MarvinSussman wrote:
NO! WE DON’T HAVE TOO MUCH FEDERAL DEBT !
Now (January, 2017), foreigners own about half of our $14.3 trillion publicly-owned US debt. With their trade surplus, foreign exporters accumulate US dollars and buy US debt for trade collateral. Their US bonds provide some protection against inflation and eliminate currency exchange fluctuation and costs. Foreigners will hold our debt until they find a safer refuge; none is now in sight. They will want to keep earning and holding our dollars unless the US goods that our dollars would buy are not competitive. It’s the job of Congress to keep us competitive by giving us the world’s best infrastructure.
Our debt/GDP ratio is now about 70%. It was over 120% during World War II, which was followed by 35 years of prosperity. Prosperous Japan’s ratio is now over 200%. We have no federal debt crisis!
Federal budget deficits are necessary for prosperity. Just as an individual judges her financial success by her after-tax earnings, so should the public relish the after-tax savings and cheap foreign goods provided by Congress’ spending deficits, which can only exit circulation into savings accounts or imported goods.
Deficit spending should not be large enough to cause harmful inflation but the budget deficit should exceed our trade deficit. Otherwise, we are exporting our savings to import foreign goods. Instead of cutting spending, we should be reducing our trade deficit by spending as much as possible on infrastructure that would lower industry’s costs, raise its exports, and reduce our trade deficit.
Will our debt always find buyers? Designated “primary” dealers are required to bid without collusion and the Fed can always buy their debt without limit, collect the interest, and return 94% of its annual profit to the Treasury, as law requires. And Congress has already and can again seize the Fed’s reserve.
The entire debt, as collateral, could be converted by bankers into dollars that would be added to a similar amount already in the money supply (M2). So, re-phrasing our question: would $29 trillion be too many dollars chasing too few goods and services, thereby causing inflation? If the few individuals owning most of those dollars increased their buying, what would rise in price, other than financial assets? Not food or other essentials! It is difficult now to see inflation being caused by federal debt.
But what about the future? Every year sees a large and growing federal budget deficit with an associated interest burden. Is that sustainable? The answer, according to the math at http://www.levyinstitute.org/publications/?docid=1379, is that growing deficits are sustainable provided that the rate of GDP growth exceeds the debt interest rate. That implies that our economy must always be competitive, which implies that our infrastructure must be among the best. Our future will not be secure unless we invest in it. Yes, Congress can fund any unfunded liability!
If v**ers really want to reduce the US debt held by the public, their Congress can easily provide steeply progressive estate tax brackets that will, over time, destroy much of the domestically-held debt. We certainly do not need a hereditary aristocracy with rich kids growing up with enough money to buy a Congressional v**e to cut spending on education while our kids are drowning in school debt.
So, how should Congress spend and tax? To maximize infrastructure, Congress should spend almost enough to cause inflation and should tax little enough to almost cause inflation. Ideally, always on the verge of inflation, everybody and every resource would be employed and every material would be in adequate supply or rationed to suit our national priorities, as if we were at war.
When small government nuts cut spending to cut taxes, they also reduce needed infrastructure. The spending scolds are depressing our economy, c***ting our grandchildren out of infrastructure, and weakening our defense, which depends on bridges and dams as well as on arms.
Shun the deficit hawks!
© 2017 Marvin Sussman, All rights reserved.
NO! WE DON’T HAVE TOO MUCH FEDERAL DEBT ! b... (
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You are ignoring the real problem. Federal debt is only a small part of the problem.