception to this?
    If we stipulated that you were totally right as a matter of history, that would still leave the obvious possibility that next year, or some other year, the deficit would not be exactly offset by borrowing.
    Again you're speculating that a tiny % is paid from money "printed" as Germany did in the 1920s. Even so the point is that virtually all the debt has been repaid from still further debt, rather than from "printing" money to cover the difference.


    So in summary it seems the following are
    the basic facts about the debt:

    Currently the debt money is increased about 10 trillion $$$ per year, but is repaid by a similar amount (maybe a trillion less) each year, so the net debt increases in the range of a trillion or so each year -- though just now it's increasing faster than this because of the pandemic.

    Increasing debt is used to pay the annual deficits, which have to be paid -- not by "printing" money but by borrowing only.
    If you said that that's how we do it in practice, I'd be skeptical, but I'd grant the possibility. But, since you say it has to be paid in that manner, you're just wrong.
    But you're just quibbling over a tiny percent which you speculate is provided by "printing" money as Germany did in the 1920s. Which probably isn't happening, but is irrelevant anyway because the amount would be negligible.


    And even though the Fed plays various games, it's not correct to say that it "prints" money like Lincoln did for a short time in the 1860s. Whatever it does to create more money, it's always by some new form of debt increase, which all must be repaid from still more debt in later years which has to keep increasing in perpetuity.

    Is that correct? Is any of that not accurate? Is any of it exaggerated, or distorted?
    I think you overstate your case.
    I'm making allowance that your speculation about "printing" money could be true, though there doesn't seem to be any proof of it. But even so it's still the case that virtually all the debt is paid by means of still more debt. So new lenders are assured of being repaid by the promise of still more borrowing from future lenders, who in turn will be paid by still more borrowing, more future lenders, on and on into perpetuity. With no assurance that any new wealth will be created, nothing new invested into future benefit from which to pay the interest or repay the principal -- only promises of repeated future borrowing, like a drug addiction which has to keep being reinforced with ongoing doses continually without end. Or a stock market speculator who keeps borrowing more in order to buy more and more.

    What part of this is an overstatement?

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