The OP focuses on the US because it's obviously an important country but the fact of the matter is, there are countries with significantly more debt than the US in comparison to their GDP. That said, I'll simplify this thing as much as I can, and I'll get straight to the heart of the topic instead of screwing around it. (Note: After writing my post, I noticed that I derailed a little toward the end. Oh well)
Countries borrow money for the same reason enterprises borrow money. Essentially, if you believe that by borrowing money, you can make more money in the long run than what the interests will cost you, then perhaps it's worth it. Debt is not inherently a bad thing, good large businesses are in debt constantly, which they use to pay for real property, equipment and sometimes salaries, and they believe that those will yield profits which are greater than the interest rate.
The US borrows money, on one hand because it has financial imperatives - this is a bit of an issue. But it also borrows money because it believes it'll have important returns, notably from infrastructure and stuff.
The alternative would be to get that money directly from the people through taxes and tariffs, but we know that closed systems are less dynamic. This is essentially "safer", but it's not necessarily efficient for various reasons. Growth is easier to achieve when you have more resources, even if some of them are not technically yours. If you tax your people more, they spend less money and it impairs growth. If you borrow money and you build stuff which helps people to make more money, then you can reimburse the debt and then some with the taxation which is already in place (people more more money, government collects more taxes)
You can always argue that the US could compromise - borrow less money, and increase taxation... that's not just an economical problem but a political one also. 'Mericans hate taxes, so raising the taxes is an uphill battle, even when it could be argued that it would be beneficial in the long run to reduce the deficit and control the debt. The other alternative is to reduce government spending, which makes for another political problem: everybody wants the government to reduce or eliminate some useless government spending, but nobody wants to lose their jobs or their subsidies and lobbies will fight for their interests.
The end result is a largely path dependent government which cannot reform itself and borrows money in hopes to promote enough growth to be able to deal with its debt better sometime down the line. Some people are confused about this, too - but the US is not a person, it doesn't need to ever pay off its debt completely. It needs to strike a good balance between paying off the interests and the benefits of being able to benefit from the extra resources it has at its disposal (borrowed money).
So that's basically how it works. Some of the posts above are good, others are a bit shallow. There are many different views, but what's important to remember that having a deficit isn't bad, debt isn't bad. It can be. Some of the government's spending is bad (coughMilitarycough) and government spending should, as much as possible, promote growth so that the debt can be justified.
China is not the biggest owner of US debt. That would be Social Security and the Federal Reserve. Pension funds, mutual funds and banks own a lot of it as well. Money market funds, annuities and insurance are backed by treasuries. American retirees hold a lot of US treasuries in their portfolio, too. They depend on this debt for income purposes.
TL has a pretty young population that only understands finance from a theoretical perspective. Anybody who has started planning for retirement and has taken a closer look at investment vehicles should know how central US treasuries are to the bond market. If you own any balanced funds, bond funds or even target date retirement funds, you own US debt.
On October 07 2013 00:47 8882 wrote: They have to borrow so much money, because they spend more than they earn (and for government, earnings = money collected form taxes).
Where do they spend the money? Wars. Why wars? Because of oil. USA cant live without oil, thus they have to "bring democracy" here and there. Also, when you have quite a lot of debt, you need to get additional debt to be able to repay the interest; you get into a borrowing spiral.
In Norway, you have quite a lot of money earned due to your natural resources; but also you have very high taxes, that's why your government has a surplus. I think, that due to your oil/gas sales, you have such a big surplus, that you had problems what to do with it in the past.
1. Why does the US have to borrow so much money all the time? And why does it never decrease(plz don't say OMG DEMOCRATS THROW MONEY OUT THE WINDOW!) like other countries who manage to keep it +-0 or even in a decrease.
Very few countries have a budget surplus, I think it's only few countries in fact (Norway and the ones that export natural resources - the Arab oil countries). This simply shows that most governments are terrible, because those debts will have to be paid one day (by future generations), or that the governments like to pay "interest on interest" (borrowing money to pay interest).
2. The countries with the highest taxes are the best countries in the world to live in year after year(Namely scandinavia) - why can't people see the correlation?
Norway earns ton of money due to natural resources; not every country has natural resources. Also, what you wrote is at least very subjective (I would even write not true) - books have been written on the subject. But in North Korea the taxes are gigantic, and somehow the life isnt that great.
Also, since Scandinavian's took tons of people from Muslim countries (5% of population?) who live off social, your dream will end soon.
3. Norway for instance has a law that you cannot put a budget into effect that goes in a deficit and it cannot be covered by loans to make ends meet either. The US has no such law?
They have it, but they increase the limit every now and then.
4. Won't the US eventually be unable to pay their interest rates? Then what?
Either war, or China (who holds most of the debt) will simply buy out USA. There are also many other ways to get rid of the debt - "running forward" and hoping for some sort of an advancement in technology, OR having gigantic inflation. When the inflation is gigantic, the governement has to repay less. It hurts its own citizens, but they do not seem to care. Also, in fact, inflation of dolar hurts the world economy, since it is considered a "backup currency". Many people believe that the current "quantitative easing" by the FED is in fact a form of running forward in order not to have repay the Chinese. Basically FED is producing tons of "empty" money that is rising the inflation and ruining the US economy... but at least the debt that has to be paid is lower. It's against Chinese interest to have a war with USA, because it would not do anything good. USA has found a way to outsmart China - eat a cookie (borrow money) and have a cookie (not having to repay it at full). Personally I believe that China will simply try to convert the debt somehow and "buy out" parts of USA; of course USA will try not to allow it.
Also, there is a running joke among economists (not that funny): "We have 1 billion dollars" said the Germans "We have 10 billion dollars" said the Chinese "We have a printing press" said the USA
The issues that you touched upon are very complex but in general one simply cannot spend more than they earn... unless you are a government. But this interest has to be paid somehow and it WILL be paid somehow; that's why there are dozens of tin foil hat theories about bankers running the world. The more probable explanation is that governments rule in terms (4-6 years, depending on country) while the debts have to be paid in a 20 or 30 year span. So they dont care about the future at all. A household couldnt be run like most governements do.
I could also write quite a lot about the norwegian style of economy, but as I wrote above it is a very complex thing and your country is rich due to being not affected by war / education / natural resources; in general low taxes usually mean high economic activity, while high taxes kill that activity - read about the Laffer's curve - one of the oldest concepts in economy ( http://en.wikipedia.org/wiki/Laffer_curve )
Also, something that is often ignored is that while USA has a GIGANTIC debt, that cannot be repaid easily.. it still could be repaid. I think Clinton managed to repay the debt what led to a gigantic economic boom. USA still has a gigantic economy and if they would stop being the OIL POLICE they could probably repay it in a span of 10-15 years. The problem is that when USA stops being OIL POLICE (aka invading oil countries to "bring democracy") their economy would be ruined.
Ok i'm sorry, you're an economist? Because you throw out some pretty serious speculations(war with china, china to buy out US, immigrants on wellfare in scandi, oil police etc)
And the oil money for Norway is somewhat exaggerated tbh, it's not like it is 50% of the country's budget, in 2012 it was roughly 10% that was funded by it and there are regulations about how much you can actually use.
And my first question isn't about a surplus, maybe i formulated myself poorly but it is about keeping the debt in control since the US debt seems to run rampant while it decreases or is being kept at a halt in a lot of other countries, especially before the crisis when the US debt was afaik still increasing rampantly.
And while Norwegian taxes and salaries are very high we only spend 10% of our paycheck on food which i think is quite low compared to the rest of the world.
On October 07 2013 00:54 Djzapz wrote: The OP focuses on the US because it's obviously an important country...
Yes. Especially since Norway just elected a government that is huge fans of how the US operates on many levels, including financialy. Which is kinda scary since by doing it "the norwegian way" Norway has been topping the charts for over a decade.
There are many different views, but what's important to remember that having a deficit isn't bad, debt isn't bad. It can be. Some of the government's spending is bad (coughMilitarycough) and government spending should, as much as possible, promote growth so that the debt can be justified.
Cheers.
This part was a bit of an eye opener in the end, ty for post. Most people(including me) always associate debt as a very bad thing, but i guess it works a bit differently for countries indeed.
On October 06 2013 19:55 Birdie wrote: [...]Worth noting that I'm pro-Austrian economics because I think it works much better than the unsustainable Keynesian economics. If Keynesian economics worked well I'd change my mind in a heartbeat. But they don't.
Sorry but in this last part you are mixing claims of facts with your opinion. Is the Keynesian approach unsustainable? maybe in your opinion but it is not a fact. Same goes for your statement that Keynesian economics do not work. That they don't is your very opinion not a fact. I think this comes from your rather one sided interpretation of the concepts. Keynes is not about funding the entire economy based on debt but for supporting the economy in times of depression and on the otherside withdrawing that support in times of an economic boom.
Empirically speaking it doesn't work. In theory it seems to work, but in actual practice I don't know of any country where it's working well and will continue to work well. Part of the reason for that is that the support is not withdrawn in times of an economic boom, because that would result in unhappy voters. And unhappy voters means losing power next election.
In many ways democracy fuels Keynesian economics because it's easy to make voters happy in the short term by just giving them more services (bribes? ).
On October 06 2013 19:55 Birdie wrote: + Show Spoiler +
Holy balls you wrote all that from a phone? I can barely be bothered to text people. Very nice summary and it explains a lot, ty.
One question however: I thought the scandi countries went through the crisis as well as they did BECAUSE they regulated things? Such as not having the banks be able to do whatever they want in terms of lending people money which from my very limited understanding is what they did in the US(Lend anyone money for a house, since even if they default the house is a 100% foolproof security) and hence no scandinavian banks suffered any difficulties apart from Swedbank which just blows in general and had some terrible investments in the balcan.
I'm not particularly knowledgeable about the Scandinavian economy and way of doing things. However, if I understand right, while the government is a big spender, business in general is relatively unregulated. This means that there's a lot of money from unregulated business, which the government then taxes to spend on welfare and so on.
On October 06 2013 19:55 Birdie wrote: The simple answer to the debt is to default on it as it's unpayable, and remove all unnecessary regulations, government departments, fire most of the people in the government, reduce the size of the military, stop giving out welfare and healthcare, and basically shrink spending to a miniscule fraction of what it currently has. Then lower taxes, because you no longer need that much money to fund the government. Boom, more money in the market for people to spend on what they want to spend it on. Companies will be started and go bankrupt, the market will grow and shrink, bu it will be much more stable. But no one has the balls to do that because they want votes, and millions of people would suffer hardship if the government were to suddenly shrink like I suggest. The transition would be gutwrenchinglyhard but it would work very well in the long run.
First of all thanks for writing out that big explanation about economics... I believe that was very helpful for some readers.
Second I'm not sure if I understand your suggestion here... the 'simple answer.' If the US defaults on its loan, is that the equivalent of missing a payment or the equivalent of declaring bankruptcy? Either would be horribly damaging the US economy though (which you seem to acknowledge).
Removing all unnecessary regulation wouldn't be so simple unless we elect one person (such as you) to choose which regulations are necessary and which aren't. We had a great recession recently that many chalk up to differences of opinion about what is or isn't necessary regulation.
You want to greatly shrink the government, including benefits for those who currently cannot feet themselves and make themselves healthy. This would increase the suffering of citizens to a level much higher than it currently is, all because you claim the end result would be worth it (that is going to be hard to believe for all those people whose children are starving, that weren't starving before this approach was enacted).
Can you think of examples of places where this policy has been very successful recently? I'm of course referring to very small government, minimal amounts of regulation, everything pretty much self-regulated by the economy according to your Austrian economic principles.
Yes, the defaulting would be terrible for the USA in the short term. But I don't think it's possible for the USA to pay off the debt so there's little else they can do besides make the hard decisions. No one wants to though, so they'll probably try to keep going until everything collapses. Keynesian economics usually makes recessions take a lot longer to sort themselves out because the market isn't allowed to fix the things that are wrong.
As others have pointed out, the debt discussion is fairly complex and often muddled in political buzzwords and bullshit. However, there are a few free sources on the internet where you can at least get a decent idea of what's going on. Khan Academy has a bunch of great economics lectures that are beginner-friendly and a good place to start.
I'd also recommend checking out Paul Krugman's Blog, it's also quite easy to read and can offer you some great insights into how economists analyze various events and what conclusions can be drawn from them.
In terms of pure mechanism, it doesn't matter whether you are a person, a company or a country: someone will always lend you money as long as you request it and he's got a reason to believe that you will pay back. However, when it comes to powerful countries like USA, the real bankrupcy as the end of debt spiral is not an option, because it automatically damages every economical system connected to it - which, in USA case is pretty much every significant economical system on the planet. So, shortly speaking, when the collateral damage from one country falling apart exceeds the damage done to that country's creditors, the debt just rises and rises.
Also, printing more and more money. Keynes said: "In the long run we are all dead". This pretty much states that many, if not the majority of people are willing to accept the huge economical dangers as long as they will backfire on next generations. At given point of time, you will find thousands of scumbag brokers, politicians, lawyers etc. willing to postpone the negative consequences of debt at least to the point when they are not responsible for it anymore. That way, when crisis hits, it hits really hard, because it reveals itself alrady past the point when goverment can neutralize it. And of course printing is one of the simplest way to mask the financial problems.
On October 07 2013 00:47 8882 wrote: They have to borrow so much money, because they spend more than they earn (and for government, earnings = money collected form taxes).
Where do they spend the money? Wars. Why wars? Because of oil. USA cant live without oil, thus they have to "bring democracy" here and there. Also, when you have quite a lot of debt, you need to get additional debt to be able to repay the interest; you get into a borrowing spiral.
In Norway, you have quite a lot of money earned due to your natural resources; but also you have very high taxes, that's why your government has a surplus. I think, that due to your oil/gas sales, you have such a big surplus, that you had problems what to do with it in the past.
1. Why does the US have to borrow so much money all the time? And why does it never decrease(plz don't say OMG DEMOCRATS THROW MONEY OUT THE WINDOW!) like other countries who manage to keep it +-0 or even in a decrease.
Very few countries have a budget surplus, I think it's only few countries in fact (Norway and the ones that export natural resources - the Arab oil countries). This simply shows that most governments are terrible, because those debts will have to be paid one day (by future generations), or that the governments like to pay "interest on interest" (borrowing money to pay interest).
2. The countries with the highest taxes are the best countries in the world to live in year after year(Namely scandinavia) - why can't people see the correlation?
Norway earns ton of money due to natural resources; not every country has natural resources. Also, what you wrote is at least very subjective (I would even write not true) - books have been written on the subject. But in North Korea the taxes are gigantic, and somehow the life isnt that great.
Also, since Scandinavian's took tons of people from Muslim countries (5% of population?) who live off social, your dream will end soon.
3. Norway for instance has a law that you cannot put a budget into effect that goes in a deficit and it cannot be covered by loans to make ends meet either. The US has no such law?
They have it, but they increase the limit every now and then.
4. Won't the US eventually be unable to pay their interest rates? Then what?
Either war, or China (who holds most of the debt) will simply buy out USA. There are also many other ways to get rid of the debt - "running forward" and hoping for some sort of an advancement in technology, OR having gigantic inflation. When the inflation is gigantic, the governement has to repay less. It hurts its own citizens, but they do not seem to care. Also, in fact, inflation of dolar hurts the world economy, since it is considered a "backup currency". Many people believe that the current "quantitative easing" by the FED is in fact a form of running forward in order not to have repay the Chinese. Basically FED is producing tons of "empty" money that is rising the inflation and ruining the US economy... but at least the debt that has to be paid is lower. It's against Chinese interest to have a war with USA, because it would not do anything good. USA has found a way to outsmart China - eat a cookie (borrow money) and have a cookie (not having to repay it at full). Personally I believe that China will simply try to convert the debt somehow and "buy out" parts of USA; of course USA will try not to allow it.
Also, there is a running joke among economists (not that funny): "We have 1 billion dollars" said the Germans "We have 10 billion dollars" said the Chinese "We have a printing press" said the USA
The issues that you touched upon are very complex but in general one simply cannot spend more than they earn... unless you are a government. But this interest has to be paid somehow and it WILL be paid somehow; that's why there are dozens of tin foil hat theories about bankers running the world. The more probable explanation is that governments rule in terms (4-6 years, depending on country) while the debts have to be paid in a 20 or 30 year span. So they dont care about the future at all. A household couldnt be run like most governements do.
I could also write quite a lot about the norwegian style of economy, but as I wrote above it is a very complex thing and your country is rich due to being not affected by war / education / natural resources; in general low taxes usually mean high economic activity, while high taxes kill that activity - read about the Laffer's curve - one of the oldest concepts in economy ( http://en.wikipedia.org/wiki/Laffer_curve )
Also, something that is often ignored is that while USA has a GIGANTIC debt, that cannot be repaid easily.. it still could be repaid. I think Clinton managed to repay the debt what led to a gigantic economic boom. USA still has a gigantic economy and if they would stop being the OIL POLICE they could probably repay it in a span of 10-15 years. The problem is that when USA stops being OIL POLICE (aka invading oil countries to "bring democracy") their economy would be ruined.
Shush now, child. That whole invading places for oil thing hasn't been taken seriously since... Well, ever. Because that's not how international marketplaces work. This isn't the 17th century when invading a country meant you could actually get cold hard stuff. If you wish to believe this myth, please look up oil exports from Iraq, before and after the invasion, and then kindly look up ownership shares in Iraqi oilfields. Now, enough of your silly oil police nonsense.
OP, just remember that in democracies, it can be very hard to actually cut spending in a major way. People don't like having less benefits, even if they like the idea of elevating people who want to cut costs and balance budgets. Also bear in mind that, like most governments, the USA has much of its budget tied up in non discretionary spending; that is, spending which has to be allocated towards certain expenses. Governments don't actually have THAT much room to find funding in the grand scheme of things.
On October 06 2013 19:55 Birdie wrote: [...]Worth noting that I'm pro-Austrian economics because I think it works much better than the unsustainable Keynesian economics. If Keynesian economics worked well I'd change my mind in a heartbeat. But they don't.
Sorry but in this last part you are mixing claims of facts with your opinion. Is the Keynesian approach unsustainable? maybe in your opinion but it is not a fact. Same goes for your statement that Keynesian economics do not work. That they don't is your very opinion not a fact. I think this comes from your rather one sided interpretation of the concepts. Keynes is not about funding the entire economy based on debt but for supporting the economy in times of depression and on the otherside withdrawing that support in times of an economic boom.
Empirically speaking it doesn't work. In theory it seems to work, but in actual practice I don't know of any country where it's working well and will continue to work well. Part of the reason for that is that the support is not withdrawn in times of an economic boom, because that would result in unhappy voters. And unhappy voters means losing power next election.
In many ways democracy fuels Keynesian economics because it's easy to make voters happy in the short term by just giving them more services (bribes? ).
Well, we disagree here. I don't share your classification of what is Keynesian and what isn't. Just because a government spends money when it shouldn't that doesn't make it Keynesian. Keynes' ideas evolve around a give and then take approach. not give give give. If governments do the latter to "bribe" their voters it's a flaw in the political system or rather political culture.
Germany managed to get through the crisis with a very Keynesian approach by boosting the domestic demand as well as granting support for short-term work and investing some 100 billion € in infrastructure and it actually cushioned the impact the crisis had on Germany. By now those boosts have run out and the economy is in a rather good shape with tax revenue being on the rise.
On October 07 2013 00:47 8882 wrote: They have to borrow so much money, because they spend more than they earn (and for government, earnings = money collected form taxes).
Where do they spend the money? Wars. Why wars? Because of oil. USA cant live without oil, thus they have to "bring democracy" here and there. Also, when you have quite a lot of debt, you need to get additional debt to be able to repay the interest; you get into a borrowing spiral.
In Norway, you have quite a lot of money earned due to your natural resources; but also you have very high taxes, that's why your government has a surplus. I think, that due to your oil/gas sales, you have such a big surplus, that you had problems what to do with it in the past.
1. Why does the US have to borrow so much money all the time? And why does it never decrease(plz don't say OMG DEMOCRATS THROW MONEY OUT THE WINDOW!) like other countries who manage to keep it +-0 or even in a decrease.
Very few countries have a budget surplus, I think it's only few countries in fact (Norway and the ones that export natural resources - the Arab oil countries). This simply shows that most governments are terrible, because those debts will have to be paid one day (by future generations), or that the governments like to pay "interest on interest" (borrowing money to pay interest).
2. The countries with the highest taxes are the best countries in the world to live in year after year(Namely scandinavia) - why can't people see the correlation?
Norway earns ton of money due to natural resources; not every country has natural resources. Also, what you wrote is at least very subjective (I would even write not true) - books have been written on the subject. But in North Korea the taxes are gigantic, and somehow the life isnt that great.
Also, since Scandinavian's took tons of people from Muslim countries (5% of population?) who live off social, your dream will end soon.
3. Norway for instance has a law that you cannot put a budget into effect that goes in a deficit and it cannot be covered by loans to make ends meet either. The US has no such law?
They have it, but they increase the limit every now and then.
4. Won't the US eventually be unable to pay their interest rates? Then what?
Either war, or China (who holds most of the debt) will simply buy out USA. There are also many other ways to get rid of the debt - "running forward" and hoping for some sort of an advancement in technology, OR having gigantic inflation. When the inflation is gigantic, the governement has to repay less. It hurts its own citizens, but they do not seem to care. Also, in fact, inflation of dolar hurts the world economy, since it is considered a "backup currency". Many people believe that the current "quantitative easing" by the FED is in fact a form of running forward in order not to have repay the Chinese. Basically FED is producing tons of "empty" money that is rising the inflation and ruining the US economy... but at least the debt that has to be paid is lower. It's against Chinese interest to have a war with USA, because it would not do anything good. USA has found a way to outsmart China - eat a cookie (borrow money) and have a cookie (not having to repay it at full). Personally I believe that China will simply try to convert the debt somehow and "buy out" parts of USA; of course USA will try not to allow it.
Also, there is a running joke among economists (not that funny): "We have 1 billion dollars" said the Germans "We have 10 billion dollars" said the Chinese "We have a printing press" said the USA
The issues that you touched upon are very complex but in general one simply cannot spend more than they earn... unless you are a government. But this interest has to be paid somehow and it WILL be paid somehow; that's why there are dozens of tin foil hat theories about bankers running the world. The more probable explanation is that governments rule in terms (4-6 years, depending on country) while the debts have to be paid in a 20 or 30 year span. So they dont care about the future at all. A household couldnt be run like most governements do.
I could also write quite a lot about the norwegian style of economy, but as I wrote above it is a very complex thing and your country is rich due to being not affected by war / education / natural resources; in general low taxes usually mean high economic activity, while high taxes kill that activity - read about the Laffer's curve - one of the oldest concepts in economy ( http://en.wikipedia.org/wiki/Laffer_curve )
Also, something that is often ignored is that while USA has a GIGANTIC debt, that cannot be repaid easily.. it still could be repaid. I think Clinton managed to repay the debt what led to a gigantic economic boom. USA still has a gigantic economy and if they would stop being the OIL POLICE they could probably repay it in a span of 10-15 years. The problem is that when USA stops being OIL POLICE (aka invading oil countries to "bring democracy") their economy would be ruined.
Shush now, child. That whole invading places for oil thing hasn't been taken seriously since... Well, ever. Because that's not how international marketplaces work. This isn't the 17th century when invading a country meant you could actually get cold hard stuff. If you wish to believe this myth, please look up oil exports from Iraq, before and after the invasion, and then kindly look up ownership shares in Iraqi oilfields. Now, enough of your silly oil police nonsense.
OP, just remember that in democracies, it can be very hard to actually cut spending in a major way. People don't like having less benefits, even if they like the idea of elevating people who want to cut costs and balance budgets. Also bear in mind that, like most governments, the USA has much of its budget tied up in non discretionary spending; that is, spending which has to be allocated towards certain expenses. Governments don't actually have THAT much room to find funding in the grand scheme of things.
User was warned for this post
Well, your government just cut off spending to all "less essential services" by means of the government shutdown and so far we dont see people protesting on the streets.They could do the same with the military complex, but this military complex has the US politicians in its pocket. The fun fact is that those "less essential" services is something that can be seen and felt by the average American, when compared to a war in some foreign country...
Of course the shutdown will hurt your economy in the long run, which shows how crazy your politicians are (I read that people cannot even get new IDs); but it also shows what is needed and what is less important. In my opinion US politics are a joke, even the americans say that they country isnt a democracy, but rather a "two party republic" due to their voting system, that allows only 2 parties (which are in fact the same clique) and voting for the 3rd party in 99% of the cases hurts the voter. However we move away form the questions of the author of this blog and come to personal opinions.
On October 07 2013 00:47 8882 wrote: They have to borrow so much money, because they spend more than they earn (and for government, earnings = money collected form taxes).
Where do they spend the money? Wars. Why wars? Because of oil. USA cant live without oil, thus they have to "bring democracy" here and there. Also, when you have quite a lot of debt, you need to get additional debt to be able to repay the interest; you get into a borrowing spiral.
In Norway, you have quite a lot of money earned due to your natural resources; but also you have very high taxes, that's why your government has a surplus. I think, that due to your oil/gas sales, you have such a big surplus, that you had problems what to do with it in the past.
1. Why does the US have to borrow so much money all the time? And why does it never decrease(plz don't say OMG DEMOCRATS THROW MONEY OUT THE WINDOW!) like other countries who manage to keep it +-0 or even in a decrease.
Very few countries have a budget surplus, I think it's only few countries in fact (Norway and the ones that export natural resources - the Arab oil countries). This simply shows that most governments are terrible, because those debts will have to be paid one day (by future generations), or that the governments like to pay "interest on interest" (borrowing money to pay interest).
2. The countries with the highest taxes are the best countries in the world to live in year after year(Namely scandinavia) - why can't people see the correlation?
Norway earns ton of money due to natural resources; not every country has natural resources. Also, what you wrote is at least very subjective (I would even write not true) - books have been written on the subject. But in North Korea the taxes are gigantic, and somehow the life isnt that great.
Also, since Scandinavian's took tons of people from Muslim countries (5% of population?) who live off social, your dream will end soon.
3. Norway for instance has a law that you cannot put a budget into effect that goes in a deficit and it cannot be covered by loans to make ends meet either. The US has no such law?
They have it, but they increase the limit every now and then.
4. Won't the US eventually be unable to pay their interest rates? Then what?
Either war, or China (who holds most of the debt) will simply buy out USA. There are also many other ways to get rid of the debt - "running forward" and hoping for some sort of an advancement in technology, OR having gigantic inflation. When the inflation is gigantic, the governement has to repay less. It hurts its own citizens, but they do not seem to care. Also, in fact, inflation of dolar hurts the world economy, since it is considered a "backup currency". Many people believe that the current "quantitative easing" by the FED is in fact a form of running forward in order not to have repay the Chinese. Basically FED is producing tons of "empty" money that is rising the inflation and ruining the US economy... but at least the debt that has to be paid is lower. It's against Chinese interest to have a war with USA, because it would not do anything good. USA has found a way to outsmart China - eat a cookie (borrow money) and have a cookie (not having to repay it at full). Personally I believe that China will simply try to convert the debt somehow and "buy out" parts of USA; of course USA will try not to allow it.
Also, there is a running joke among economists (not that funny): "We have 1 billion dollars" said the Germans "We have 10 billion dollars" said the Chinese "We have a printing press" said the USA
The issues that you touched upon are very complex but in general one simply cannot spend more than they earn... unless you are a government. But this interest has to be paid somehow and it WILL be paid somehow; that's why there are dozens of tin foil hat theories about bankers running the world. The more probable explanation is that governments rule in terms (4-6 years, depending on country) while the debts have to be paid in a 20 or 30 year span. So they dont care about the future at all. A household couldnt be run like most governements do.
I could also write quite a lot about the norwegian style of economy, but as I wrote above it is a very complex thing and your country is rich due to being not affected by war / education / natural resources; in general low taxes usually mean high economic activity, while high taxes kill that activity - read about the Laffer's curve - one of the oldest concepts in economy ( http://en.wikipedia.org/wiki/Laffer_curve )
Also, something that is often ignored is that while USA has a GIGANTIC debt, that cannot be repaid easily.. it still could be repaid. I think Clinton managed to repay the debt what led to a gigantic economic boom. USA still has a gigantic economy and if they would stop being the OIL POLICE they could probably repay it in a span of 10-15 years. The problem is that when USA stops being OIL POLICE (aka invading oil countries to "bring democracy") their economy would be ruined.
Ok i'm sorry, you're an economist? Because you throw out some pretty serious speculations(war with china, china to buy out US, immigrants on wellfare in scandi, oil police etc)
And the oil money for Norway is somewhat exaggerated tbh, it's not like it is 50% of the country's budget, in 2012 it was roughly 10% that was funded by it and there are regulations about how much you can actually use.
And my first question isn't about a surplus, maybe i formulated myself poorly but it is about keeping the debt in control since the US debt seems to run rampant while it decreases or is being kept at a halt in a lot of other countries, especially before the crisis when the US debt was afaik still increasing rampantly.
And while Norwegian taxes and salaries are very high we only spend 10% of our paycheck on food which i think is quite low compared to the rest of the world.
It's funny, how you thow questions and when you get answers you dont like (aka "Norway best country in the world!!!!!!1") you get angry - and ask me if I am an economist. The things that I wrote above are well known FACTS, that were discussed to death not even by economists, but even by newspapers. And as for your question, in fact I am, but it does not matter at all.
The Norway way worked in Norway, but the question is: wouldnt the Laffer's curve still work and wouldnt it be even better in Norway, if you had lower taxes? I am not against the welfare state at all, but the Norwegian way seems to be coming to an end due to internal reasons that Ive described above.
i think its actually quite simple, with a money system like the us where the money comes frome private banks and is based on debt its simply unavoidable
On October 07 2013 00:54 Djzapz wrote: The OP focuses on the US because it's obviously an important country...
Yes. Especially since Norway just elected a government that is huge fans of how the US operates on many levels, including financialy. Which is kinda scary since by doing it "the norwegian way" Norway has been topping the charts for over a decade.
There are many different views, but what's important to remember that having a deficit isn't bad, debt isn't bad. It can be. Some of the government's spending is bad (coughMilitarycough) and government spending should, as much as possible, promote growth so that the debt can be justified.
Cheers.
This part was a bit of an eye opener in the end, ty for post. Most people(including me) always associate debt as a very bad thing, but i guess it works a bit differently for countries indeed.
Pleasure . I've been a fan of how Norway operates so hopefully they don't mimic the US too much.
On October 07 2013 02:36 BlackJack wrote: It turns out that tax cuts and entitlements are more popular among voters than balanced budgets
It's a bit worse than that. Let's say that there are 4 small businesses, two of which are working fine, one of which is slightly unsustainable. The government makes a program to help out small businesses, so now the third one is sustainable thanks to government help. It develops, hires more people but throughout this all, it is only sustainable and thus only exists because of government help. Eventually, more businesses pop up and these businesses are also only sustainable because of government help. In this case, government ceases to become some sort of "patch" for the economy and instead becomes the foundation on which many businesses and lives are built. The government can no longer terminate their economic assistance without pulling the rug out from underneath the feet of literally millions of retirement plans, budgets, businesses, jobs and so on and so forth. The problem has evolved far beyond political bribery and metastasized into an economic cancer. We can't get rid of it without surgically dissecting ourselves and removing gobbets of flesh from our bodies, a task that is quite frankly impossible for our Congress. Congress is like a pair of estranged Siamese twins these days. When one side tries to head left, the other screams "RIGHT!" and starts trying to sprint in that direction. They have neither the skill, willpower or delicacy needed to perform the economic surgery required to end our bloated wellfare programs.
I do recommend that you study economics yourself to gain a more thorough understanding, but I can give you a short summary based on my knowledge.
There are roughly speaking two opposing schools of thought in economics: Keynesian economics, and Austrian economics. Austrian economic states that the market will automatically correct itself whenever bad things happen, as long as it is deregulated. That is, if a product available for sale is too expensive, then either no one will buy it and the price will go down, or a competitor will start up selling a similar product for a cheaper price. If there are too many companies in an industry for the amount of customers, then some companies will go bankrupt until the number of companies suits the amount of customers. If a need of the consumers is not being met, a new company will start up which will produce a product to meet that need.
What does this have to do with governments and their borrowing? Bear with me, there is a reason the important difference is that Austrian theory requires as little market regulation as possible (while still being moral, e.g. don't deregulate slavery, etc.). If there is little regulation, the market will serve the needs of the people (because the market is people, sothey will serve the needs that they see to make money from those needs).
Keynesian economics thinks of the market as being a ship that needs steering. It does not automatically correct itself to meet the needs of the consumers (people). Instead, it needs guidance in the way of regulations and laws to control how the market expands and deflates. If the market is shrinking and people are spending less money, it is not considered the market correcting itself. Rather, asthe market is not growing it needs to be fixed.
One of the ways which Keynesian economics promotes as a way to fix a falling market is to pump money into the market. If people and companies have more money, no companies will go bankrupt, consumers will buy more products, and the market will grow again. This is what the US (and many other) government is doing. An excellent example of this is the car industry in the USA. Some of the companies were going to go bankrupt. Instead of the government accepting this as a common course of events in an oversaturated market when a company is uncompetitive (prices too high, company not run well, prices too low, no skilled staff because wages aren't high enough, the reasons could be manifold), they decide that the market is shrinking. Market shrinkage means jobs lost and less money being spent (and unhappy voters!) so the government starts giving money to the car companies. Billions of dollars. But the money has to come from somewhere, and the banks start to fail, and other companies start to go under! There's not enough tax money for all these bailouts, not to mention social security, a massive military, government welfare, healthcare, millions of government employees (which partly are employed because then the government can say they have reduced unemployment, but again they are regulating a market by doing so) and all the other hundred and one things the government spends money on. Oh, and there's a recession even with their edforts. That means there are lots of unemployed people. Well, to lower unemployment, the Keynesian suggests massive public projects such as bridges, monuments, roads, public buildings, the Panama Canal, and so on. And those cost billions MORE dollars.
And here's where the debt comes in. To support this massive expenditure, which the taxes can't pay for, the government borrows money. Stacks of it. Truckloads of it. So much money that if all pf the USA sent every dollar they eanred for one year, they would barely dent the surface of this debt. And this is just the public debt (there's also student debt, home loan debt, ordinary credit cardebt, and so on which ordinary people with poor money management have built up, which also totals an almost hilarious amount of money if it weren't so sad).
That's why the USA has so much debt. For the most part, both Republicans and Democrats from my knowledge support this big government, large spending style of economics. Ron Paul was one of the few exceptions (I believe both sides have got a few exceptions but very few).
The reason Scandanavian countries (NZ is just as livable a country with lower tax btw :D) don't have as bad a debt problem is A) higher taxes to fund the government spending, instead of massive borrowing, and B) slightly more sane expenditure, with smaller standing armies and fewer government employees. However, it wouldn't take much or those governments to swing as far over as the USA (on a smaller scale of course). Their basic philosophy of economics is still Keynesian.
Printing of money (fiscal easing or whatever catchphrase they currently use to hide what they're dojng) is another way the governments all over the world try to pay for their big spending. However, the inflation incurred by this printing is straight theft from veryone in their country. If there is $100 total in a country, and you have $10, and the government has $90, then you have 10% of the total money in the country. If the government prints $10 more, suddenly you only have ~9% of the money. Of course, you still have $10 in your hands, but by printing money your money has dropped in purchasing power, and you have been stolen from.
The simple answer to the debt is to default on it as it's unpayable, and remove all unnecessary regulations, government departments, fire most of the people in the government, reduce the size of the military, stop giving out welfare and healthcare, and basically shrink spending to a miniscule fraction of what it currently has. Then lower taxes, because you no longer need that much money to fund the government. Boom, more money in the market for people to spend on what they want to spend it on. Companies will be started and go bankrupt, the market will grow and shrink, bu it will be much more stable. But no one has the balls to do that because they want votes, and millions of people would suffer hardship if the government were to suddenly shrink like I suggest. The transition would be gutwrenchinglyhard but it would work very well in the long run.
Sorry for any spelling mistakes, I'm on a phone. Worth noting that I'm pro-Austrian economics because I think it works much better than the unsustainable Keynesian economics. If Keynesian economics worked well I'd change my mind in a heartbeat. But they don't.
Just curious: do you think that if governments were more skilled they could effectively use Keynesian economics? Or do you think it is inherently flawed and useless due to the complexity of the economy?
On October 06 2013 19:55 Birdie wrote: [...]Worth noting that I'm pro-Austrian economics because I think it works much better than the unsustainable Keynesian economics. If Keynesian economics worked well I'd change my mind in a heartbeat. But they don't.
Sorry but in this last part you are mixing claims of facts with your opinion. Is the Keynesian approach unsustainable? maybe in your opinion but it is not a fact. Same goes for your statement that Keynesian economics do not work. That they don't is your very opinion not a fact. I think this comes from your rather one sided interpretation of the concepts. Keynes is not about funding the entire economy based on debt but for supporting the economy in times of depression and on the otherside withdrawing that support in times of an economic boom.
Empirically speaking it doesn't work. In theory it seems to work, but in actual practice I don't know of any country where it's working well and will continue to work well. Part of the reason for that is that the support is not withdrawn in times of an economic boom, because that would result in unhappy voters. And unhappy voters means losing power next election.
In many ways democracy fuels Keynesian economics because it's easy to make voters happy in the short term by just giving them more services (bribes? ).
Well, we disagree here. I don't share your classification of what is Keynesian and what isn't. Just because a government spends money when it shouldn't that doesn't make it Keynesian. Keynes' ideas evolve around a give and then take approach. not give give give. If governments do the latter to "bribe" their voters it's a flaw in the political system or rather political culture.
Germany managed to get through the crisis with a very Keynesian approach by boosting the domestic demand as well as granting support for short-term work and investing some 100 billion € in infrastructure and it actually cushioned the impact the crisis had on Germany. By now those boosts have run out and the economy is in a rather good shape with tax revenue being on the rise.
Without getting into this too much because I don't know enough about Germany's economy, how do you know that the boosts they used actually helped their economy? Could they not have prolonged it and made it worse?
On October 07 2013 09:30 AnachronisticAnarchy wrote:
I do recommend that you study economics yourself to gain a more thorough understanding, but I can give you a short summary based on my knowledge.
There are roughly speaking two opposing schools of thought in economics: Keynesian economics, and Austrian economics. Austrian economic states that the market will automatically correct itself whenever bad things happen, as long as it is deregulated. That is, if a product available for sale is too expensive, then either no one will buy it and the price will go down, or a competitor will start up selling a similar product for a cheaper price. If there are too many companies in an industry for the amount of customers, then some companies will go bankrupt until the number of companies suits the amount of customers. If a need of the consumers is not being met, a new company will start up which will produce a product to meet that need.
What does this have to do with governments and their borrowing? Bear with me, there is a reason the important difference is that Austrian theory requires as little market regulation as possible (while still being moral, e.g. don't deregulate slavery, etc.). If there is little regulation, the market will serve the needs of the people (because the market is people, sothey will serve the needs that they see to make money from those needs).
Keynesian economics thinks of the market as being a ship that needs steering. It does not automatically correct itself to meet the needs of the consumers (people). Instead, it needs guidance in the way of regulations and laws to control how the market expands and deflates. If the market is shrinking and people are spending less money, it is not considered the market correcting itself. Rather, asthe market is not growing it needs to be fixed.
One of the ways which Keynesian economics promotes as a way to fix a falling market is to pump money into the market. If people and companies have more money, no companies will go bankrupt, consumers will buy more products, and the market will grow again. This is what the US (and many other) government is doing. An excellent example of this is the car industry in the USA. Some of the companies were going to go bankrupt. Instead of the government accepting this as a common course of events in an oversaturated market when a company is uncompetitive (prices too high, company not run well, prices too low, no skilled staff because wages aren't high enough, the reasons could be manifold), they decide that the market is shrinking. Market shrinkage means jobs lost and less money being spent (and unhappy voters!) so the government starts giving money to the car companies. Billions of dollars. But the money has to come from somewhere, and the banks start to fail, and other companies start to go under! There's not enough tax money for all these bailouts, not to mention social security, a massive military, government welfare, healthcare, millions of government employees (which partly are employed because then the government can say they have reduced unemployment, but again they are regulating a market by doing so) and all the other hundred and one things the government spends money on. Oh, and there's a recession even with their edforts. That means there are lots of unemployed people. Well, to lower unemployment, the Keynesian suggests massive public projects such as bridges, monuments, roads, public buildings, the Panama Canal, and so on. And those cost billions MORE dollars.
And here's where the debt comes in. To support this massive expenditure, which the taxes can't pay for, the government borrows money. Stacks of it. Truckloads of it. So much money that if all pf the USA sent every dollar they eanred for one year, they would barely dent the surface of this debt. And this is just the public debt (there's also student debt, home loan debt, ordinary credit cardebt, and so on which ordinary people with poor money management have built up, which also totals an almost hilarious amount of money if it weren't so sad).
That's why the USA has so much debt. For the most part, both Republicans and Democrats from my knowledge support this big government, large spending style of economics. Ron Paul was one of the few exceptions (I believe both sides have got a few exceptions but very few).
The reason Scandanavian countries (NZ is just as livable a country with lower tax btw :D) don't have as bad a debt problem is A) higher taxes to fund the government spending, instead of massive borrowing, and B) slightly more sane expenditure, with smaller standing armies and fewer government employees. However, it wouldn't take much or those governments to swing as far over as the USA (on a smaller scale of course). Their basic philosophy of economics is still Keynesian.
Printing of money (fiscal easing or whatever catchphrase they currently use to hide what they're dojng) is another way the governments all over the world try to pay for their big spending. However, the inflation incurred by this printing is straight theft from veryone in their country. If there is $100 total in a country, and you have $10, and the government has $90, then you have 10% of the total money in the country. If the government prints $10 more, suddenly you only have ~9% of the money. Of course, you still have $10 in your hands, but by printing money your money has dropped in purchasing power, and you have been stolen from.
The simple answer to the debt is to default on it as it's unpayable, and remove all unnecessary regulations, government departments, fire most of the people in the government, reduce the size of the military, stop giving out welfare and healthcare, and basically shrink spending to a miniscule fraction of what it currently has. Then lower taxes, because you no longer need that much money to fund the government. Boom, more money in the market for people to spend on what they want to spend it on. Companies will be started and go bankrupt, the market will grow and shrink, bu it will be much more stable. But no one has the balls to do that because they want votes, and millions of people would suffer hardship if the government were to suddenly shrink like I suggest. The transition would be gutwrenchinglyhard but it would work very well in the long run.
Sorry for any spelling mistakes, I'm on a phone. Worth noting that I'm pro-Austrian economics because I think it works much better than the unsustainable Keynesian economics. If Keynesian economics worked well I'd change my mind in a heartbeat. But they don't.
Just curious: do you think that if governments were more skilled they could effectively use Keynesian economics? Or do you think it is inherently flawed and useless due to the complexity of the economy?
I don't really think that the government could effectively control the economy the way a free market manages itself. It is too complex, and most/all governments are too incompetent to be able to manage it better than a free market.
On October 07 2013 00:47 8882 wrote: They have to borrow so much money, because they spend more than they earn (and for government, earnings = money collected form taxes).
Where do they spend the money? Wars. Why wars? Because of oil. USA cant live without oil, thus they have to "bring democracy" here and there. Also, when you have quite a lot of debt, you need to get additional debt to be able to repay the interest; you get into a borrowing spiral.
In Norway, you have quite a lot of money earned due to your natural resources; but also you have very high taxes, that's why your government has a surplus. I think, that due to your oil/gas sales, you have such a big surplus, that you had problems what to do with it in the past.
1. Why does the US have to borrow so much money all the time? And why does it never decrease(plz don't say OMG DEMOCRATS THROW MONEY OUT THE WINDOW!) like other countries who manage to keep it +-0 or even in a decrease.
Very few countries have a budget surplus, I think it's only few countries in fact (Norway and the ones that export natural resources - the Arab oil countries). This simply shows that most governments are terrible, because those debts will have to be paid one day (by future generations), or that the governments like to pay "interest on interest" (borrowing money to pay interest).
2. The countries with the highest taxes are the best countries in the world to live in year after year(Namely scandinavia) - why can't people see the correlation?
Norway earns ton of money due to natural resources; not every country has natural resources. Also, what you wrote is at least very subjective (I would even write not true) - books have been written on the subject. But in North Korea the taxes are gigantic, and somehow the life isnt that great.
Also, since Scandinavian's took tons of people from Muslim countries (5% of population?) who live off social, your dream will end soon.
3. Norway for instance has a law that you cannot put a budget into effect that goes in a deficit and it cannot be covered by loans to make ends meet either. The US has no such law?
They have it, but they increase the limit every now and then.
4. Won't the US eventually be unable to pay their interest rates? Then what?
Either war, or China (who holds most of the debt) will simply buy out USA. There are also many other ways to get rid of the debt - "running forward" and hoping for some sort of an advancement in technology, OR having gigantic inflation. When the inflation is gigantic, the governement has to repay less. It hurts its own citizens, but they do not seem to care. Also, in fact, inflation of dolar hurts the world economy, since it is considered a "backup currency". Many people believe that the current "quantitative easing" by the FED is in fact a form of running forward in order not to have repay the Chinese. Basically FED is producing tons of "empty" money that is rising the inflation and ruining the US economy... but at least the debt that has to be paid is lower. It's against Chinese interest to have a war with USA, because it would not do anything good. USA has found a way to outsmart China - eat a cookie (borrow money) and have a cookie (not having to repay it at full). Personally I believe that China will simply try to convert the debt somehow and "buy out" parts of USA; of course USA will try not to allow it.
Also, there is a running joke among economists (not that funny): "We have 1 billion dollars" said the Germans "We have 10 billion dollars" said the Chinese "We have a printing press" said the USA
The issues that you touched upon are very complex but in general one simply cannot spend more than they earn... unless you are a government. But this interest has to be paid somehow and it WILL be paid somehow; that's why there are dozens of tin foil hat theories about bankers running the world. The more probable explanation is that governments rule in terms (4-6 years, depending on country) while the debts have to be paid in a 20 or 30 year span. So they dont care about the future at all. A household couldnt be run like most governements do.
I could also write quite a lot about the norwegian style of economy, but as I wrote above it is a very complex thing and your country is rich due to being not affected by war / education / natural resources; in general low taxes usually mean high economic activity, while high taxes kill that activity - read about the Laffer's curve - one of the oldest concepts in economy ( http://en.wikipedia.org/wiki/Laffer_curve )
Also, something that is often ignored is that while USA has a GIGANTIC debt, that cannot be repaid easily.. it still could be repaid. I think Clinton managed to repay the debt what led to a gigantic economic boom. USA still has a gigantic economy and if they would stop being the OIL POLICE they could probably repay it in a span of 10-15 years. The problem is that when USA stops being OIL POLICE (aka invading oil countries to "bring democracy") their economy would be ruined.
Clinton didn't repay the debt he just managed to run a surplus instead of a deficit which meant the debt was decreasing but it wasn't completely payed off, Clinton gets a lot of credit but the internet age and its innovations led to a productivity boom that surged our economy further forward, Clinton really had no hand in it. The USA will not pay back this debt in 10-15 years, we have had debt since our country was established basically, there wasnt that many years when we weren't in debt, the reason this isnt a problem is because the government does not have a definite lifespan, it can persist on for years which means it can pay back old debt with new debt at cheaper rates of interest or just print more money. The reason the FED is producing so much money is to keep interest rates down to encourage investment which would pump more money into the economy so the theory being jobs would be created and such from that.
EPT
).
. I've been a fan of how Norway operates so hopefully they don't mimic the US too much.
