Thursday, July 10, 2014
Understanding the National Debt- Debt Can Be Much Better Than Having To Pay If Off Fast With Higher Taxes Now.
Understanding the National Debt Is the National Debt Really that Great ? is it Really Necessarily Detrimental to the Economy or Just One Big Waste of Money? Lex Loeb Contributor Network . News Flash. Since this was originally written the national debt per person has gone up to over $34,000 per person and the new Obama Budget is proposing $45,000 per citizen which probably really means $50,000 to $60,000 in less than two years. What is the national debt clock and what do these giant numbers really mean? When ever anyone disputes the idea that this debt is harmful they get branded as a populist which seems to imply a lack of expertise on the subject. People like Glen Beck harp constantly on television and the radio about the explosive government debt but don't really take the time to explain it. It is not that the populists are totally wrong about the issue but there is evidence that the national debt is more affordable to our generation and our children's generation and less evidence that it makes the Chinese and Japanese holders of US debt our masters. Chinese holding of US debt just like Japanese holding before them is foolish financial behavior that really costs their economies more than a lot of people imagine as it benefits the American economy. I cover the reasons why debt can be beneficial here , under the unfortunate circumstances of silly big unnecessary goverment growing for it's own sake, and i cover more direct aspects of the Chinese foolishness elsewhere. The basic argument is money lent to the US favors the too big to fail debtor more than it does for the whales in private financial borrowing cirucmstances. The Chinese, Japanese and all others holding us treasury debt cannot afford the consequences of a USA default on debt. Default is painful but survivable if it occurs. Happens all the time in Latin America. Actual default is more likely to happen in the case of China than it is the US and that is essentially the reason they want to hold so many US dollars as a counter balancing force for their own stability. Here is a detailed explanation of what the national debt is, why it mater's and what it's costs to you really are. One thing that American Voters never seem to understand is that public government spending is really supposed to benefit all Americans and lavish us with free services and benefits . The question of whether the debt is worth it is if our government really does provide real benefits with the money or if the tax payers just end up paying more and more for less with lots of symbolic project spending , phony entitlements , unsustainable subsidies or just a hierarchy of special interests reaping the benefits. Money as it was originally invented is not worth what people pay for it but representative of what they pay for it. The debt is no different than a form of money in representing. In the case of nations issuing debt you often see new revised terms for paying it back for weaker countries or defaults or reneging on debt entirely. Having debt means a country owe something later. Money is subject to inflation even when interest is being paid especially when issued by paper money economies. So it is goods that can be demanded for money debt eventually. That only means that money gets printed by the US treasury when the issues are cashed in and then something from the USA has to purchased. That does more to stimulate the economy than government creating blank stimulus checks. It can be inflationary. In Latin America when that happens the governments usually just create a new currency to supersede the old currency cheating foreign currency holders out of value. The US having the most powerful military on the planet is not likely to be forced to pay up by China and they have to know that when in the process of hoarding us dollars instead of spending them. It is very foolish behavior for the Chinese to finance the US government if they eventually expect a reasonable return for their money. Explaining that to someone like Glen Beck who has most of the rest of the story correct otherwise is difficult because he does have some historic examples of catastrophic hyper inflation. Germany was one of the most advanced countries on earth when it happened there but it was a war ravaged vanquished country at the same time. Here is what they don't tell you About the national debt clock. The numbers are already obsolete because congress is going to add another trillion dollars or more to the debt in the next 70 seconds. Just think of this as history as it might have been a few days , weeks or years ago. The national debt is only going to grow even if congress balances it's annual budget. The United States Treasury is the biggest bank on earth. Banks the size of Citibank and Bank of America might seem to be giants but they are just minions of the US Treasury. Real banks necessarily in historic terms, issue their own currency. In the USA we do have a national bank and pretty much have had it since Alexander Hamilton. As the largest bank on earth everyone is surprised that it is really a bank that has an enormous void--NO MONEY and a staggering debt. The US Treasury, does have plenty of assets, the gold held in Fort Knox, if it really still is there, some believe it's not, is an asset the Treasury controls. The treasury is a part of the executive branch--the presidency office of the president and a cabinet level position for a national treasurer who answers to the chief executive. So you might think that the Federal government is flat broke just because the government has this huge national debt held as paper assets and computer files now in our national treasury. It is not broke. Anything but broke. Our treasury is the world's largest bank and it happens to be a bank that borrows money from itself, lends it to itself, gives away money and goes out to harvest money in taxes to keep it's interests satisfied. The national debt is not what the US treasury (bank) owe but what you ultimately owe to the government and they owe to investors. An investor gives the government money so the treasury can essentially take the cash out of the market economy. It never needs to hoard money since it can print all the money it wants as fast as the high speed printing presses they have can print it. The national debt seems like a big mystery with mind boggling numbers. This phenomenon of national central banking occurs in almost every country on earth. What seems dangerous and bogus is actually worse in other countries. National treasuries are all up to snuff with the modern paper money system. Even the lowest of the third world countries manage to play the paper money game. It has not always worked this way. Back when the Alaska gold rush was on , the US government tended to place it self into service as the main gold buyer. This was partly to feed the mints at the time to mint gold coins but it really was more directed at the US government getting foreign reserve currency to settle it's debts. Gold goes back a long way long before the Roman empire even. Gold shared many of the same problems that paper currency does believe it or not. Gold may have been more of a nuisance to deal with than paper money. Governments were as likely to be flat broke with limited gold resources then as when they have paper money gone bad today. Nations that lacked gold to pay back debts might resort to piracy and confiscation. Henry the 8th used the excuse of the reformation to grab the gold assets of cathedral and monetary treasuries though out England as one of the more savage and successful periods in history for changing the fortune of a Monarchy controlled state. It is informative to note that Henry the 8th got control of a lot of wealth that he could concentrate as a royal family asset and for his personal use as monarch supreme. The question then , besides the wasteful wholesale destruction of the abbeys in Britain is if Britain went from being a debt free nation as a result or one with yet a larger national debt. With all the gold Henry the 8th stole he laid the foundation of the more modern British Empire. British subjects to this day say they are indebted to the king because it really does not mater if the nation has a surplus or not for a whole country to be in debt to royalty. That is why the national debt clock is somewhat meaningless. No debt clock , no national debt, with large government surplus income definately does not mean the citizens loose their indebtedness to government. The proxy of royalty was a population that served the king at all social levels and classes in the nation. All were liable to the King because the king was considered to be next in position in the cosmos to God almighty. Every palace and fortified castle in Christian Europe had a built in royal chapel or royal church in the complex. The idea of a separation of church and state really did not appear until much more recent times. Serving the royals was the job of the loyal subjects of each king which meant that the kings of Europe treated their populations as tax revenue generators depending on need. The first place for royals to spend money on was to have a personal army to protect the royal racket. The founders of the United States were way out revolutionaries thinking that they could create a society and new nation where the royal racket of making national subjects into perpetual debtors was supposed to have stopped. It is happening all over again with lots of different twists to the story since theoretically the national debt now belongs to the people. People? Like the People's republic of say China or America? In American people have all this debt liability and don't even have much of a clue what it means . They see the national debt clock and it looks scary but it does not come with any information to explain it. Here is an attempt to fill in some of the blanks in case you are not aware of what the national debt really is. Your share of the national debt was only $27,500 in December 2005. So There is a moving target here. correcting for inflation your share of national debt for December 2009 was only around $35,000 and not quite $39,000. It sounds like a lot of money but it is not as much as it seems. Let me quickly explain. This sum of cash is not owed by you payable immediately in one lump sum or balloon payment. It is owed over your expected earnings lifetime. If you are working for say 25 years you can pay it off , interest free, at $1600 per year or with interest still some figure under $2000 a year. It is possible to amortize the figure. Things could be a lot worse. The Japanese have a national debt that is about $200,000 per person which means , for the bigger socialist government, they will owe $8000 over the next 25 working years. I say working years because the government cannot tax people who don't have money. If you are retired and have saved money that counts as working money to the government to tax. So you could have paid off your debt working hard and productively but because someone else is not working you will have to pay for them. The progressive nature of taxes in the US means that a smaller core set of people are responsible for paying a lot more of the debt unless government gets into some productive business. you see all these sovereign savings funds around the globe including Norway with their north sea oil funds. Those countries tend not to have national debts or so you think. The reality is , however that national surpluses do not tend to be distributed on a per capita basis which is the whole reason these governments play the role of net asset banks. It is not like the money goes in the bank and sits there in the national trust in surplus countries. No. they lend it out or spend it and politics is politics everywhere. You can have a positive $40,000 national surplus in the state bank of Norway sovereign wealth fund and find you get tid bits back from the government on an annual basis with lots of propaganda telling you about all the grand services you are getting from the state. When was the last time you saw pictures of Norwegians living better more happy lives than Americans with their debt loving government. The debt , right now is not as bad as it seems. some estimates say it will go to $80,000 per person. People earning minimum wage will think they are exempt because of it but in reality they are not because the value of their $10 just becomes less because of inflation. Imagine owing $3200 per year paid only $10 an hour for your 25 year pay back period. well the government really gives you 60 years to pay it back then which is only $1333 not including interest per year or a bit more than 133 hours of work. Big deal affordable?... See More Not really. on the one hand you might worry who the government owes all this money to? Think it's china because of the media china blitz? Yes china in part. but the biggest recipient of the debt being paid back are own people. much of that debt goes to people who have saved money and want to earn interest on savings bonds and treasuries and to government contractors that are owed money for goods and services performed. That analysis seems to give the democrats a big cheese wiz bottle to celebrate their victory with. Unfortunately that is only the financial side of the story that does not include the stupid side of the story. The finances are not that bad and could definately be much worse. The finances could be even much much worse than here if we were Norway. Norway has this big fat oil rich surplus and yet , as you probably heard, they still have some of the highest taxes on the planet. Now can that be? Well some of the US debt is just because as Obama regularly accuses the bush administration of not balancing the budget. It actually came out under Bush in your favor having the debt which was a lot cheaper than having to pay back the 27,500 dollars in say 5 lump sums so by 2010 you would have no national debt to your name. (just $5500 per person in debt payments plus interest for five years from 2005 to 2020) What Obama does not tell you is that if was a hell of a lot cheaper running the debt for American workers than making them pay it off sooner and it might have even been much worse, as bad as Norway, owing even more taxes as a percentage of your working hours/ retirement hours and then seeing your government sitting on a big fat government sovereign surplus for its fat cat insider friends. Norway is of course the quintessential Obama democrat European model of what the US should be more like. I have not gotten to the stupid part yet. Government embarks to spend money they don't have on projects they always tell us we badly need. The problem is they often go out and just blow the money and we get actual negative returns for it. The Iraq war and Afghan war so far are completely negative trillion dollar wastes of money in terms of receiving anything back of value. Is world peace worth this kind of money? Are we actually getting peace spending on it this way? No. The waste and abuse is at every level of government. When the SEC was cozying up to Bernie Madoff over a number of years we paid out big bucks for protecting absolutely nobody and nothing. We did that with even more money for a non existent species we call the spotted owl and the negative returns were not only the money but salvage forests in the millions of acres burning down instead of being salvaged and more healthy trees elsewhere having to be cut. Even worse, and not one USDA forest service idiot will admit it. these policies cause lumber from far away have to be imported introducing bugs never before seen in north America that are destroying even more healthy forests. meanwhile the spotted owls are just recessive genes that disappeared back into a bigger population of owls that are much more common. The government spent millions just on studies to prove this or that and ended up proving nothing. Billions and billions were wasted and you ought not be happy that you have to work a few extra hours with no pay at work to pay for these silly things your government wastes your money on. The democrats and some republicans think they can keep you happy paying and paying by telling you how great your benefits from entitlements will be as a result of the debt. unfortunately you are not aware that your social security payments and for other entitlements are not included in your existing debt payments because they are a positive tax based noon debt collection system. That does not mean that the government is not getting in debt for social security payments and the like it only means that you get a separate bill for it. This is why the big Obama health care plan turned into a tax on your existing benefits and for medical devices like your eye glasses. It is a Norway trick. It actually may be beneficial for the government to go more deeply in debt on your social security benefits if it means that productive workers don't have to fork over so much now when they should be reinvesting most of their earnings in productive enterprise instead of putting it in a nonexistent fund for later retirement security. This is why the Bush proposal to let people invest their own social security money in private accounts was a much better idea than the media gave it credit for. The sillier the spending in Washington gets and the bigger the national debt gets or surplus for that mater, the stupider you are to let your government officials get away with it. someone in Washington dc, that you sent there as a voter, like our senators from Oregon, go there to spend our money like crazy imperial emperors and we are all excited. The latest idiot projects seem to be ultra high speed trains. first we are importing th trains and system with the money spent. In Europe and Japan the big publicly finance super fast trains are a huge drain on government treasuries with lots and lots of endless subsidies. Everyone is proud of the fancy trains but few people in Europe can actually afford the ticket to ride them. Government is ever so happy to spend a fortune that never quits requiring more subsidy money just so the very rich can ride around in luxury. This sounds like an odd story but it really is more familiar than you think. In Mexico city one of the world's great subway systems was built which has always been overly subsidized by government but at least the government there had the sense to keep it affordable for everyone. The subsidies for US transit systems is comparatively noxious in the way there is monopolistic pricing that tends to go on by the most socialist of government agencies imaginable. The original American railways were competitive with federal land grants. None was a subsidy consuming machine like Amtrak is. Is building high speed trains to run by Amtrak the greatest of ideas ever? Everyone has reservations against airline deregulation. Even so Airline seat prices are highly competitive a commodity and not a luxury. The high speed train nonsense is pure government owned / controlled monopoly competing against the airlines. Go figure if this is for the public or really for a special class of people who can afford to pay extra for something subsidized by the public the way it is done with such great finesse in Europe. I had a chance to ride the super fast trains in Europe and guess what? They are a luxury for Europe's very rich. The ones i rode on were so expensive to ride on hardly anyone took them! It was worse than Amtrak and much much more highly subsidized! That is silly. Europeans have a higher national debt per person than we Americans do. They also get less for their money than Americans do and have lost the productivity edge against Americans who find more incentives to work for their own benefits and freedom of choice. Back when the private railroads were built in the USA the private companies built them not to take government subsidies which they got in free right of way land, but they had to price passenger ticket fares and cargo rates to just a bit higher than business could afford to become more profitable than any other average business in the country. I got to ride the high speed rails in Europe because i had a subsidized low cost pass sold only to American tourists called the Eurail pass. I checked the cost of buying a ticket at the stations and it was astronomical with out the pass. One of the biggest propaganda mills in the history of the planet is NASA. I like NASA like everyone does but what I don't' like is the silly spending that happens there. It happens in all government agencies. Everyone of them has an internal and an external expense account funded by congress and there really is no real accounting for either. At some point Washington dc has enough expensive monuments, government employees have enough perks, Congressmen should take the same health care plan they are offering the rest of us as the big new entitlement. The president who is concerned about global warming from cabin exist should ride a bicycle and telecommute instead of taking helicopters to fly in private 747s. Did anyone else notice the amazing building spree in the past 20 some years when new fancier than ever expensive federal courthouses were built in city after city in the US? or when the new embassy in Baghdad got built it was built instead of just fixing and occupying some old government building already there. Why is the government telling all of us to tighten our belts for the recession with higher taxes due when all they want to do is take more money than we have and blow it on their monumental egos? Even worse is that government employment has become a do-northing's heaven. These people move in slow motion for the hours they go to work as public servants and they get superior benefits for achieving nothing. If say government spent the money fixing the dams the government already owns to say generate 10-15% more energy than they were designed to do before the computer age then that is not a silly wasteful thing to spend debt money on assuming the people get the benefits of the excess production and not just a few fat cats. Careful listening to Glen Beck and others who don't necessarily put the benefits of national debt in to perspective compared to the real alternatives. Imagine getting deeply into debt to get a college degree. You get the degree in a field you never could ever get a job that pays enough because you took environmental science class. The only way for you to get an actual job in that field is for the government to create that kind of job. Which means that the purpose of the job is just to be as useless as possible. Government debt could be this wonderful tool to make lots of things cheaper for you as a US citizen. Ok so where then is the part of the national debt that is related to the debt burden already? It actually may not be much of the percentage studied because Medicare is a somewhat separate accounting procedure. When you start to see the national debt in a new light as something that pays for something that benefits you and almost everyone else in a real way or as something that just benefits special interests it gives you a whole new perspective. Most people agree that world war two was worth ringing up a huge national debt that exceeded gross national product during war time. That debt was worse than today with dire consequences for not having it. It did not destroy the country or bust the US Treasury- The country survived it only to go on spending and spending and spending and still really has never spent itself into a hole it could not get out of. There may come a time when borrowing too much will start to cost everyone too much. We are not there yet. Maybe Japan is with 200,000 of national debt per capita? Japan holds billions and billions in US national debt issue paper. It is not an unrelated set of circumstances where it costs Japanese more to buy Japanese made products in Tokyo and Osaka than it does to buy them in New York City. The Simple matrix to look at to figure out who gets the better deal with the Japanese owning American national debt and the Americans having access to Japanese production goods is that in Japan it costs the Japanese more fore everything made in Japan and more for everything made in the USA and on average the Japanese are paid less and retain less after taxes than Americans do. In America it costs American less to buy most thing made in japan, and now china too, it also costs Americans less to buy goods made in the USA. Less than it costs the Japanese and less than it can cost the Chinese too. Americans tend to retain , before Obama, more of the money they earn, earn more and have greater productivity because of lower comparable fuel prices including gasoline, than Japan or China. Then comes Obama whose big solution is to make gasoline extraordinarily more expensive supposedly to save the universe. That more than the national debt will destroy the US economy and the benefits of US competitive advantages. The Obama plans to devalue the dollar also can not help. Just like it is in the Chinese interest that the dollar keep its value for us national debt issue securities the same goes for US holders of the same debt. The national debt ties economies like the US and China together with results in the expansion of both and is not at the expense of one an other. Dollars taken out of debt securities go into dollars used to purchase real goods and services , eventually, at least, from the US economy. This is not to say that government running up debt is a really great idea. The china trade is not creating the imbalance there but rather Chinese uncertainty of how to spend their dollar credits thinking maybe , at the risk of inflation they get a better deal later. What? Lower priced US Goods for us dollars in the future? Nonsense. The Chinese are hoarding commodities as well as dollars and have caused inflation bubbles in those prices as well. Just the same as helping to put copper and gold into bubble price mode they can and will lose money there just as had they put more money in dollars for hoarding. Their demand exceeds supply and perhaps need which is one way to look at a commodity bubble. Dollars in treasuries that are us inflation indexed might give the buyers some peace of mind. The US if it were not hamstrung by environmental kooks as a big part of a huge continent with lots of raw natural resources the Chinese would gladly buy if they could be harvested or mined is not able to provide the market with what it wants. So the Chinese head to Australia or Brazil where less environmental rules prevent exploitation of natural resources. Obama promises to make that even worse by expanding the environmental kook control regulations to the Nth degree as his big presidential legacy. From the Chinese side of the national debt that can only compound it's expansion. Americans are going to find the results dissatisfying once they learn what it means in terms of higher taxes with an increasing percentage going directly to debt service in principle only because there really is no debt service going on. Your taxes are going up because government wants to spend your money on big fancy toys for themselves at your expense. That is silly. You keep voting for these people like you support this so you get what you deserve. Don't worry so much about the national debt and the national debt clock ticking away. Yes you owe it but not right away. It is amortized over your working productive life time. You believe the environmental president should be riding around the world in a private 747 that guzzles gasoline faster than 500 SUVs and that that grandiose statement of American Power is worth the price that is what you get to watch on TV and feel proud of. It won't cost you a $1 extra a month but maybe 5 cents out of what may soon be $4000 a year and growing to $20,000 a year if the Obama big government expansionists get their way. You will be proud of having a health care system as good as Cuba's too once you owe $30,000 or your share progressively assessed on your income proportionally or charged back to you by the rich so they can stay in business to collect taxes from you to settle their debt to the national debt moral. Glen Beck is wrong, the debt is completely sustainable so long as you work harder or give up more of your benefits from working to pay it off. America is a much better bet for the Chinese and Japanese to buy national debt securities than say from Argentina because of its default history which is the opposite of "good will". America can default too if it wants to eventually in a variety of different ways but like Argentina or Mexico it is survivable but not for those who own us government paper assets here or abroad. The real harm comes later when foreigners no longer invest here and put their money elsewhere. Its better to have the money invested here even when the government wastes it conspicuously than to see it invested elsewhere around the world. It is better not to have to pay more for American products and more for Chinese made products than the Chinese have to pay for them should they become the predominant debtors and we the creditors. If Americans invested most of their savings in Chinese development it is not going to be invested in American development and redevelopment. Why object to the national debt or the trade imbalance? Any archaeologist digging up Roman Cities sees the ones that are wealthier consumed the goods from all over the roman empire verses the impoverished ones that exported everything. Roman conquests initially exported everything as booty free to the roman empire thanks to the roman army. think of that as a trade imbalance so bad you could get shipped overseas for debt of having lost a war as a slave. The kind of debt we have today is not from conquest but from trade. It is from the kind of trade that made New York City, Hong Kong, Singapore among other great cities great because of trading. Too much debt by Washington makes you a work slave to get your taxes paid so it is important to be sure that the government is not wasting your money on stupid worthless things because you and can otherwise compound your money be reinvesting it where as the goverment has no clue about how to create equity or compound interest which is why they are still as broke as always and even more broke that they keep raising the debt ceiling and raising taxes. In oregon we have a commuter train that costs riders between $24 a ride and $40 a ride. few people take this train as most have cars that get them to more places faster than wasting time plus ticket fare to ride this train. Government justifies it saying eventually it will pay off. Ever wonder how people can buy cars that cost them $40 a day to own it and can actually pay for it eventually? you never do because most cars are a lot more affordable and sensible for people to buy and ride around in. The government is not compounding interest but compounding debt because they are inept to think that running a commuter railroad at a subsidized loss makes economic sense. You would never appoint these people to run a for profit business for you and yet you vote for them time and time again. The national debt is then your fault entirely because you know if you vote for the professional big name politician you get the most frivolous waste of your tax money and even more debt in the future for it plus added in fake entitlements you also have to pay for amortized for your working productive life. It is all because what these people do make you feel warm and fuzzy in the heart and because you are too guilty to think that you should be able to spend your own money as you please or to waste it as you please or to give it to the poor as you please because these people really know better. Thats why even though Glen Beck does not totally understand the national debt as a often cheaper alternative to immediate taxation that I would still vote for him for any office just because he sounds as if he can vote no and exercises a little bit of restraint. The day i heard him propose a 2% pain tax to eliminate the debt was the day i started having second thoughts. That makes no sense when the debt costs us much less otherwise. Not expanding the debt is great. paying it off though is not a great idea not when it can be amortized into infinity the way it is now. Since the debt can be paid off in the form of increased economic productivity with surplus goods and services shipped over seas to settle foreign debt it even makes less sense to quickly tax to pay it down. . Close