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For adults only: Can you find a flaw in this logic? - marvinsussman@sbcglobal.net - 03-24-2014 11:17 AM
Rules of the debate: To win the debate, you must disprove at least one of the 20 or so claims made below by quoting the claim(s) fully and showing the error exactly. To accept 20 claims and simply deny the logical conclusion is to be a child declaring victory after losing the game 20 – 0. Adults only!
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Q1: For the taxpayers, is our “national debt†really a burden that must be repaid?
A1: No. For the taxpayers, it lacks those two qualities of a real debt. It’s a “Debt In Name Onlyâ€, a “DINOâ€-**
1. THE DINO IS NOT NOW AND NEVER WILL BE A TAXPAYER’S BURDEN.
The DINO is the total value of all maturing treasuries. By calling the DINO “unsustainableâ€, Wall Street con artists, plotting to privatize Social Security and make a fortune in commissions, have panicked the public, politicians, and journalists. But actually, in a virtual bond rollover, it is NOT THE TAXPAYERS but rather the buyers of newly-issued treasuries who pay for redemption of mature treasuries. In every auction, more bonds are demanded than are available. Auction winners get the safest, most liquid US dollar instruments; the losers are stuck with bank risk. If it were ever necessary, the Fed, with cost-free keystrokes, could create a demand for treasuries by buying large quantities in the open market. The TAXPAYER IS NEVER BURDENED but almost all adults swallow the hoax!
Our Treasury is like a bank accepting money offered for certificates of deposit. While a bank with too many bad loans can certainly have too many maturing CDs, our non-lending Treasury cannot have too many maturing bonds unless its deficit spending is causing harmful inflation. And that happens ONLY in a war or emergency requiring rationing. It NEVER happens during a recession. During prosperity, banks are ALWAYS the main cause of inflation, creating over $6 of credit for every $1 of deficit spending. To curb inflation, regulate banks before cutting infrastructure projects.
2. THE DINO WILL NEVER BE REPAID AND SHOULD NEVER BE REPAID.
Only a budget surplus can reduce the DINO. Since Truman, no President has reduced the DINO and no annual budget surplus is now in sight. Indeed, to supply enough treasuries, the ONLY risk-free instruments used for trade collateral, insurance, pensions, bank reserves, etc., THE DINO MUST GROW WITH OUR ECONOMY.
Every federal dollar spent and not taxed is saved by the private sector. Yes! DEFICITS = SAVINGS! The bad “Debt Clock†is also the good “Assets Clockâ€. Since we are now exporting cash, deficit spending is our economy’s SOLE source of savings! In fact, depression will hit us hard unless large budget deficits replace the exported cash. Well, our (DINO + total bank deposits) / GDP ratio is less than half of China’s comparable figure and our M2 (money supply) / GDP ratio is half of Switzerland’s ratio and one fourth of Hong Kong’s ratio. To become and stay prosperous, we need to DOUBLE the DINO / GDP ratio to return it to the World War II level that was followed by 35 years of prosperity without harmful inflation. Ask your grandparents how happy they were back in the good old days!
Q2: Won’t the annual debt interest expense explode the budget?
A2: Bond-holders’ taxes return about 20% of their interest income. New bond issues finance the rest. As no physical resources are consumed and the money supply does not change, there is no inflationary effect. About 80% of the interest is added to the DINO, which is good. For those reasons, CBO budget economists deal only with the “primary†budget, which excludes the annual debt interest expense.
Q3: Could savers make a “run†on US Treasury bonds?
A3: Only when savers can get risk-free returns from the Wall Street casino or from GM bonds, Illinois bonds, or Detroit bonds. Safety is not everything. Safety is the ONLY thing! That’s why the whole world relies on US bonds.
Q4. Could savers stop buying US Treasury bonds?
A4. Only when nobody needs risk-free interest for trade collateral, insurance, pensions, bank reserves, etc., etc.
Q5: Could savers prefer foreign sovereign bonds?
A5: Yes, indeed! Now, almost two thirds of the world’s reserve currencies are in US dollars and about half of all US Treasury bonds are held by foreigners. But if China’s infrastructure and productivity become better than ours, its sovereign bonds could become safer than ours. But that could happen only if US voters let their DINO concerns stop the renewal of falling bridges, failing schools, leaking sewers, creaking railroads, aging power grids, etc., etc.
Q6: Won’t we need higher tax rates to pay for infrastructure?
A6: The federal government does not need or use taxes for spending. Just as you would destroy your redeemed IOUs, the IRS destroys its receipts, shredding bills and melting coins for scrap. Since Congress cannot touch a cent of tax revenue, it creates new money out of thin air (like your bank creates loans), deposits it in the Treasury, and spends it with checks. The Treasury auctions bonds to finance deficits that are limited ONLY by the will of Congress.
The ONLY rational reason to restrict deficit spending is the onset of harmful inflation. Until then, Congress can finance both the DINO’s annual debt interest and our much-needed infrastructure. Every day, you fill your kitchen sink with water AND you prevent it from overflowing. Why can’t Congress fill our economy with money building infrastructure AND prevent harmful inflation? China builds 24/7 without harmful inflation. Why can’t we do that?
Q7: How much should Congress tax and spend?
A7: Ideally, Congress should tax just enough to prevent harmful inflation and should spend almost enough to cause full employment (and harmful inflation). Result: low unemployment and low inflation.
Instead, bribed by Wall Street, Congress taxes as little as possible, enriching the rich, and spends as little as possible, impoverishing the rest of us by restricting deficits / savings. Just as quacks killed George Washington by bleeding his “bad bloodâ€, Congress is destroying our younger generations by reducing (possibly to zero!) our annual budget deficits / private sector savings increase / consumer demand. And, by bribing Congress to pass austerity budgets, the Wall Street charlatans are deliberately nursing a huge army of unemployed labor to suppress the wages and working conditions of the shrinking middle class.
Result: recessions, high unemployment, an army of unemployed labor, a growing under-class, a scared work force, declining wa
declining wages and consumer demand: a downward spiral of despair threatening deflation and depression. Growing inequality will create a land of slums and gated communities: Hell on Earth!
Raisin Cane: You should have finished the logic course.
Old white guy: The buyers of debt need a safe instrument of debt. They will stop buying US treasuries when they find a safer instrument. You have a reading comprehension problem. (A5)
Mr Burns. The Chinese who sell us their products make money and need a safe instrument of debt. When Americans can export and make money, they will need a safe instrument of debt. Whoever can float the safest instrument of debt will have a market for it. Good question!
mayo-carl: When the Fed buys a US bond from the private sector, it is equivalent of a money transfer from a savings account to a checking account. There is no change in the money supply. The only change is (maybe) a reduced long-term bond rate and the consequences thereof.
The debt is not monetized. You do understand, don't you?
The Fed is not creating debt by buying US bonds. It is destroying debt with keystrokes.
Phillip H: Read my remarks to OldWhiteguy. A5 states that we have to maintain the best infrastructure and productivity to retain the safest bonds, which will always be in demand. You have a reading comprehension problem.
- Smoking Joe - 03-24-2014 11:25 AM
Do dinosaurs actually get medicare?
- voicelesssweater869 - 03-24-2014 11:31 AM
TROLL
GO AWAY
- Whatever4 - 03-24-2014 11:34 AM
Boy, have you come to the wrong place.
- Teekno - 03-24-2014 11:40 AM
I like pie.
- Raisin Caine - 03-24-2014 11:47 AM
Actually you are wrong. In forming an argument, all arguments are generally based upon a set of assumptions. If the assumptions are wrong, then the argument falls apart. There is no need to deal with a every point from A to Z if A and B are wrong.
Now it may indeed be that your conclusion is correct even though your assumptions are wrong. Nonetheless, if that were the case, you should be able to make the argument using a different set of correct assumptions. The onus to do so falls upon the person making the argument in the first place.
Edit:
LOL, a logic course? Guess I should have taken more logic course in my PhD Statistics classes.
Your logic is off. Basically you are pretending that it is good for the national gov't to have debt. The national gov't debt is really just an encroachment into the private sector more than authorized by the budget. You are right, that they can simply print more money, if you think the fed and the gov't are the same entity. But when they print more money they are stealing money from every person in the form of inflation.
The debt that you say doesn't need to be paid, does indeed need to be paid. Sure they can borrow from Peter to pay Paul, just like any of us can do.
I do, however, agree with you on one matter. Spending for the improvement of infrastructure is most always good, especially in a recession. But the spending occurring by the federal gov't is not for infrastructure.
- Oldwhiteguy2earth - 03-24-2014 11:52 AM
Too long - go to community college if you want to teach a class. Your premises are flawed because eventually the buyers of debt will lose faith in the ability of the US to ever repay it's debt and even it's ability to even pay the interest. At that point, hard assets will be king for many decades or centuries. The national interest rate is being held artifically low by running the federal printing presses at full speed (actually by creating debt out of thin air). The interest rate will rise eventually and when it goes to 5% which is the historical norm, the entire US discretionary budget will be consumed by interest on the debt.
- Mr. Burns - 03-24-2014 11:58 AM
so the question remains; if we become a net exporter what happens to our ability to sell treasury securities?
- Dynamictexture014 - 03-24-2014 12:05 PM
No, I cannot find any flaws in any of the logic. I concede and congratulate you on your victorious performance.
- mayo_carl - 03-24-2014 12:06 PM
you do understand that the fed is already monetizing the debt, don't you?
(under the less-scary name of "quantitative easing")
do you understand what that means?