Redstate

Budget surpluses are deflationary. McCain is right, the thing to do is to cut taxes and simultaneously control government spending.

Oh, I agree with cutting taxes and reducing spending.

However, we have a nearly 10 trillion dollar debt, that grows yearly.

We don't just have to stop the growth, we need to pay off that debt.

The ower is a slave to the owed.

We MUST develop a plan to pay off this debt, we cannot continue to pass along this gigantic debt from one generation to the next.

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Dependence is Slavery.

By some people's standards, I have a lot of debt. But my net worth is positive: that is, I have more wealth than debt. Furthermore, it is in my interest to maintain that debt, because the money that debt represents is being put to better use. I'd actually have less income if I paid off that debt. On the other hand, if I consistently spent more than I made, year over year, allowing my debt to rise and my net worth to fall---that would of course be a bad thing.

It is not necessarily bad, fiscally speaking, to carry debt, whether you're talking about an individual, a corporation, or the government. The questions to ask are how much debt can be sustained, given income levels and interest rates, what the true net cost is of paying down that debt. Furthermore, we have to do this calculation based on current circumstances, not on some fantasy that rolls the clock back.

So sure, all other things being equal, it would be better to not have the debt we have now. But we do. And under those circumstances I don't think we are harmed significantly by carrying it forward into the future. Under most economic circumstances I think we are far better served by not taking money out of the economy to pay down principal.

Every month you pay on that debt.

Let's say you pay 500 dollars a month towards a debt.

Over the course of the year, that is $6,000 of your income that goes elsewhere, as compared to your own retirement funds or your own coffers in general.

So unless you make more than $6,000 a year from that debt for which you pay $6,000 a year, you're losing money on the deal.

Yes, you may have more income with the debt, but your outflow is also higher.

The other problem with debt is that you have to pay that $500 a month, whether you have income or not. Those you owe do not care if you had a heart attack and have no income. All they care about is that you owe them $500 that month.

So not only do you have money going away from you rather than into your investments, but you have a constant struggle to avoid emergencies so that you can continue to pay that money out.

Some debt is acceptable. To go to college, one needs school loans, though grants and scholarships ought to be considered first. One need a loan on a house (30 year fixed, preferably 15 if the budget allows).

However, car debt, credit card debt, basically any other debt... it is far too dangerous to keep.

Now, moving past the personal....

Debt is action now for payment later. On a national level, it means that we buy and spend now and pass the costs on to future generations. Decades of doing this has lead to a nearly 10 Trillion) dollar debt.... with no signs of paying it off.

"Balanced Budget" plans cover the interest, but do not adequately form a plan for paying off the principal.

Basically, maintaining income and profit in the face of a growing debt is a house of cards.

If we were to, over the course of a decade or two, pay off the debt, the countless billions that go to interest and prinicpal could then be diverted not just to a 'rainy day fund' for the federal government (in case we face another Great Depression), but also can be diverted to military and domestic spending improvement programs.

The first step, of course, is to cut back on the number and size of many of our social programs.

We have a government with the mentality that when they don't have enough money to do what they want to do, they can just borrow more.

That spending policy is as mature as that of a teenager who can now drive herself to the mall.

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Dependence is Slavery.

Political Compass
Economic Left/Right: 7.12
Social Libertarian/Authoritarian: 1.85

I'm certainly no economist, but one thing I do know is that you cannot compare consumer debt to government debt. They are apples to oranges. Even corporate debt is not comparable to consumer debt. And some debt, when properly structured and properly used,is good.

Those who control energy, control society.

That is true, personal debt functions differetly than corporate or governmental debt.

However, the basic principles still apply.

In the Ower/Owed relationship, history favors the Owed.

When you have an ever-growing debt, you cannot continue to ignore it and still be successful.

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Dependence is Slavery.

Political Compass
Economic Left/Right: 7.12
Social Libertarian/Authoritarian: 1.85

You said:

"In the Ower/Owed relationship, history favors the Owed."

Let's look at that. If you have 1 million dollards and I have nothing. You loan me your million dollars at, say, 7.5% over a given period of time. I am the debtor, but I have all of the power and advantages. I'm liquid. I can spend or invest the money. I guarantee you I'll see income in excess of your 7.5%.

You on the other hand have no liquidity. You get to spend your installment payments as they come in, while I spend your money. If you get into a jam, your million doesn't help you.

In this scenerio, I want to be the ower.

Those who control energy, control society.

Lets take your example.

I loan you one million dollars.

We both break our leg and both our hands and are unable to do anything productive.

I have no problem as I have either a steady income from you. If you are unable to pay, I take your collateral, namely, your home and car and business that you put up as a guarentee on the million dollar loan.

You, on the other hand, have a big problem, as you must continue to make that payment, regardless of any income you have as an injured individual, including the interest I charge for said loan. If not, you lose that collateral, namely your home and car and business that you put up as a guarentee on the million dollar loan.

History favors the owed. Spin it as you'd like. Proverbs 22:7: "Thus, the debtor is a slave to the lender."

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Dependence is Slavery.

Political Compass
Economic Left/Right: 7.12
Social Libertarian/Authoritarian: 1.85

Even if I was a quadrapalegic. This is not consumer debt. If I used your money to buy my house, then it would be consumer debt and your arguement has merit. Otherwise, I'll be happy to invest your money for me any day. :)

Rick

Those who control energy, control society.

Borrowing money to invest it is high stakes gambling that stocks will go up.

Yes yes, I'm just some stupid 'kid' that doesn't know anything about the 'real man's sport. . . .

That's ok. I don't mind being the tortoise if someone else wants to be the hare.

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Dependence is Slavery.

Political Compass
Economic Left/Right: 7.12
Social Libertarian/Authoritarian: 1.85

And, you're absolutely correct that borrowing to invest on stocks is very high risk. I would never do it. And, I'm not trying to pick a fight. I'm simply trying to demonstrate that a sage borrower can use debt to his/her advantage.

Let's try one more example, which is a little closer to the real world. I'm a small time trader in stocks. I don't yet make enough to live on. At least not consistently. But I have a little money in a trading account. I’m in the market to buy a pick-up truck.

Should I take a little out of my trading account for a down payment, and finance the truck for 3 years at 0% interest? Or would you prefer I close my trading account, so I can pay cash for the truck and have no means to generate additional income through trading? :)

Those who control energy, control society.

See, that's another issue with me.

Pay cash for vehicles. The ideal is no debt.

When you keep money invested and take out a loan, you are banking on nothing happening to you that eliminates your income until that loan is paid.

Too many people lose on that bet for me to take it.

Pay cash for cars, never buy a car less than 4 years old. That way you preserve as much of your investment in that vehicles as possible (after 4 years, depreciation on cars slows down quite a bit), plus you get the added benefit of being able to only carry state minimum for car insurance if you run into money trouble down the road (as compared to having to have more coverage if the car has a loan on it).

Plus, no car payment.

Put half of what you WOULD make as a car payment into its own savings account and use that money for repairs.

basically... bankroll yourself.

So, if I were in that decision, the solution would be easy: Sell the small shares that I have in order to pay for a 4 to 6 year old truck in cash.

No, I do not drive pretty cars and I have yet to own a car with less than 80,000 miles on it.

but I have owned every car I've had and I never had to worry about a repo man or collections department calls when I was short on cash.

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Dependence is Slavery.

Political Compass
Economic Left/Right: 7.12
Social Libertarian/Authoritarian: 1.85

Those who control energy, control society.

Well, I don't know about all that, but my family has been much more poor than I would like to return to, and if it takes the principle of "The safe way is the slow way" to stay out of that, I'm ok with that.

Now, I'm not going to turn down someone giving me lots of money, especially if it is for free.

But, since that doesn't happen, I'll stick to the slow path.

I may not get the highs of others in terms of wealth, but I sure will avoid the lows that too many get. I remember the tears of the 'tech bubble burst'

In fact, my father had (due to what we now think of as bad advice) had dumped a bunch of money into intel when it was around 50 bucks or so a share. Then the stocks dropped.

We eventually sold it to pay off some debt, but I don't believe it has yet returned to where we would have even broken even. I think it is around 20 bucks these days.

Sometimes I even doubt that my 401K will be there when I need it.

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Dependence is Slavery.

Political Compass
Economic Left/Right: 7.12
Social Libertarian/Authoritarian: 1.85

...he's darn near 100% certain he'll get all of his money back. If there's any significant credit risk in the transaction, you pay a lot more than a 7.5% coupon.

So on a risk-adjusted basis, the guy who lent the money is holding an asset that (in many cases) he can use to get cash (which is almost perfectly liquid). For example, he can do a repo.

For what it's worth, most people lend money either for short-term cash management, or in order to obtain a future cash flow that matches some liability that they have (like a pension or an insurance payout). Debt is an industrial commodity, that's used as a raw material to create retirement products.

Those who control energy, control society.

Yes, you may have more income with the debt, but your outflow is also higher.

Of course. And if the rise in income exceeds the rise in outflow, then it is a net positive to carry the debt. And that is precisely my situation.

You're confusing debt with a negative net worth. Yes, the United States has debt. But it also has a huge net worth, albeit in more intangible and hard-to-quantify assets. You can't treat its debt situation the same as Joe Six Pack with a 30-year fixed, a couple of credit cards, and a negative net worth.

The question you have to ask is this: are the additional tax revenues required to pay down principal on the debt going to cost us more in the long run by reducing economic growth?

Seems to me that if the federal government was not having to pay off a 10 trillion dollar debt, they'd have even MORE money that could be given back to the public in terms of even LOWER taxes.

Yes, I do believe that the reduction of debt in order to reduce taxes would have a positive result in terms of the ability of the private sector to grow.

And don't get defensive about this discussion. You're entitled to your opinion and I to mine. I have treated you exactly as you have treated me, which should give you pause if you feel your intelligence has been put into question.

I do not claim to be an expert in this or any other field, but I do believe that when the government needs less money to pay out, then it also needs less in taxes.

History shows that when the government takes less of our money in taxes, we do well.

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Dependence is Slavery.

Political Compass
Economic Left/Right: 7.12
Social Libertarian/Authoritarian: 1.85

Seems to me that if the federal government was not having to pay off a 10 trillion dollar debt, they'd have even MORE money that could be given back to the public in terms of even LOWER taxes.

Well, of course. All things being equal, it would be better if we did not have debt now. But as a general rule, preventing the government from acquiring debt would be inappropriately restrictive. Indeed, much of our debt before the modern era was accumulated from various wars. And once you accept that it is sometimes permissible for the government to acquire debt, then you also have to take the long view about how to optimally manage that debt.

Yes, I do believe that the reduction of debt in order to reduce taxes would have a positive result in terms of the ability of the private sector to grow.

You have to be careful here. In order to pay down on the debt, you have to spend more tax revenue than you would if you maintained the current principal. So no, you can't reduce taxes by paying down the debt; you must in fact increase them. The only way to reduce taxes without increasing the deficit is to reduce government expenditures.

So now the question looks like this: let's say the government acheives a $200B surplus in FY 2012 by reducing spending. Should it use that surplus to retire $200B in debt? Or should it reduce the tax burden by $200B? Or something in between? I really don't think the answer is automatically to retire debt. Yes, it might be in some circumstances, but $200B is an awful lot of economic stimulus that might translate to much larger surpluses in the future.

And don't get defensive about this discussion. You're entitled to your opinion and I to mine. I have treated you exactly as you have treated me, which should give you pause if you feel your intelligence has been put into question.

No, you did not treat me the same way I treated you. I did not treat you like you needed a high-school lesson on balancing checkbooks. Next time, Lance, if I tell you my debt is working for me, that my income is higher because of that debt I carry, you might consider actually believing me. I certainly trust that you believe what you're saying.

I do not claim to be an expert in this or any other field, but I do believe that when the government needs less money to pay out, then it also needs less in taxes. History shows that when the government takes less of our money in taxes, we do well.

Agreed. But again, in the short term, debt repayment is an added expense. By all means, let's move towards budget surpluses in the future by trimming government spending. Then we can let the money experts decide on a year-by-year basis if debt retirement is a worthwhile target for those surpluses.

Well, of course. All things being equal, it would be better if we did not have debt now. But as a general rule, preventing the government from acquiring debt would be inappropriately restrictive. Indeed, much of our debt before the modern era was accumulated from various wars. And once you accept that it is sometimes permissible for the government to acquire debt, then you also have to take the long view about how to optimally manage that debt.

Eh, I think we're not as far apart as we might have seemed.

I don't have problems with taking on debt in a short term to take care of situations like a war. I have a problem with the regular addition of debt on a yearly basis as a result of overspending and no fiscal responsibility.

You have to be careful here. In order to pay down on the debt, you have to spend more tax revenue than you would if you maintained the current principal. So no, you can't reduce taxes by paying down the debt; you must in fact increase them. The only way to reduce taxes without increasing the deficit is to reduce government expenditures.

Yes indeed, lower spending to pay off debt. I would not suggest raising taxes to pay debt, but instead encourage the government to lower spending to provide funds for paying debt.

Agreed. But again, in the short term, debt repayment is an added expense. By all means, let's move towards budget surpluses in the future by trimming government spending. Then we can let the money experts decide on a year-by-year basis if debt retirement is a worthwhile target for those surpluses.

I still see no rational purpose for long-term, growing debt. If nothing else, the billions we pay in interest could easiliy be used to fund the war with no additional spendatures required by Congress.

While there may be cause to take a loan or produce bonds for the sake of paying for some sort of emergency such as a war, we ought not make or encourage the habit of consistantly spending more than the government makes.

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Dependence is Slavery.

Political Compass
Economic Left/Right: 7.12
Social Libertarian/Authoritarian: 1.85

n/t

I won't push this issue too far to avoid a threadjack, but the size of our sovereign debt is probably not a problem.

Keep in mind that fiat money is defined as a claim on a well-trusted authority. In the case of the reserves in the banking system, that authority is the Federal Reserve. In the case of government debt, that authority is the Treasury. If you cut down the amount of outstanding debt, you effectively reduce the amount of money in the economy.

There's no reason why this debt has to be paid off, either by this generation or a future one. Our government debt is about two thirds of annual GDP. But Japan's debt is several times their annual GDP, and it doesn't hurt them at all. In fact, Japan continues to export capital all around the world.

Economists differ about whether extremely high levels of government debt damage economic performance. What really matters is whether global investors and foreign central banks will someday lose their desire to hold our debt, and that willingness is only partly responsive to its overall size.

For we have a peculiar power of thinking before we act, and of acting, too, whereas other men are courageous from ignorance but hesitate upon reflection.

I don't know that I can agree with that.

I understand what you're saying, but I don't see the benefit of our country being in financial debt to other nations.

I believe it is starting to get to the point where it can influence our foriegn policy in a rather negative way.

poisoned pet food and lead problems in products from china. There are whispers about an embargo on Chinese goods until the situation is fixed. China threatens to call our debts. What ended up happening? . . . Nothing really, no embargo. Yet more and more toys ended up on that 'dangerous' list.

We HAVE to cut our spending and we really do need to pay down our debt. It grows constantly.

Recently, within the last year or two, Congress voted to do something about our national debt, as it was approaching the cap Congress has previously set. They raised the cap so that it was ok for us to be further in debt.

How is that a responsible action?

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Dependence is Slavery.

Political Compass
Economic Left/Right: 7.12
Social Libertarian/Authoritarian: 1.85

A saying (paraphase): When you owe a man a dollar, he's your boss. When you owe him a million, you are his boss.

Yes, reduce big government, but there is no magic to a balanced budget, as both Hoover and FDR discovered and as Monatarism from Freidman to Volker to Greenspan, Kemp and Reagan supply side shows.

Analogy: I know a lot of poor people with balanced budgets. They can't get credit. They own nothing or very little.

Most all rich folks borrow money. They own property.

The US owns a lot of property.

more later

It would not be good to pay off the debt via large surpluses.

Mike DeVine’s Charlotte Observer columns
www.theminorityreportblog.com
"The way to stop discrimination on the basis of race is to stop discriminating on the basis of race." - The Chief Justice

I don't know...

I just don't see it as wise to not just operate in debt, but continue to increase that debt with no desire or sign of paying it off.

Keeping an ever-growing debt doesn't seem like a safe way to reduce the size of our government.

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Dependence is Slavery.

Political Compass
Economic Left/Right: 7.12
Social Libertarian/Authoritarian: 1.85

Remember when someone said "the era of big government is over?"

What was the view of the budget deficit when that statement was made? IIRC that the deficit was viewed as problematically big at the time.

Then what happened? The Gingrich R's held the line on spending for a couple of years and we started seeing surpluses. Everyone was thrilled.

Then a couple of years later, after coasting on surpluses, Congress became complacent with holding the line on spending. Why shouldn't each member grab a little extra pork if the government was so far in the black? And the era of big government came roaring back.

The reality is that having a modest budget deficit serves as a check on limiting how much pork Congress can dole out and how many new welfare safety net programs libs can get passed.

It is sad statement about too many voters if a deficit, rather than voter scorn, is the check for liberal spending.

Likely true and accurate, but sad.

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Dependence is Slavery.

Political Compass
Economic Left/Right: 7.12
Social Libertarian/Authoritarian: 1.85

Wasn't that about the same time Congress started dipping into the Social Security Trust Fund? So what looked like a surplus was actually extra borrowing on top of the debt?
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"You can't save the Earth unless you're willing to make other people sacrifice" - Scott Adams (speaking through Dogbert)

there was at least a year or two of the govt. budget being balanced even excluding SS surplus. Of course they quickly started playing games with the accounting and blurring the SS surplus with the operating budget.

But regardless, the issue is one of perception, not accounting methodology. If Congress and the public perceive the government to be flush with cash, it will get spent/wasted. If the percepition is that the government is pressed for funds because of the deficit, there is at least some level of interest in holding back government spending.

"Nothing works like freedom, Nothing succeeds like liberty"
Kyle

Can't expect the public to understand accounting methodology when they are up to their eyeballs in personal debt, but are upset that they can't get the super-low interest rate on the hot new sound system they want.

Places like Aaron's Rental exist for a reason: People are largely unwise when it comes to money, having never been taught how to be wise with it.

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Dependence is Slavery.

Political Compass
Economic Left/Right: 7.12
Social Libertarian/Authoritarian: 1.85

budget was balanced for a few years on the back of the military.

Mike DeVine’s Charlotte Observer columns
www.theminorityreportblog.com
"The way to stop discrimination on the basis of race is to stop discriminating on the basis of race." - The Chief Justice

I wholly agree.

btw, and off topic, I just received a mailer with a discount on the NRA Life Member program (I'm sure all non-life members got it)

Cuts the price down to 600 bucks and a payment plan of 25 bucks every quarter.

I'm tempted.

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Dependence is Slavery.

Political Compass
Economic Left/Right: 7.12
Social Libertarian/Authoritarian: 1.85

It's interesting that nowhere in the Constitution is the federal government given the authority or the responsbility to "create jobs", "expand markets overseas", or "preserving our cultural heritage". Nor does the federal government have the right or responsibility to help the needy or feed the poor. Not that I'm saying that any of those things are bad in themselves, but I've always been confused on how the Congress managed to come to the conclusion that it has an obligation and the authorization to use federal tax dollars to do any of those things.

I don't think it was an accident that none of these things are mentioned in the Constitution, but apparently the Founders simply weren't clear enough on this. Maybe what we really need is a consitutional amendment that outlaws federal spending on anything that doesn't directly involve protecting the lives, rights, or property of the citizens of this country.
_______________________________________________
"You can't save the Earth unless you're willing to make other people sacrifice" - Scott Adams (speaking through Dogbert)

The Federal Reserve System was created as a semi-autonomous monetary authority for the United States in 1913. (This was during a gold-standard period, which was suspended for World War I and then re-instated in 1919.)

During the New Deal, the Fed was reorganized and centralized, and given broad authority to regulate the banking and payments systems.

Congress amended the Federal Reserve Act in 1977, adding a mandate that the Fed "maintain monetary aggregates at a level consistent with a growing economy." I think that means the Fed is required by statute to inflate the dollar.

What's going to happen next is driven by a growing recognition that the banking/payments system is not autonomous. Rather, it's linked in fundamental ways to the investment banking and other financial industries, and in ways that transcend national borders.

Sometime during the next ten years, you'll see the national monetary and fiscal authorities of the large economies merge together into a more-or-less transnational regulatory and financial framework.

If we keep our heads out of our behinds during this process, we'll effectively be able to take over the global economy. More likely, however, the center of gravity will be shared among New York, London, and Dubai.

It is called the 10 th amendment

"Land of the Free and Home of da Whopper" Peter Griffin...Family Guy

conform and celebrate diversity....or else!!!

Steel-Belted Radial Right Winger

test

Freedom of Religion NOT Freedom from Religion

No offense, but at least address him by title and/or name?

Senator McCain or McCain.

Making fun of his name reduces any merit in your post.

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Dependence is Slavery.

Political Compass
Economic Left/Right: 7.12
Social Libertarian/Authoritarian: 1.85

You are right, I wrote my post in haste. Senator Mc Cain has earned and truly deserves the respect of the American people.

first they will change the formula for figuring out the COLA, and then just inflate the hell out of the economy. Oh Sure, they will also do some other things like raise the age requirements, and raise taxes, but mostly they will be paying off with dollars the cost less.

"Nothing works like freedom, Nothing succeeds like liberty"
Kyle

I fully expect to pay into social security my entire life, but end up never getting a penny of it.

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Dependence is Slavery.

Political Compass
Economic Left/Right: 7.12
Social Libertarian/Authoritarian: 1.85

We can fund social security sustainably through inflation, provided we keep the COLA at or below the amount by which the money supply grows above its natural rate.

Medicare is totally different. It's a real crisis because it involves removing pricing discipline from healthcare buying decisions. As long as healthcare is "free" to senior citizens, and the number of seniors rises, healthcare spending will rise as a proportion of the economy to an extent that crowds out more efficient uses for the resources.

As horrible as it is to say, the economy gets more lasting benefit by building up new businesses, say in manufacturing for export, than it does by keeping terminally-ill people alive for a few extra months.

if you look at a breakout of what category is proportionately costing Medicare the most it is the expenditures in the last year of an individuals life where they have multiple health issues (think an 89 year old with a combination of prostate cancer and heart disease) getting bounced back and forth between specialists, poor coordination of care, lots of expensive tests, and procedures and treatments that do not really prolong an individual's life.

Its a tough point to raise because you open yourself to getting painted as a Dr. Kevorkian or Soylent Green type, but that's not the right context. At some point if the US public (as opposed to private individuals) are footing the bill for medical care, an assessment by the government will have to be made as to what level of cost is appropriate relative to what level of quality and/or lenghth of life improvement is expected to result. Or in plain English - what the opponents of govt. healthcare have predicted all along - Rationing.