American debt

Discussion in 'Economics' started by Drawdown Addict, May 4, 2024.

  1. SunTrader

    SunTrader

    " ... allows ...." to kick the can down the road till we run out of road. LOL

    And when that comes we will have no choice but to understand that.
     
    #71     Sep 16, 2024
  2. piezoe

    piezoe

    Here is something that may help some to understand the difference between real debt and the ersatz debt of the United States government. Real Debt requires a non-trivial expenditure of time and energy to repay it. The ersatz debt of the United States, on the other hand, requires no significant expenditure of time and energy for "repayment". It has already been "covered" by printing of new money, before it is issued! It's not real debt; it is ersatz debt.

    Of course the U.S. has the option of covering a deficit with real debt, but hasn't done this for many years. If the U.S. were to pay off deficit-associated Treasury securities (plus interest) with surplus revenue created by reducing spending or raising taxes, these Treasuries would represent real government debt. The net result would be a reduction in total private sector money*. Consideration of this explains why Wilson's Administration threw the nation into recession by using increased taxes to pay off WWI war bonds. Such is not the current practice however.

    For decades, instead of covering deficits with real borrowing, we have covered deficits with newly "printed" money, followed by ersatz borrowing. Ersatz borrowing occurs when we routinely auction Treasury securities in an amount equal to deficits already covered by printing. In contrast to what happens in real borrowing, the net result is an increase in the total money in the private sector. Treasury securities issued in this latter case represent ersatz debt, not real debt, because the money to payoff the ersatz debt has already been printed and returns to the government when the associated Treasury securities are auctioned. As noted, the affect on the economy of real borrowing and acquisition of real debt is profoundly different than the effect of acquiring ersatz debt.**

    We can summarize this. Whether real debt or ersatz debt is acquired has to do with how deficits and the associated Treasury securities are covered. If they are covered by future spending reductions and/or tax increases, the associated Treasuries represent real debt. If they are covered by printing, as is the current practice, the associated Treasuries represent ersatz debt.

    It is standard practice to refer to outstanding Treasury securities as "debt". That's fine so long as one understands the difference between ersatz debt and real debt. Unfortunately few U.S. citizens, including most older Ph.D. economists, understand the difference. Neither, it seems, do most politicians. We need to change this because our own and our politicians' perception of government's money operations have a profound influence on our government's appropriation and spending.
    _______________
    *To understand this discussion, we must treat Treasury securities the way MMT economists do, viz., as an interest paying alternative form of money.

    **It follows, that in the case of ersatz debt being acquired, the purpose of auctioning Treasury securities cannot be to raise money. In fact, in an ersatz borrowing regime, Treasury securities play an entirely different role than the raising of money, as MMT economists are quick to point out.
     
    #72     Sep 17, 2024
  3. piezoe

    piezoe

    are you going to tell us "when"? :D

    In recent decades, Japan reduced, by about half, its outstanding JGBs, i.e., it converted them to money in its non-interest paying form. It did not raise taxes or cut spending to do this. In other words, it treated those JGB's as ersatz debt. (see my long post above).
     
    Last edited: Sep 17, 2024
    #73     Sep 17, 2024
  4. SunTrader

    SunTrader

    IOW to really break it down into simple terms, its not debt if we say its not.
     
    #74     Sep 17, 2024
  5. 2rosy

    2rosy

    Piezoe deserves to be on Mt. Rushmore :thumbsup:
     
    #75     Sep 17, 2024
    ElCubano likes this.
  6. piezoe

    piezoe

    That's absurd. I'm sure you realize it's absurd.
     
    #76     Sep 17, 2024
  7. piezoe

    piezoe

    #77     Sep 17, 2024
  8. SunTrader

    SunTrader

    No not all, I'm not the one being absurd.

    Here is what Google Gemini AI has to say about it:-

    The debate over Modern Monetary Theory (MMT) is ongoing and complex. There's no consensus among economists on its validity or effectiveness.

    Here are some key points to consider:

    It's important to note that MMT is a relatively new economic theory, and its real-world implications are still being debated. There's limited empirical evidence to support or refute its claims.
     
    #78     Sep 17, 2024
    zghorner likes this.
  9. piezoe

    piezoe

    I am not certain I would agree. The empirical evidence to refute MMT's claims may not be limited, as claimed above, rather it might be non-existent. This could explain why you haven't sited any evidence that would refute the basic tenets of MMT economics.
     
    Last edited: Sep 17, 2024
    #79     Sep 17, 2024
  10. SunTrader

    SunTrader

    Read it again.

    Its not what I have cited (note spelling) or not cited.

    No consensus is no consensus.
     
    #80     Sep 17, 2024