US National Debt Does Not Matter?

Discussion in 'Economics' started by fkienast, Jan 27, 2019.

  1. fkienast

    fkienast

    I figured there would already be a discussion about this here, but a few different searches did not find anything. If this has already been discussed, feel free to direct me to the discussion.

    In recent months, I have seen a few financial commentary articles that argue that the US national debt "does not really matter" come across the business sources I follow on Apple News.

    Their argument goes something like this. When the US runs a budget deficit, it is simply "tax that has yet to be collected". It could be collected in the future, but it really doesn't matter. It represents more cash in the economy, and as such, it has a positive, stimulating effect. We don't have to pay it back - we could just print money if we needed to. In effect, deficit spending is printing money if it is never taxed back.

    Of course, the first thing that comes to my mind here is inflation. Printing money increases its supply, thus making it worth less. The article admits this, but argues that there is plenty of room for more printing because inflation remains low.

    Is there a fallacy here? Other than inflation, are there other risks for running a high deficit? In practice, it seems there are not. I took an economics class in college way back in the 1980s, and I recall the national debt was a hot topic even that long ago. Some people were very concerned back then. Today the deficit is much larger, yet I am not aware of any significant consequences in the at least 3 decades people have been concerned about this. I know that some European countries have adopted "austerity" in recent years in order to keep their national debt down. Now these countries are on the brink of recession, whereas the US, which continues deficit spending, has a strong economy (at least compared to Europe).

    What would happen if the US was to no longer care about the national debt? Let's say there was another tax cut like Trump did last year. Maybe one every year. Lets say we started a bunch of "New Deal" type programs - health insurance coverage for all, guaranteed basic income for all. Let's say we ran a deficit of $10 trillion a year. Is inflation the only danger here? If so, how large a deficit could we realistically run without triggering excessive inflation? What other dangers would there be besides inflation? Let's say this actually happens. A "Bernie Sanders" type person gets elected in 2020 and runs massive deficits. What series of events is likely to play out in markets and the economy?
     
  2. Robert Morse

    Robert Morse Sponsor

    Yes it matters. Running an enormous Deficit that we cannot pay is saying it’s OK for our children, and our children’s children to pay for our way of life today. We should pay our own way. During the good times we should pay down debt and during difficult times we should run deficits.
     
  3. There is a world outside the US that needs to accept dollars as payment. You're unlikely to forever increase your real buying power by adding more digits to the currency.
     
    piezoe, murray t turtle and cdcaveman like this.
  4. Nobert

    Nobert

    Are you familliar with chinas attempts to disturb that, by payin for oil, with their own currency ?

    If yes, then how is that going on so far?
    ( i have absolutely zero knowladge in this field, just wondering )
     
  5. Oh, I am a happy amateur as well, don't get me wrong. The dynamics of currencies as accepted tokens of value are pretty fascinating anyhow. Hopefully someone educated will chime into the thread.

    China's currency is pegged, which I would assume would limit the trust for it as a replacement of the dollar.
     
    tommcginnis and Nobert like this.
  6. Nobert

    Nobert

    Never thought this way, + 30 xp points to me, thanks.
     
  7. LanceJ

    LanceJ

    All the baby boomers are about to drop dead, with them goes the debt. hang tite
     
  8. Overnight

    Overnight

    Nuh uh...Debt is like energy. It never disappears, it simply gets transferred. Gen X will assume the debt of the baby boomers.
     
    Lou Friedman and cdcaveman like this.
  9. Taxation and inflation is theft
     
  10. tommcginnis

    tommcginnis

    Well, that's like, your opinion, man.
     
    #10     Jan 27, 2019
    piezoe and Sig like this.