So isn't the situation today exactly the same as four years ago, before Covid, under a Republican administration?
Yet somehow I never heard this argument that GDP growth is a function of the deficit back in 2019.
However, to make things simpler assume you don't have cash, for example, because you are unemployed.
So, if you are making the mortgage payments using the credit card and the total CC payments this year alone are 8% of the value of the house, you can see problem.
Eventually, the debt becomes due, and no amount of house will repay the incurred debt.
So the relationship is, you may buy any house (assets) that grows in any amount, but if your CC hole is growing faster, you are actually worse than you started out.
Financing and even currency issuance depends on trust.
I can get a 0% from family and friends if i needed for far more my net worth. With connections I could also get counterfeit and pass it around.
It comes down to the fraud triangle: opportunity, incentive, rationalization.
The government may have more leeway to commit fraud than an individual. But the comparison is still apt, the fraud is the same, whether its a house being paid with CC or GPD with govt bonds. Ignore that at your own peril
Conversely, the US government has also spent the last 40+ years abusing the fallacy that loaning money is completely different than spending, which has grotesquely distorted the financial industry and the housing market. So the sooner we shove off these misguided notions, like that the government's balance sheet is anything like a private balance sheet (and even worse, that the Federal Reserve's balance sheet is somehow distinct from the government's!), the better. Modern Monetary Theory is more in line with the actually-conservative Austrian School than the hybrid catastrophe of the past four decades.
But that's just like you demanding to have a 0% CC from a financial institution. If you are Bezos, you may be able to swing that.
But that demand only follows your credit rating. You can demand 0%, but that doesnt mean you will get it. If Bezos is suddenly bankrupt, bet he's not getting the same CC, or even any CC.
Making the bet that the USG can set rates as they please forever just because they have for 12 years is just saying "I'm a turkey and life is good, this nice farmer feeds me every day!"
Thanksgiving always comes.
Thanksgiving will always arrive but the government is not going to be the turkey with its debts, in this case, it could be a global stagflation. The US government can always make good on however many debt it has as long as it is denoted in US dollars.
If the government spends more, it should cause more work, which should lead to higher GDP.
This is one simple way to look at it.
If the government is spending more, but GDP isn't growing by the same, it might be a sign that the governments expenditures are wasted.
Now, I'm not saying that's happened, but it could be. Government spending is historically the most likely to be wasteful, in comparison to individual/retail/business spending.
I have "opinions", but if you are interested in this topic, rather than me dumping it here, it can be worth reading up a bit on GDP, then googling around for GDP criticisms. I think there's a sense in which it measures something useful, but it isn't measuring what people think it is and what the media sort of pushes it as meaning; it is correlated to the health of an economy but it is by no means a measure of the health of the economy, and the fact government expenditures are simply straight-up added to the GDP has such an obvious way for the government to manipulate the numbers that I can't hardly even call it an exploit. Whether they are doing that, I'll leave that to the reader to decide.
Another relatively obvious issue is that the GDP number waved around in the popular press is generally not adjusted for inflation. That's not just the US GDP in 2023, it's any GDP the press will talk about, anywhere and anytime, so I'm not trying to make any stealth political point here. It's something to be aware of in any context a "GDP" comes up, look to see if it's inflation-adjusted or not. Such measures exist and more serious economists definitely use them. The wikipedia page I linked to above has a wide variety of other interesting definitions and that's still a Wikipedia overview itself, of course, not the fullness of econometrics.
The more they spend, the more others earn, leads to higher GDP.
A one time expense of 8% GDP for a 4% growth is great. That means it would get paid back in two years, or faster if you consider compounding.
The problem is determining if the 8% spending is related to the 4% growth (and how much.
Another way to to frame the whole topic is that the US government spends %40 of GDP in taxes, plus another 8% borrowed, per year. Even this could be a good deal, but it comes down to how much of the growth is causes by govt spending, which types of spending, and if the growth is permanent.
Not quite. The payback time will depend on the growth in government revenues, which should be correlated to GDP growth, but a fraction of it.
The purpose of the government isnt grow, it is to serve the people
It will never default because it can just create the credit. That’s what the Federal Reserve did with its zero interest rate policy. It distorts the economy, and the economy can shrink and be torn apart, but the government can always pay its debt by simply printing the money.
The real problem lies with private debt, and that's what's actually leading to a default. When people default on their debt, they end up forfeiting property to the creditors. What we’re seeing now is a large scale transfer of property such houses and cars that people had bought, and so on, that they can no longer keep making payments on. this results in a transfer of income from the 90% to the 10%.
The wealth transfer means that the working majority is pushed ever further to the margins. US is already in a situation where around half the population has no meaningful savings.
https://www.cnbc.com/2023/10/03/americans-are-saving-less-in...
Having no savings puts people in a position where they're not able to absorb further unexpected expenses. This is what's making the economy so fragile.
Take social security for example. You can print money to repay all the money borrowed from the fund, but in doing so, you have debased the currency it pays out.
If a retiree is owed 100$, you pay it with printed money, so in theory they are made whole, but it no longer has the same purchasing power. It is a rug pull for the retiree.
You can expand the money supply and amounts in circulation without inflation in the exact case where you expand the value goods and services in equal measure.
Even then, the purchasing power of currency holders is less than the counterfactual where the money supply was not expanded and you had deflation as a result.
Money drop a million printed dollars on each consumer, and prices will skyrocket.
Are you trying to tell me that the expansion of the money supply in Venezuela has no direct relation to inflation.
This is exactly what happens when the government expand the money supply to repay debt. It send out social security checks, pay workers, and buys goods. This puts money directly in the hands of consumers.
You even agreed we are talking about an increase in the money in circulation. Are you walking that back and saying that money in circulation doesn't give consumers more money? The creditor of Government debt Is citizen consumers with benefit obligations.
What about Venezuela? Consumers don't have more currency there either?
Not really, because most government debt isn't consumer debt. US isn't increasing money supply to pay for social security or to pay workers. It's increasing things like military contracts for large corporations.
> You even agreed we are talking about an increase in the money in circulation. Are you walking that back and saying that money in circulation doesn't give consumers more money? The creditor of Government debt Is citizen consumers with benefit obligations.
I'm not walking anything back. I'm saying that the currency that's being created isn't going to the hands of regular people. This is obvious from the fact that majority of the working population can't even afford to live on the salaries they make forcing them to take on debt to buy essentials
https://finance.yahoo.com/news/jaw-dropping-stats-state-cred...
> What about Venezuela? Consumers don't have more currency there either?
Venezuela is under a brutal blockade by the US, and that's the actual source of most of the problems there.
You are confusing the debt owner, and where the money was spent. The governments make create internal debt for a military contract, but the debt is held either by the public (e.g bonds), or intragovernmental ( e.g. borrowed from the social security fund) When these get paid back, they go into circulation.
Besides, Most government spending goes to salaries and benefits.
If what you claim was happening then we wouldn't be seeing this happening. If money went to salaries and benefits, then workers wouldn't be under water financially the way they are right now.
The irony is off the charts.
That 8% debt would generate 4% more economic output this year, next year, the year after, the year after that, etc...
If your 8% debt only generates 0.5% of extra growth once, and then we get back to a baseline 3.5% growth, the additional economic output will equal the debt in 16 years and continue generating economic output afterwards.
But it's also completely unclear why, as a government, you should care about the ratio of debt to growth. The two numbers are of an entirely different nature. That economic output corresponds to things produced by the economy. The 8% debt corresponds only to who has control of which money pile (in particular, it includes the promise that the government will redirect a large chunk of money to the lenders in the future, which you might or might not find problematic). It doesn't take anything away from the total sum. So by shuffling money around, you have created real economic output. That's great!
The percentages don't appear comparable here. They also don't allow for future multiplier effects from the spending.
No agenda, just holding that sentence up to a little scrutiny.
Not that comparing those two numbers is at all meaningful.
https://thehill.com/business/economy/4057722-greedflation-is...
The latter would fall into the bucket of government handouts to the bottom cause inflation, would it not?
If you're skipping the monetary interaction and saying "it's not the handout, it's the greed", then I'd like to point out that companies have been behaving the same way forever (trying to maximize profits), yet inflation has been low for a decade.
That corporations would take advantage of poor people having more money to spend is intended behavior, and something that needs to be accounted for in functional monetary policy.
This isn't true. Companies only started to maximize profits under shareholder value recently. Corporations originally were thought to have a responsibility to society at large, thus with things like pensions being provided to their employees.
Additionally, the small handouts to the poor are much more dwarfed by handouts to the employers at the time. Which made it baffling that large employers then raised prices anyways, when they already got the vast majority of covid relief money. No, it is pure greed.
The human condition is to endeavour. Even with free money the majority of folk will work, or do something to improve their situation.