well it hasn’t been one since 1971 - why is always feared to be right over the horizon ??
because it is on the horizon, that this will come that the
USA cant earn enough to pay its bills so we just print it, and nobody will care, thats your bet?
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Devaluing the dollar relative to other currencies is a mixed bag. It makes any business relying on imports spend more and any business selling abroad sell more. Manufacturers who sell abroad suffer with a strong dollar.
“Earn” is what is tripping you up here. It is NOTHING AT ALL like having a job paying $100,000 a year and expenses of $110,000 a year.
It is not easy to explain in a paragraph, but when your debt is demoninated in money that you print, when that money is the world medium of exchange, when that money is how oil is priced, and when you have never defaulted on a bond ever then you have a LOT of flexibility to change the money supply.
Reducing debt has never produced the rainbows and unicorns the usual suspects think it will and increasing debt has not produced the rampant inflation the usual suspects think it will either. The UK ran deficits for 100 years with no problems at all, then WW I came along and then WW II. Meanwhile both those wars helped the US economy, the later one by a LOT.
- not that debt can or should be ignored, but it is vastly more complex than some idiot on Foxxx going on about running up your credit card.
Quite the opposite actually - every surplus economy has been followed by a recession - taking $ out of the private sector to give to the government shrinks the economy
I don’t know how security ratings are derived at, or how much it count in the evaluation of a nation’s standing in the world of economics.(?)
It appears that Singapore, with a “Gross Debt to GDP” at 172.8% is rated AAA in the highest tire, while USA at 119% is rated AA+ in 3rd tire. (MAY be downgraded again)
Could it have something to do with “Deficit to GDP”, where Singapore is at 3.5% while USA is at -7.2%?
Source: With $38 Trillion in Debt, Is the U.S. Headed for More Credit Downgrades?
Why are you assuming a surplus is gained by taking more from the economy and spending less, a huge trade surplus where everyone wins doesnt mean more taxation.
I am saying the government budget in surplus - nothing at all to do with balance of trade.
Gov spending - taxes = surplus (deficit)
since leaving the gold standard - we have had exactly 4 years of surplus - 1998, 1999, 2000, and 2001, all under Clinton.
IMO the downgrade in US Debt is completely a political choice, not economic at all. Each time the US has an internal cat fight on if it will or will not raise the purely artificial and self imposed debt ceiling it adds an element doubt in the market. IMO - that’s it.
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but what does it mean, $1 in debt paid down each year depending on the size of the surplus or was it used elsewhere ?
Does it just mean debt not increased?
Again - the government budget is nothing at all like a household budget. The very terms debt and deficit are completely misleading due to their normal meanings.
US government debt = private sector wealth $ for $
every $ the government spends, that it does not tax back is a $ of wealth in the private sector, every single one. All those cumulative $ over all the years, held as either $ or US issued securities is exactly equal to the “THE DEBT” .
When government spending is less than the $ it taxes back, it is taking $ out of the private sector. When you take $ out of the private economy, either or both of 2 things happen, private consumption declines, or private debt increases. Both of these things slow the economy down and lead to recession.
Not to change your mind, but if this is something that interests you, please watch the first 20 min or so of the video I posted above. Dr Kelton does a way better job of explaining this concept than I could ever do.
It is so very hard to break out of the household budget model of thinking. Thanks for the video.
The other mode of thinking that needs to die is that the mythical 1950s will ever come back. During WWII the industrialized world blew itself to bits except for the USA. As the last 1st World economy standing, we had 20-30 years of living well with little outside competition. This happy accident is never ever coming back, WW III will not leave anyone standing nor enough living humans to buy stuff.
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I fail to understand how most people don’t grasp this.
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Since this MMT talk has already hijacked the thread a bit - I want to make the most important part of understanding this concept.
MMT changes the questions we ask.
Right now, the first question that always gets asked on a new program, or bill, or idea is “ how are we going to pay for it” - MMT changes that question into “ should we do this”
Universal healthcare ? We can pay for it tomorrow - should we do it ?? I don’t know lets have real debate on the merits.
Build subsidize US Ship yards ? We can do it tomorrow - should we do it ? lets have a debate on the merits.
Increase social spending - SNAP etc. - Money is not the issue - should we do it? Lets debate the merits
Give huge tax breaks to the middle class - We don’t need the money - should we do it ? Lets debate the merits
you get the point, the power of MMT is changing the question of “ how are we going to pay for it” - to “should we do it” 1
Another explanation about MMT
When neoclassical economists talk about the national debt, they assume that governments operate in the same way as households or as businesses getting a loan to invest for growth, which they have to pay back. If loans are not paid back there will be dire consequences (such as mortgage holders losing their homes or businesses going bankrupt).
However, that assumption is wrong. It is wrong primarily because, unlike households, governments like the US or UK Governments, are the monopoly issuers of their national currency. Meaning that they don’t have to borrow money before they spend.
For example, If my wife Pat had a printing press that churned out £10 notes - assuming we both didn’t get arrested for counterfeiting – I could spend that money in my local corner shop to get ‘the messages’ (Google, ‘getting the messages’). For as long as we both stayed out of jail, neither of us would ever need to earn or borrow money in order to spend. Similarly, neither the US nor UK Governments have to earn or borrow money before they can spend.
As Stephanie Kelton and other MMT economists point out: the ‘national debt’, as represented by the debt clock (located on the western side of the Bank of America Tower in Manhattan) is not a record of debt in the ‘tradition’ sense of the word. Instead, what it represents is the net amount of money that the US government has spent into the non-government sector - and primarily that means the private sector. Because when the government spends, that spending has to go somewhere, and where it mostly goes is into the private sector.
It is a debt in the sense that it is recorded as a liability on the government’s balances sheet - but it is not the same as household debt. One crucial difference is that it never has to be paid back. It is a debt that can exist on the government’s spreadsheet forever - without it ever affecting the government’s ability to spend in the future.
So, when neoclassical critics warn that deficits are dangerous because they increase the national debt - they are misunderstanding the nature of the government’s liability.
and what would happen if the debt were paid off?
If we were to follow the advice of neoclassical economists, who urge us to ‘extinguish the national debt’, i.e. reduce the figure in the consolidated government debt spreadsheet down to zero, it could be done in the following way:
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Firstly, the government could run continuous budget surpluses i.e. taking more out of the non-government sector in taxes than it spends in each accounting period.
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Secondly, the government could instruct the central bank to stop issuing new bonds and let all existing government bonds expire. This would ensure that no further ‘government debt’ was issued. It would also ensure that no further interest on government bonds would get paid into the non-government sector.
Despite running a surplus, which removes money from the private sector, it would take some time to extinguish the flow of economic activity or growth – as the private sector would initially take on debt to replace that removed by the government (and there may also be earnings coming into the country from foreign trade). But eventually, as growth slowed and private debt reached a point at which it cannot be rolled over or paid back, the national debt would be eliminated. And the economy would grind to a halt.
Banks, as we are reminded by mainstream economists, may well be in a position to find loans but as MMT economists remind them, those loans do not add any net money to the economy - as they have to be paid back. Loans are real private sector debt. And, unlike the government’s liabilities, they do indeed have to be paid back.
So, now what you end up with is unmanageable private sector debt. And that means people losing their homes, businesses are going under, unemployment is going up and the financial industry in meltdown.
Attempting to repay the national debt is not a good idea. In the 1990s, President Clinton attempted to run a government surplus, aiming to reduce the national debt — as recommended by the neoclassical and mainstream Keynesian economists of the time. However, the policy was scrapped as unemployment rose and the economy weakened.
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Both you and “Texastanker” have done a great job of explaining how things work for the USA but small countries like mine have to run their budgets more like a household.
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Yes - you do
There are one small country which have so much “income” that, if it was spent domestically, the economy would overheat badly.
At the same time that country has high tax levels, both on private and business income.
Why not use some of the “national income” to reduce taxes, thus improving life for everybody? Again, that would overheat the economy.
It also tax fortunes over a certain level, even if that is “paper fortunes”, forcing some business owners to withdraw money from their companies to pay “fortune tax”, rather than investing those money in growing their business.
This cause foreign owners to have an advantage over locals, which in turn see a lot of the richest people in the country move out, although still owning businesses in the country.
PS> Only residents are paying “fortune tax”, not foreign living citizens.
Any of the “economy gurus” here have a good advise on how to maintain a healthy balance in an economy with this enviable situation?
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I suspect Mamdani will use Modern Monetary Magic to destroy New York. Let’s see, shall we?
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You know this is not a local thing unless New York City invents their own currency, right?
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